Ojo Philip Calls on Policy Makers, Bemoans Ugly Impacts of MFBs on Small Businesses in Osun | GOVERNMEND

In a letter directed to the Osun State Speaker, Hon. Adewale Egbedun, Ojo Philip addressed how Microfinance banks in the state have become issue that requires urgent attention.

In the long letter, Ojo Philip said:

“Let me start by appreciating you for your proactiveness regarding most issues raised in my last open letter, i must sincerely acknowledge your civil way and manner of attending to it. Again, i will like to reiterate that, all of these are in the best interest of the state. May the good Lord keep directing our paths.”

“Today, I have found reasons to propose a bill to regulate loan interest of microfinance banks/loan sharks in Osun state.
During my campaign in the just concluded general election, as I went on doing market-to-market campaign i came across some market women who called my attention towards how microfinance loan has ruined their mental health. They cried bitterly on how some of them have literally used their bodies to get means of repaying their debts to their lending banks.

The abuse and degradation have taken a devastating turn, some microfinance banks and loan sharks go as far as always locking up their clients in a very messy toilet as penalty for defaulting. Again, my heart bleeds and i asked, how do we really get here?

The yet to be verified story of Kabiesi, HIM Oba Adeyeye Babatunde Enitan Ogunwusi (Ojaja II), the Ooni of Ile Ife paying off all MFBs in the anicient town and directing them to evacuate with immediate effect is an indicator that loan sharks and MFBs are menace that should be addressed.

What do we even understand by a Microfinance bank?
As defined in the guidelines for the regulation and supervision of
Microfinace banks in Nigeria (as reviewed by CBN in 2020);
A microfinance bank (MFB), unless otherwise stated, shall be
construed to mean any company licensed by the CBN to carry on
the business of providing financial services such as savings and
deposits, loans, domestic fund transfers,financial and non financial services to microfinance clients.
While a microfinance client shall include the economically active low income earners, low income households, the un-banked and under-served people; in particular, vulnerable groups such as
women, persons living with disabilities, youths, micro entrepreneurs, informal sector operators, subsistence farmers in
urban and rural areas.
Emphasis on the words; “economically active low income earners, vulnerables, people living with disabilities (physically challenged)”
We should inquire to know why the MFBs and loan sharks are compelling people to be suicidal.

Futhermore, my findings revealed that people failed to pay up simply because of high interest rates and short tenure of loan.
The former CBN Governor Godwin Emefiele on the 10th of December, 2018 even confirmed this during a press briefing in Lagos at the end of the Annual Bankers Committee Retreat that MFBs charges outrageous interest rates on loans.
He said and i quote, “Microfinance banks that we have today are not lending loans at single interest rates today; some of them are even lending money on flat. You borrow N50,000 for 90 days, and they expect you to pay another N50,000 interest to them in another 90 days. That is outrageous and that is too exorbitant”
He went further to say, “We feel that if we have these funds available in the Central Bank of Nigeria, through our own national microfinance, we can make access to funds to these people easy, even if it is not single digit per annum; even at 15 per cent, it is substantially lower than those who are borrowing money at flat arrangement basis. And if you don’t pay the N50,000 interest, they seize your bicycle or your car or machine”

Again, i as well took my time searching through some of the MFBs websites but none reveal what their interest looks like, all i saw was “low interest rate”
I didn’t stopped at that, but visited some of their branches, confidentially interviewed their staff members, as well had discussions with some of their clients in town. All these assisted my investigations.
Let me expressly state that, the interest rate for MFBs as stipulated by CBN ranges from 5% to 15%.
It was also established from my research that the duration given to pay back loans from most MFBs are too short which is also against the code of conduct and policy from CBN. The shortest tenure for MFB loan is meant to be180 days (6 months).
So, why are they taking advantage of our people who are left with no option but taking loans to survive?

However, like i promised women from my constituency when this was raised during my campaign, that i will ensure i pass a bill regulating MFBs loans interest rate and tenure.
Regardless of the outcome of the election, i decided to fulfill the promise made to them in proxy, while it will as well be greatly beneficial to the state at large.
To this end, i am suggesting a bill to regulate the loan interest, duration, terms and conditions of all microfinance banks and loan sharks in Osun state.

In accordance with the MFB guidelines and policy (reviewed by CBN 2020),the tenure of microfinance loans, generally, at within 180 days (6 months), while tenures longer than six (6) months would be treated as special cases. And in the case of agriculture, or projects with longer gestation period, however, a maximum tenure of twelve (12) months is permissible and in housing microfinance, a longer tenure of twenty-four (24) months is permissible.
MFBs are therefore accused, in particular, of earning profits at unreasonable levels with a view to exploiting the ignorance of the poor.
The legislative arm of Government is hereby charged to come to the rescue of our dear people and introduce consumer protection policy for the financial services via the regulatory bill.

Finally, It is pertinent to note that to effectively curb poverty in Nigeria was the reason why the Central Bank of Nigeria (CBN) mandated the licensed MFBs to target “economically poor individuals”, that is, “individuals or groups with meager means of livelihood and whose personal income within a period of one year falls short of the minimum taxable limit stipulated in the tax laws.” Hence, MFBs should let the poor breathe.

Thank you for your time and I hope for necessary actions, deliberations and policies in this regard.”

Source: Ojo Philip