The Nigeria Police Microfinance Bank is showing real commitment to deepen its market operations by expanding its presence across the length and breathe of the country. The bank is going to raise from the Capital Market about N3 billion for the exercise, Yemisi Izuora writes.
At the closing of the market last week Thursday, the gong was sounded at the Nigeria Stock Exchange (NSE) by the Nigeria Police Force (NPF) Microfinance Bank (NPF MFB) chairman.
The exercise brought the management close at requiring the NSE to prepare the market for its planned rights issue through which it planned to raise substantial amount of money to pursue its spread out initiative.
The bank seems to have impressed the NSE with its performance in terms of structure, financial management and sustainability plan.
Just recently, Augusto & Co reviewed the operations of the bank and rated it A. The rating agency at the end of that exercise declared that the Bank is a company with good financial condition and strong capacity to repay obligations on a timely basis and stable outlook.
Government believes that robust economic growth cannot be accomplished without situating well focused programmes that enhances entrée of deprived and low income earners to factors of production, especially credit.
The Central Bank of Nigeria (CBN) also observed that in Nigeria, a large percentage of the population is still excluded from financial services and that reports have shown a marginal increase of those served by formal financial market from 35.0 percent in 2005 to 36.3 percent in 2010, five (5) years after the launching of the microfinance policy.
When those that had financial services from the informal sector such as savings clubs/pools, Esusu, Ajo, and money lenders were included, the total access percentage for 2010 was 53.7 percent which means that 46.3 percent or 39.2 million adult populations were financially excluded in Nigeria.
Against the backdrop of concerns expressed by stakeholders and the need to enhance financial services delivery, the 2005 Microfinance Policy, Regulatory and Supervisory Framework for Nigeria was Revised in April, 2011 by CBN.
The policy recognizes existing informal institutions and brings them within the supervisory purview of the CBN creating a platform for the regulation and supervision of microfinance banks (MFBs) through specially crafted Regulatory Guidelines.
The Nigerian financial services sector since 2005, has witnessed increasing activities by both the government and the regulatory authorities aimed at deliberately promoting policies that are intended to grow financial inclusion.
The CBN has been at the fore front of encouraging and supporting products that are specifically targeted at the low income and financially excluded while the governments have focused more on both interventionists financing arrangements and building institutions frameworks that promotes financial inclusion.
One of the critical initiatives in this direction was the incorporation of financial inclusion as one of the cardinal objectives of the Nigerian Financial System Strategy 2020 (FSS 2020).
The FSS 2020 represents a holistic and strategic road map and framework for
developing the Nigerian financial sector into a growth catalyst that will enable
Nigeria be one of the 20 largest economies in the world by 2020. The Financial System
Strategy (FSS2020) identified six stakeholders within the financial sector.
These were the providers of financial services, which are regarded as the suppliers in the value-chain of financial inclusion.
The group included the banking institutions, non-bank financial institutions, insurance companies, capital market players, pension institutions,
and technology providers together with their regulatory bodies are all important to
the process of financial inclusion.
Largely, Microfinance is often defined as financial services for poor and low-income clients offered by different types of service providers. The term is often used more narrowly to refer to loans and other services from providers that identify themselves as “microfinance institutions” (MFIs). These institutions commonly tend to use new methods developed over the last 30 years to deliver very small loans to unsalaried borrowers, taking little or no collateral.
However, ten years after, the industry has passed through several ordeal and challenges thus culminating in the near dormant state of the industry, many of them have twirled through excruciating economic challenges, as mismanagement, high loans defaults, negative public perception, lack of financial assistance from government, harsh operating environment, and crash in the share price of stocks on the Nigerian Stock Exchange (NSE) in 2009, among others, led to their predicament.
But notwithstanding the consequences of the inauspicious economic environment a few of the MFBs appear to be providing quality services, maintaining sound financial discipline and creating value for shareholders.
Incorporated in May 1993 as a private limited liability company, the NPF Microfinance Bank Plc was granted a provisional license as a community bank by the CBN in July 1993. The Bank commenced operations in August 1993. The NPF MFB was registered as a public limited company in July 2006 and was given approval-in-principle as a microfinance bank in May 2007.
It obtained its final license in December 2007 and shares of the Bank became listed on the Nigerian Stock Exchange in December 2010. The bank specialises in the provision of banking and other permissible financial services to poor and low income households; and micro-enterprises with emphasis on members of the Nigeria
These services include retail banking, granting of loans, advances and allied services and with a large number of shareholders comprising over 6,000 institutional and individual investors, with ownership concentrated amongst the two largest shareholders, the Nigeria Police Co-operative Society Limited which holds the largest equity stake of 64.75 percent and the NPF Welfare Insurance Scheme with a 10.25 percent ownership.
The bank today is now seeking to broaden its services stretching beyond its current coverage of 17 branches. The bank is eyeing to be present at the 36 states of the federation.
Managing Director of the bank Akin Lawal said at the NSE shortly after sounding the gong, said’ we are consulting and we are coming to the market at the appropriate time, all the shareholders will have the opportunity to take up their rights and the public offers. We are quite confident that whenever we choose to come to the market will be the right time.’
Lawal commended government for the foresight in establishing the Microfinance banks which he said is meeting the craving of the people, which he also said is the engine room of the economy. ‘It is the micro-subsector of the economy and micro finance are there to provide the necessary financial assistance to small companies and basically that is where they can get support ‘.
The banks chairman Azubuko Udah, said that the bank plans to establish 12 more additional branches after raising the fund. ‘We want to cover the whole federation, though we have 2 branches in Abuja but we want to satisfy the public and in particular our teeming customers. As you observe we are doing pretty well and I am happy with the price of our shares in the market giving the prevailing economic situation but we wish it goes up. We will also sustain the dividend we pay and soon shareholders will begin to get bonus shares depending on the way we are going and the expansion drive we are pursuing’ Udah said.
Continuing, he said the bank is sustaining loan offer to artisans and other people including the police and the general public that are in the agro-allied business, poultry and animal husbandry.
Udah also said the bank benefitted from the N2 billion which government earmarked for microfinance banks. ‘We got about N500 million and we have been doing well with it, we have been supporting micro businesses in the country’.
The Bank’s business strategy focuses on growing income through the provision of banking services to the police, their communities, microfinance clients and other members of the general public. In line with its
strategic plan, driven by the threat of increased competition from microfinance institutions and deposit
money banks, NPF MFB offers high-quality services, leveraging on its history with police customers.
The Bank intends to increase its industry outreach by expanding to all 36 States through branches, cash
centres and meeting points. In addition, the Bank plans on diversifying its customer base, traditionally
dominated by men, to include women through its barracks strategy aimed at empowering them further.
The Bank utilises the Finance Solution banking application to process its transactions and the human manager application for its payroll functions thus giving little or no space for system manipulation.
In the last three years, NPF MFB’s business volumes have grown moderately, with total assets soaring
at a CAGR of 19 percent, with total loans and advances also growing at a CAGR of 17 percent over the same three years period. NPF MFB’s net earnings grew by 15 percent from the prior year to ₦2 billion as at 31 December 2014.
Pre-tax ROE and pre-tax ROA have averaged 15.6 percent and 7.1 percent respectively over the three-year period. In addition, the Bank’s cost-to-income ratio averaged 68.7 percent over the three year period (2014: 69.3%). During the year ended 31 December 2014, pre-tax profit increased by 21% to ₦617 million. ROA remained unchanged at 6.3 percent while ROE improved to 15.4 percent.
One of the outstanding features of the bank is that it operates a centralized risk management system, where credits originate from different branches and approvals are granted at the Head Office. The Board Risk Management Committee (BRMC) establishes the overall risk policy which sets out the Company’s risk appetite.
NPF MFB’s risk management system is partially technologically driven as the Bank utilises the banking
application, Finance Solution, to track and monitor its loans and the application generates monthly reports on
loans approved, reviewed and watch-list/problematic loans; that are sent to the Board. The Bank engages
in secured lending to mitigate credit risk and in cases where no collateral is provided, customers produce a
personal guarantor with a salary account with the Bank.
The Company’s loan process starts with the receipt of loan application documents while the credit appraisal officer verifies the information and documentation presented with the loan application checklist
The rating agency Agusto & Co. is of the opinion that the Bank’s risk management framework is adequate for its current operations.
Following the above performance, Augusto & Company rated the Bank ‘A’ declaring thus that, ‘this is a company with good financial condition and strong capacity to repay obligations on a timely basis’. The rating of NPF Microfinance Bank Plc reflects the microfinance bank’s strong capitalisation, good asset quality, good profitability and good liquidity profile and the rating also takes into consideration the Bank’s ability to sustain its current profit levels as it pursues its nationwide expansion plans.