By CHIMA NWOKOJI
Since its establishment in 1988, the Nigeria Deposit Insurance Corporation (NDIC) is crucial in boosting depositor protection and enhancing confidence in the banking industry. This role is gaining grounds, especially in the light of recent banking sector reform. Deposit Insurance is a system established by the government to protect depositors against the loss of their insured deposits placed with member institutions, in the event it is unable to meet its obligations to depositors. Deposit Insurance ensures that the depositor does not lose all his money in the case of a bank failure. It also engenders public confidence and promotes the stability of the banking system, by assuring depositors of the safety of their funds. The scheme also makes a bank failure an isolated event, hence it eliminates the danger that unfounded rumours will start a contagious bank run.
Financial institutions differ from most industrial and commercial enterprises, in that they depend mainly on deposits mobilized from the public for their working capital that are highly leveraged. If a financial institution is unable to meet its obligations to depositors due to operational problems or business failure, anxious depositors may cause a run on the bank, as well as other healthy institutions. The stability of the financial system and social order in general would also be at risk. Moreover, most depositors have small deposit amounts and, therefore, cannot cost-effectively collect and analyze information on the financial institutions they do business with. It was against this background that the government established a deposit insurance mechanism, under which the NDIC was empowered to provide protection for small depositors and contribute to financial and social stability.
On the sidelines of a recently concluded conference in Dutse, Jigawa State, the Managing Director of the corporation, Alhaji Umaru Ibrahim, spoke about measures embarked upon by the regulators to restore confidence in the financial sector and promote financial inclusion.
Restoring confidence in micro-finance banks
There is a new microfinance policy, which segregates them into different categories – national, regional and units, which attract different levels of capital requirements. This is to make sure that they play their roles according to their capacities. Secondly, you will recall that CBN revoked licenses of about 103 of them, because of failure in the system. Some of them expanded beyond their capacity. Now, we are strengthening them and sanitizing the system. In the process of this, we hope to rebuild confidence of depositors in this sector. There is a plan to establish an all-women micro-finance bank. Women are much more reliable and are much more honest when it comes to finance. They repay their loans.
Bailout for microfinance banks
We don’t give money just like that. They have to put their houses in order. The operators have to correct their own mistakes first, because it is untenable for them to attribute one of their problems to customers that collected loans and ran away. They can claim all that, but I don’t think that is the case. Instead, what we have are people complaining that they are not able to get loans from microfinance banks for one reason or the other.
Too big banks and poor ATM services
The problem of poor quality service from the big banks is the challenge of system integration. Information Technology is not an easy thing and I am sure it is not the desire of the banks to have their system break down even for one minute, not to talk of days. They know what they are losing, because it is affecting customers and so on. They are doing their best to ensure that they provide more efficient services.
Scrapping of N100 ATM service charge
First and foremost, it is a voluntary decision taken by the banks at the last Bankers Committee meeting. Secondly, there are ways and means of checking whether the banks are transferring the charges to consumers through another avenue by the regulators. Thirdly, we need to publicize it to the general public and we call on anybody who suspects that he is being overcharged to lodge complaints. The banks have agreed to charge one another, instead of charging the customer for using the Automated Teller Machines. If you are using Access Bank’s ATM card to withdraw money from First Bank’s ATM, First Bank will charge Access Bank, not you. They have agreed to settle that among themselves because there are many other ways they can make money.
NDIC has, since the last three years, opened a 7-help line desks which are toll-free lines that you can call at any time to lodge complaints. You can also send us e-mail and we will look into your case. The Central Bank has also dedicated a department to consumer protection to be able to respond to customers’ complaints. We must have a better system of listening to customer complaints.
Payment of entitlements of non-consolidated banks’ staff
It is not our responsibility to pay them but we are talking to the appropriate authorities concerning them.
Deposit Insurance Scheme
DIS is a financial guarantee to depositors, particularly the small ones, in the event of a bank failure. Bank deposit insurance schemes are developed out of the need to protect depositors, especially the uninformed, from the risk of loss and also protect the banking system from instability occasioned by bank runs and loss of confidence. Deposit insurance, therefore, plays a unique role in promoting banking system stability and public confidence in the financial system. Financial inclusion implies access to a broad range of financial services, including payments, savings, credit, insurance and pension products.
Through public awareness initiatives, deposit insurance systems can play a meaningful role to ensure that poor and low-income depositors are informed about safe methods of storing their money and can help build trust in formal financial institutions. The corporation plays a significant role in financial inclusion by fostering confidence at the grassroots level through deposit protection and supervision, which ensures the safety and soundness of deposit-taking financial institutions.
A complimentary policy that is worthy of emulation is the Agency Banking framework. A banking agent is a retail outlet contracted by a financial institution or mobile network operator to process clients’ transactions. Banking agents can be pharmacies, supermarkets, and many more. Agent banking has the potentials to grow access to banking facilities in the country, especially uneducated, and those in rural areas. Another area where agents could be meaningfully deployed is in the mobile payment system, as successfully done in Kenya and some other countries.
National Financial Inclusion Strategy
At the heels of the National Financial Inclusion Strategy came the launching by the Federal Government of N220 billion Micro, Small and Medium Enterprises Development Fund. 60 per cent of this will be earmarked for businesses managed by women at single-digit interest rate. The Central Bank has also revealed that plans to roll out a micro-insurance framework were at an advanced stage. The significance of this development is that now our microfinance banks will have access to wholesale fund at affordable cost for on-lending activities.
Another initiative to promote financial inclusion in Nigeria is the cashless policy designed to bring low-cost, secure and convenient financial services to urban and rural areas across the country, especially through the mobile payment services. The NDIC is working closely with the CBN to design an appropriate insurance to protect funds used for transaction in the new payment system.
All-women micro-finance institution
This is another measure that could be adopted to promote financial inclusion in Nigeria. Evidence from other countries, for example Kenya, has shown that such institutions have the potential to promote easy access to credit amongst rural poor women, especially at the group level, and could also be used to mobilize large quantum of savings among these group of people.
Despite the initiatives taken by the government and regulators to enhance financial inclusion, several challenges still exist. First, the distribution of microfinance banks as agents of financial inclusion is grossly uneven. Out of 869 microfinance banks in existence, 346 or 39.81 per cent are located in the South West geopolitical zone, 162 or 18.64 per cent in the South East, 158 or 18.8 per cent in the North Central while only 63 or 7.25 per cent and 32 or 3.68 per cent are located in the North West and North East respectively. Lagos, Anambra and the Federal Capital Territory, Abuja, topped the list in the number of MFBs. The uneven distribution had exposed the untapped potentials that require attention in order to realize the government’s policy on financial inclusion.
Out of the total number of provisional and final micro finance bank licences issued by the CBN, Northern Nigeria, including the FCT, had only 24.75 per cent. To enhance financial inclusion, especially in Northern Nigeria, it is imperative for the governors of states in the North to encourage and promote the establishment of micro finance institutions in their respective states.