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FORMAL RURAL FINANCE INSTITUTIONS AND THE STATE OF MICROFINANCE BANKS A PAPER PRESENTED BY

FORMAL RURAL FINANCE INSTITUTIONS AND THE STATE OF MICROFINANCE BANKS A PAPER PRESENTED BY THE DIRECTOR OF DEVELOPMENT FINANCE DEPARTMENT OF THE CENTRAL BANK OF NIGERIA AT THE FORMAL LAUNCHING AND START –UP /SENSITIZATION ON THE RURAL FINANCE INSTITUTION BUILDING PROGRAMME.

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FORMAL RURAL FINANCE INSTITUTIONS AND THE STATE OF MICROFINANCE BANKS A PAPER PRESENTED BY

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  1. FORMAL RURAL FINANCE INSTITUTIONS AND THE STATE OF MICROFINANCE BANKS A PAPER PRESENTED BY THE DIRECTOR OF DEVELOPMENT FINANCE DEPARTMENT OF THE CENTRAL BANK OF NIGERIA AT THE FORMAL LAUNCHING AND START –UP /SENSITIZATION ON THE RURAL FINANCE INSTITUTION BUILDING PROGRAMME

  2. OUTLINE OF PRESENTATION • Introduction • Conceptual Issues In Rural Finance • Rural Financing in Nigeria: Historical perspective • Challenges of Rural Financing in Nigeria • Evolution of Microfinance Banks • Current State of Microfinance Banks • Future Plans for the Microfinance Banks • Place of RUFIN In CBN strategies to Improve the Microfinance Sub-sector • Conclusion

  3. 1. INTRODUCTION • The rural area is home to 53 per cent of Nigeria’s population • Rural areas have always been centres of poverty and deprivation, • About 2 percent of rural households have access to institutional finance. • Shortage of finance has continued to limit the ability of rural people to make profitable economic investments • Financial markets have failed to function properly because of : • unavailability of sound risk mitigation techniques, • problems of asymmetric information • high transaction costs to lenders and borrowers. • Addressing the rural finance problems would enable rural people to make investments and contribute to national growth and development.

  4. 2. CONCEPTUAL ISSUES IN RURAL FINANCE • Rural Finance (RF) is widely viewed as a process whereby rural deposits are mobilized and channeled into productive rural enterprises. • Provision of micro loans and savings to the micro entrepreneurs in the rural areas • Two broad categories of rural sector credit are: • institutional sources such as cooperative societies, state agricultural credit corporations, the Nigerian Agricultural Cooperative and Rural Development Bank (NACRB) and Commercial banks • and non-institutional sources such as friends and relatives, merchant middle-men and professional money lenders.

  5. CONCEPTUAL ISSUES IN RURAL FINANCE CTND • Rural areas have been inadequately served because of : • dispersed nature of rural settlements, • poor physical infrastructure and support facilities, • small size of financial needs, • Low levels of literacy, • absence of record keeping, formal credit histories, • heterogeneity of production and marketing processes • climatic, production and price risks, and • seasonal flows of income.

  6. 3. RURAL FINANCING IN NIGERIA: HISTORICAL PERSPECTIVE • Traditionally money lenders, cooperatives held sway • Rural Banking Policy in the early seventies • Nigerian Agricultural Cooperative and Rural Development Bank • Community Banking in the late eighties and nineties • Performance not appreciable

  7. 4. CHALLENGES OF RURAL FINANCING IN NIGERIA • Inadequate institutional arrangement for supporting rural financing • Uncompetitive nature of rural economic activities relative to urban ones • Poor infrastructural facilities • Unstable government policies • Unstable inflation rates • High interest rates

  8. CHALLENGES OF RURAL FINANCING IN NIGERIA CNTD • Low capitalization of financial services providers; • Poor governance and accountability; • High loan default and misapplication of loans on the part of clients; • Lack of empowerment of the poor, particularly women and youths in the rural areas; • Lack of technical capacity of rural finance institutions for effective services delivery; • Existence of narrow range of services; and

  9. 5. EVOLUTION OF MICROFINANCE BANKS • Poor state of erstwhile community banks • Low performance of other alternative institutions • Launching of the Microfinance Policy, Regulatory and Supervisory Framework for Nigeria in December, 2005. • Two categories of Microfinance Banks: • State bank: ^1 billion capitalization • Unit bank: ^20 million capitalization • Over 900 banks already licensed comprising: • News institutions • Converted community banks

  10. 6. CURRENT STATE OF THE MFBS • Improper understanding on practical microfinance banking • Lack of adequate skills and capacities at operators and institutional levels • Huge investment in fixed assets • Low capitalization • Inability to actively mobilize savings/deposits • Poor loans recovery

  11. CURRENT STATE OF THE MFBS • Problems related to products development and marketing • Waning public confidence • Uneven distribution of the banks across the country

  12. 7. FUTURE PLANS FOR THE MFBs • Awareness creation on practical microfinance banking • Capacity building for microfinance institutions: • Certification programme • Unstructured training programme • Attachment, mentoring and monitoring programme • Promotion of apex associations • Development of capacity for microfinance rating • Promotion of credit bureaux that encapsulate micro lending activities • Promotion of wholesale lending sources for MFBs • Release of operational template for MFBs

  13. PLACE OF RUFIN IN THE CBN STRATEGIES TO IMPROVE THE MICROFINANCE SUB-SECTOR. • CBN entered into an MOU with the Federal Ministry of Agriculture and Rural Development on the implementation of RUFIN Project • The Bank’s roles are as follows: • Implement the capacity building programmes for • NGO MFIs • Microfinance Banks • Central Bank Staff • Ensure the establishment of a Microfinance Development Fund to undertake guarantees, refinancing and wholesale funding activities in favor of microfinance institutions in Nigeria • Ensure that the implementation of RUFIN is in tandem with the financial sector policies of the nation. • Coordinate the activities of RUFIN to ensure complementarities with other donor related institutions

  14. 9. CONCLUSION • Rural Finance is very crucial to broad based development in Nigeria • Institutions providing the services have evolved over the years depending on prevailing circumstances in the financial sector • Most recent intervention on the CBN is the establishment of a framework for the licensing and operation of microfinance banks • The licensed microfinance banks have performed below expectation owing to several challenges • The implementation of RUFIN will go a long way to address these challenges particularly the capacity building of the MFIs and MFBs. • It is believed that this will bring the banks to the institutional capacity to deliver effective financial services in favour of Nigeria’s rural populace.

  15. THANK YOU FOR YOUR KIND ATTENTION

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