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CBN directs banks to end rendition on Microcredit Fund

By on April 20, 2015

Five years after the operation of the Central Bank of Nigeria’s Micro credit Fund was discontinued, the apex bank said some banks were still making rendition of their returns on the scheme to the CBN. Consequently, the apex bank last week directed the affected banks to stop the process forthwith.

In a letter addressed to all the nation’s money deposit banks, which was signed by the Director of Banking Supervision, Mrs. Tokunbo Martins, the CBN “observed that some banks still render returns on MCF to the Central Bank of Nigeria more than five years after the discontinuation of the scheme.”

The letter therefore directed banks to stop forthwith, the rendition of this return to the CBN.
In the letter titled “Cessation of Rendition of Returns on Micro Credit Fund,” Martins said, “You may recall that the Micro Credit Fund (MCF) which had been in operation since February 8, 2008 was discontinued through the decision reached at the 298th Bankers’ Committee Meeting of March 15, 2010.”

She explained that the decision to stop the implementation of the scheme was borne out of the fact that after two years of its existence, deposit money banks were not forthcoming in their contributions to the fund and in the same vein, only few states responded to the programme, consequently, the Bankers’ Committee decided to discontinue its operations.

However, it was gathered that despite the fact that the decision to discontinue with the policy was arrived at by all the banks at the Bankers Committee level, a number of banks still carried on with the policy.
Industry sources wondered why some banks were still making returns despite the guidelines on the policy which makes it a temporary arrangement.

According to the CBN, the MCF was an interim response, to be phased-out as the legal and institutional infrastructure for efficient and effective administration of credit to small and micro enterprises. The CBN had said in the policy document that this programme shall be applicable for three years (2008 – 2010).

It added that the tenor of the loan accessed by each state shall be as agreed with the bank but shall not exceed one year in the first instance, with the possibility of a roll-over yearly, thereafter. The state can access the Fund on a yearly basis, provided it continues to meet its obligations under the Fund.

The apex bank explained that the micro credit scheme was initially put in place to ensure a wider and equitable distribution of credit around the country to deserving entrepreneurs by allowing state governments to engage in wholesale borrowing from the banks and on-lend or distribute to the entrepreneurs in their respective states.

The scheme was also put in place to motivate the state and local governments to comply with the requirements of the Microfinance Policy and Regulatory Framework that they devote at least one per cent of their annual budgets to microfinance.
The apex bank believed the fund would strengthen the institutional, organisational and technical capacity of the agencies that will administer the credit, including the microfinance banks, and also strengthens the technical capacity of the beneficiaries.

As part of its developmental functions and mandate of promoting a sound financial system in Nigeria, the CBN launched the Micro, Small and Medium Enterprises Development Fund (MSMEDF) on August 15, 2013. This was in recognition of the significant contributions of the Micro, Small and Medium Enterprises (MSME) sub-sector to the economy.

The sub-sector is characterised by huge financing gap which hinders the development of MSMEs. Section 6.10 of the Revised Microfinance Policy, Regulatory and Supervisory Framework for Nigeria, stipulates that ‘a Microfinance Development Fund shall be set up, primarily to provide for the wholesale funding requirements of MFBs/MFIs’.