01Fundamentals of Microfinance Banking - of Microfinance...1 FUNDAMENTALS OF MICROFINANCE BANKING GENERAL…

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    FUNDAMENTALS OF MICROFINANCE BANKING

    GENERAL COMMENTS The questions were standard, simple and within the syllabus. A total of 913 candidates attempted this paper, 379 candidates (42%) passed, which include 13 distinctions, while 534 candidates (58%) failed as follows: F1-36; F2-216; F3-282. A number of papers were lucidly written and to the point, evidence of careful study. A lot of those who failed did partly because they were not prepared for the examination while some failed because they did not care to read the question well before putting their pens to paper. Candidates are advised to prepare adequately and to always update their knowledge through reading of monetary authorities circulars, journals and other educative newsprint. Question-by-Question Analysis SECTION A Question 1 1.1 Write out the following acronyms in full:

    (i) SEC (ii) NIBSS (iii) MCP (iv) EFCC (v) MDGs

    1.2 Microfinance services must fit the needs and preferences of

    clients. Name two (2) samples of such needs. 1.3 Name two other financial services, apart from loans, needed by

    poor households and communities.

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    1.4 Credit is not always appropriate for everyone or every situation. Give four (4) other reasons why credit may not be an appropriate tool for poverty alleviation.

    1.5 List four (4) critical aspects of outreach for achieving the social

    mandate of microfinance. 1.6 Name three (3) policy objectives of the Microfinance Policy,

    Regulatory and Supervisory Framework for Nigeria. Comment This is a compulsory question which tested the general knowledge of the candidate. All the candidates attempted the question which carried 30 marks. The performance in the question is encouraging and one expected this to be reflected in the other six questions but this was not the case. A total of 913 candidates attempted the question out of which 646 (71%) passed. It ranked 1st in popularity and 1st in pass scale. Answer 1.1 (i) Securities and Exchange Commission

    (ii) Nigeria Interbank Settlement System (iii) Microfinance Certification Programme. (iv) Economic and Financial Crimes Commission (v) Millennium Development Goals.

    1.2 (i) Loan sizes, terms and repayment should be affordable to the clients.

    (ii) Facilities for deposit collection and withdrawal should be accessible and convenient.

    1.3 (i) Access to savings

    (ii) Access to cash transfer (iii) Access to remittances, guarantees and insurance.

    1.4 (i) Small grants (ii) Community infrastructure improvement (iii) Health and education services (iv) Employment and training programme.

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    1.5 (i) Cost to clients (ii) Depth (iii) Breadth (iv) Worth to clients (v) Length (vi) Scope.

    1.6 (i) Make financial services accessible to a large segment of

    the potentially productive Nigerian Population. (ii) Promote synergy and mainstreaming of the informal

    financial sub-sector into the national financial system. (iii) Contribute to rural transformation.

    SECTION B Question 2 (a) What factors led to the failure of poverty alleviation programmes

    in Nigeria in the past? (b) Discuss the factors responsible for the emergence of

    Microfinance Banks in Nigeria. Comment This simple and direct textbook question was not popular among the candidates. The question is in two parts, (a) and (b). Although there were some good answers from a few serious candidates, a lot of the unprepared candidates gave the same answer to the two parts. Some others wrote volumes of out-of-point answers which attracted no marks. only 446 candidates (49%) out of 913 attempted the question, only of which less than a quarter (102) candidates (22%) passed. It ranked 6th in both popularity and pass grade. Answer (a) Factors responsible for failure of past poverty alleviation initiatives

    are the following; (i) Inadequacy of skilled manpower required by the

    operators to deliver services effectively; (ii) Unwillingness of conventional banks to support micro

    enterprises;

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    (iii) Paucity of loanable funds required to meet the needs of clients

    (iv) Absence of support institutions in the sector; (v) Weak internal capacity of the microfinance institutions

    displayed in the following areas; - Incompetent management, - Poor corporate governance, - Insider abuse, - Weak internal control, - Poor credit administration, and - Poor asset quality.

    (b) Factors responsible for the emergence of modern microfinance

    banks: (i) Global economic recession in the 1980s; (ii) Failure of government programmes to reach the poor; (iii) Failure of banks to serve small businesses; (iv) Shift in microfinance lending approaches from poverty

    alleviation lending approaches to sustainable commercial microfinance.

    Question 3 Identify four main reasons for the global growth of microfinance. Comment This question is one of the cheapest in this diet which could have been a bonus to any hardworking candidate. Unfortunately, it was badly answered. A lot of candidates avoided it while some of those that answered it misinterpreted the question. Instead of giving reasons for global growth, they wrote on the history of microfinance. Candidates are always advised to read the question well and understand what is required of them by the examiner before putting their pen to paper. The question was attempted by 597 (65%) candidates, out of the 913 that sat for the examination. only 266(44%) passed. It ranked 5th in popularity and 2nd in the pass scale.

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    Answer Microfinance is growing for the following reasons (i) The Promise of Reaching the Poor: Microfinance activities can

    support income generation for enterprises operated by low-income households.

    (ii) The Promise of Financial Sustainability: Microfinance activities can help to build financially self-sufficient, subsidy-free, often locally managed institutions.

    (iii) The Potential to Build on Traditional System: Microfinance activities sometimes mimic traditional systems (such as ROSCAs). They provide the same services in similar ways but with greater flexibility at a more affordable price to micro enterprises on a more sustainable basis. This has made microfinance services very attractive to a large number of low-income clients.

    (iv) The contribution of microfinance to strengthening and expanding existing formal financial system. Microfinance activities can strengthen existing formal financial institutions, such as savings and loan co-operatives.

    Question 4 What are the requirements for the establishment of Microfinance Banks? Comment The question is popular among the candidates but the performance was very poor. Majority of the scripts by the candidates showed that most of them never prepared for this examination. The candidates should study properly the study manual of the Microfinance Certification Programme as well as update on Microfinance banking circulars from the CBN if they hope to pass this examination. A total of 758 (83%) candidates attempted the question, out of which 160 (21%) passed. It thus ranked 4th in popularity and 7th in the pass scale. Answer The requirements for the establishment of Microfinance Banks are the following: (i) Statement showing type to be established; (ii) Feasibility report; (iii) Capital requirement;

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    (iv) Proposed name of MFB; (v) Draft memo and Articles of Association; (vi) List of the members of the board of directors in line with minimum

    qualifications and experience prescribed in the Regulatory and Supervisory Guideline for MFBs;

    (vii) List of management and staff in line with the mandatory minimum qualification and experience prescribed in the Regulatory and Supervisory Guideline for MFBs;

    (viii) That the MFB shall put in place the following before the commencement of operations: Appropriate management information system, Internal control and risk management procedure, Manual of operation, That the manager of the institution shall possess the requisite

    certificate on Microfinance Management practices from the certification institute.

    SECTION C Question 5 Enumerate five (5) policy strategies and five policy targets of the Microfinance Policy, Regulatory and Supervisory Framework for Nigeria. Comment This question on policy strategies and policy targets is a direct textbook question that could have been a bonus for any hardworking candidate. It was avoided by many. Only 200 (22%) out of 913 candidates that sat for the paper attempted the question, 77 (38%) of whom passed. It ranked 7th in popularity and 3rd in the pass scale. Answer (a) Policy Strategies

    i) Licensing and Supervision; ii) Continuous Professional Development; iii) Savings Mobilisation; iv) Government Participation; v) NGO- based Microfinance Institution; vi) Collaboration with Development Partners;

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    vii) Definition of Stakeholders Role; viii) Submission of Disaggregated Data; ix) Institutional linkages.

    (b) Policy Targets

    i) To increase access to financial services of the economically active poor by 10 per cent annually;

    ii) To increase the shares of micro-credit as percentage of total credit to the economy from 0.9 per cent in 2005 to at least 20 per cent in 2020 and the share of micro-credit as percentage of GDP from 0.2 per cent in 2005 to at least 5 per cent in 2020;

    iii) To ensure the participation of all States and the FCT as well as at least two-thirds of all the Local Government Areas (LGAs) in microfinance activities by 2015;

    iv) To eliminate gender disparity by ensuring that womens access to financial services increase by 15% annually, that is 5% above the stipulated minimum of 10% across the board;

    v) To increase the number

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