As the curtains fall on community banks
AT the end of work today, December 31, 2007, the deadline given to community banks in the country to shore up their capital base and convert to microfinance banks would finally expire. That means any community bank that failed to comply with the deadline would have its community banking licence withdrawn and would eventually be asked to close shop.
The apex bank, the Central Bank of Nigeria , had, after successfully carrying out a similar exercise with the nation’s commercial banks which saw a shrink in the number of commercial banks plying their trade in the nation’s financial landscape to 25, decided to extend its reforms to the nation’s ailing community banking landscape. It had ordered community banks in the country to meet the minimum capital requirements of N20million to enable them convert to microfinance banks or be liquidated.
And ever since, it had demonstrated its strong commitment to the implementation of the policy to the letter. The argument put forward by the apex bank was similar to that put forward when a similar exercise was carried out in the nation’s commercial banks: the need to reform the sector to win public confidence and promote the nation’s financial soundness, since banking itself thrives on trust.
To demonstrate its seriousness to keep the December 31 deadline, it recently issued out a notice to the chairmen, directors, community development associations, shareholders and other stakeholders in the community banking project of its seriousness to sanction any community bank that fails to meet the deadline.
In the notice, the apex bank had warned that any default would be interpreted to mean that the community bank had either closed shop, ceased to operate, technically insolvent, or has resolved to exit,’ adding that, ‘In the event that any of the community banks is unable to meet the minimum shareholders’ fund, unimpaired by losses of N20million, such community bank is required to submit on or before 31st December, 2007, winding up resolutions of the Board of Directors, ratified at a general meeting of shareholders, statements of assets and liabilities, list of all depositors, their addresses and the amounts to their credit; list of all creditors and the amounts owed them and documentary evidence that all depositors and creditors have been settled.’
It also directed chairmen and directors of 145 banks, whom it described as ‘those that had consistently failed to render statutory returns’ to the CBN before and after the launch of the microfinance policy to forward to the office of the Director, Other Financial Institutions Department (OFID), CBN, their statement of the assets and liabilities, comprehensive and verifiable list of depositors showing their names, addresses and the amounts in their favour, list of all debtors including their addresses and the amounts owed the community banks.
While those that are yet to scale the hurdle are still making last minute moves to survive the CBN hammer which automatically would start falling immediately after the deadline, a top executive of one of the microfinance banks, based in Lagos, that had already scaled the N20million mark had described the development as ‘the best thing to have happened in the sector.’ He argued that with the policy, the CBN had really demonstrated its intention to inculcate banking habits in Nigerians, especially the man on the street.
“The problem we had in the past was that the ordinary man had always found the banking environment very intimidating. And, unfortunately, the community banks we had then which could have been an alternative for them were not well run. Most of the personnel recruited were not professionals, while their directors only set them up to feather their nests. So, instead of making loans available to the common man, substantial part of the shareholders funds were always diverted for personal use. How do you explain a situation where N15million was borrowed from the shareholders funds of N20million by directors of a particular community bank?”
Mr Ken Ajuruchi, Managing Director, Moneywise Microfinance Bank Ltd, believes the introduction of microfinance banking in the country would really drive the nation’s economy. According to him, apart from the fact that it provided the people at the lower rungs of the economic ladder the opportunity to save their meagre resource, it is also an avenue for them to obtain loans to boost their various businesses.
There is the need to reach out to the unbanked and we cannot achieve this through conventional banking. In most cases, it requires us going to meet these people at their workplaces or residences to be able to ascertain their claims.
Not a few in the financial sector are still very skeptical of how far the microfinance banking project would go in Nigeria . They hinged their arguments on the vast tombstones of its ‘predecessors’: the peoples banks and the cmmunity banks. They believe some of the factors responsible for the demise of these noble concepts in the past are still very much around. So, what is the guarantee that this would be an exception?, they have querried.
But, another school believes the prospects are very bright for the new initiative, arguing that the same reservation was expressed when the nation’s commercial banks were asked to recapitalise a few years ago. To this people, the failure of the people’s banks and community banks in the past was as a result of insincerity of purpose on the part of the policy formulators then.
Mr Esan David, an economist and a top executive of one of the fast growing banks in the country, argued that those that set up similar projects in the past actually wanted an outlet they could siphone the people’s money through their cronnies, “But, I think we as a nation, have gone beyond that now. We are in an era of accountability, a time you account for your actions and inactions. I believe it is a laudable initiative since the nation’s commercial banks have become too mega for the common man. And, mind you, unlike in the past, the number of professionals participating is huge,” he said.
Financial sector reforms and the judiciary
THE role of the judiciary in harnessing the benefits
inherent in the on-going reforms in the financial
sector cannot be overemphasised. Which was why eminent Judges, top executives of banks and high ranking executives of different security agencies converged on Abuja, the nation’s capital recently, to brainstorm on how these two agents of economic development could produce the necessary synergy to fast-track the nation’s quest of becoming a leading world economy by the year 2020.
Analysts believe investors in every clime are usually biased in favour of economies where there are rule of law. This was recently corroborated by the Justice of the Court of Appeal, Hon. Justice Abdu Aboki, who maintained that a nation can only have a buoyant economy as well as attain an international standard of transparency and good governance when there is respect for the rule of law.
This is a tacit endorsement that the judiciary, the tier of government that is responsible for interpreting the laws of the land, has a role to play in the various reforms and economic agenda of the present government.
Essentially, the financial sector provides the background for all business enterprises. Its primary role is the distribution of capital in the economy. It acts as catalyst in the process of economic growth and development. The Nigerian financial sector has become increasingly deep, broad and sophisticated in structure as a result of varying reforms which were initiated to basically enhance competition, reduce distortion in investment decisions and evolve a sound and more efficient financial system.
The ongoing financial sector reforms encapsulate banking, taxation, political party, finance, public procurement, pension, insurance and capital market, among others. However, this essay shall focus mainly on the banking sector reforms.
The Central Bank of Nigeria (CBN) Governor, Prof. Chukwuma Soludo, who introduced far reaching reforms in the sector in 2004, has maintained at various fora that he wanted to see the nation’s banking sector not only becoming the African financial hub, but the fulcrum for the realisation of Nigerian’s dream of becoming a leading world economy by 2020.
It was on this basis that the President and Chairman of Council, Chartered Institute of Bankers of Nigeria (CIBN), Mrs. Juliet Madubueze, advised that the concept of Rule of Law should not be context-specific and thus rendered susceptible to varying interpretations, stressing that it must at all times conform to the universally accepted standard and norm. She opined that the judiciary has a great role to play in injecting confidence into the sector and thus should begin to work in that direction.
According to the Justice of the Court of Appeal, it was imperative that both the judiciary and the banking sector work together to attain the needed benefits in the reforms.
According to the Managing Director and Chief Executive, Nigeria Deposit Insurance Corporation (NDIC), Alhaji Ganiyu Ogunleye, the key area where the urgent intervention of the judiciary is required is that of failed banks. He observed that the judiciary was quite vital in the performance of the corporation’s statutory role as risk minimiser. He regretted that laudable as their objectives are, their activities are in some cases inhibited by various legal challenges and impediments.
According to Ogunleye, if the issue of depositors in the banking sector are taken into consideration, it will engender the confidence of the generality of the people
He noted that in spite of government’s efforts to protect the banking industry, failures do occur. This was why the corporation introduced the Deposit Insurance System (DIS) which acts as a financial guarantee to depositors, particularly the small ones, in the event of bank failure. He said it was developed to protect depositors, especially the uninformed, from the risk of loss, and to also protect the banking system from instability occasioned by runs and loss of confidence.
Ogunleye maintained that the DIS was introduced as: responsiveness to the needs of stakeholders; ensuring an effective supervision of insured institutions; provisions of financial and technical assistance to eligible insured institutions; prompt payment of insured sums to depositors of failed institutions and orderly resolution of failed institutions.
Laudable as these objectives are, NDIC boss said their realisation to a large extent depends on the judiciary. He observed that his organisation’s activities were bogged down by litigation by shareholders and directors of failed banks; grant of frivolous ex-parte order/injunctions/restraining orders; delay in payment of insured deposit claims; ineffective foreclosure process in the recovery of debts suits, judgments, executions, garnishee orders against the corporation; indiscriminate transfer of judges, delay in termination of liquidation activities.
The challenge here is the slow judicial process that allows frivolous applications and motions that had been filed to protract the litigation processes. A typical example is that of Savannah Bank, Peak Merchant Bank, Triumph Bank, Societe Generale Bank and Fortune Bank.”
He observed that the process of failed bank liquidation and winding up of failed banks must of necessity involve judiciary. He described a failed bank as an incorporated legal entity and the process of winding up its affairs required the involvement of the courts.
Ogunleye enjoined judicial officers to always remember that prompt resolution of failed banks is critical to sustaining public confidence and maintaining financial stability. Therefore, their intervention should seek to contribute to financial stability by ensuring prompt disposal of lawsuits before the courts.
According to the Justice of the Court of Appeal, Hon. Justice Abdu Aboki, the judiciary was doing its best to accelerate the quick dispensation of justice in the country. He observed that the cardinal principle that “ justice must not only be done but must be manifestly seen to be done” which follows that Judges must endeavour to do justice without disparity towards any person in a case slated before them at the expense of the other. He said the Judges as well as all other judicial officers have a great role to play to ensure that the laudable reforms in the financial sector were sustained and firmly rooted
He explained that it was the duty of the courts to ensure that rule of law is enthroned in our society. They ensure that laws are obeyed and any violation of the laws is met with coercive force of the courts.
To adequately perform this duty, he advised that the courts must continue to resist any interference and assert its independence. “It is widely acknowledged that an independent, courageous and innovative judiciary is a sine qua non for the sustenance of all governmental reforms given the fact that it is the arm of government that interprets the contents and intent of the constitution as well as adjudicate in all matters between persons and government to any person in Nigeria, and to all actions and proceedings relating thereto.”
Aboki maintained that the Judges will keep on maintaining neutrality. That is remaining impartial and dispenses judgments without bias.
He made case that the appointment of Judges to the Bench should be based purely on competence and uprightness, calling on the government to provide adequate funding for the judiciary.
According to the Justice, “Bearing in mind that the international standard is in favour of prompt resolution of disputes especially with regards to financial and investment matters because in the course of adjudication over such matters capitals are tied down and investors are always eager to reap from the proceeds of their investments. I recommend that tules of courts should be such that do not encourage technicalities which cause undue delay in adjudication. Delay in resolution of financial and investment disputes does not encourage investors to invest in our country and it is capable of resulting in capital flight,” he advised.