An expert in microfinance banking has blamed the distress being experienced in micro finance banks (MFBs) in the country on the adoption of conventional banking model by operators in the microfinance industry .
The founder, Grameen Bank, Yunus Muhammad, who made this remark in Lagos, said that this system of operation has helped to increase the operating cost of MFBs, as most of them subscribe to flamboyant lifestyle like their counterpart in the banking sector.
The Nobel laureate opposed the microfinance banking operating system which focused more on the rich than the poor who should be target beneficiaries.
Yunus also said that the micro banks in the country operated in contrast to what their operation should be, adding that:“Micro-financing is non-conventional banking; it is not an extension of conventional banking.
Conventional banking is banking for the rich, whereas micro-financing is banking for the poor.”
Speaking further, he said: “Grameen’s interest rate for instance, is cost of fund plus 10 per cent per annum.
The interest rate is done on simple interest and not compound interest, as done in Nigeria.
The interest rate also has no hidden charges. In addition, loans for education attract five per cent interest and that the loan is payable after the borrower graduates and starts working.”
Loans for housing at Grameen Bank, he said were given at eight per cent interest rate, and loans were given to beggars at zero per cent interest rate.
“I firmly believe that we can create a world where not a single person will be a poor person and I say this, not because it is good to say, but because it is possible, poverty is a symptom of an improper society, the people are the victims,” he added.
He, however, said that conventional banks could be established in the cities,while MFBs could operate in the rural areas.
Speaking on interest rates, Yunus observed that Grameen bank’s interest rates were just four per cent above that of conventional banks, noting that any interest rate that was 15 per cent above the cost of funds for a microfinance bank, “is no longer serving the poor.”
“We go to our borrowers. They do not come to us. We meet our borrowers at their door steps every week. Our office is for us to meet and not for banking business,” he added.
The bank, he said, set up to provide financial services to the poor, decided to turn conventional banking upside down. “Whenever we encounter a problem, we ask ourselves how does the conventional banks do it, then we turn it upside down”.
He said Grameen Bank mobilises its credit mainly from its borrowers, who also own the bank. He also disclosed that all Grameen Bank branches, as a matter of policy, are located in the rural areas and not in urban centres.
Yunus also suggested that the best model was to create a separate regulator for microfinance banks, adding that experience has shown that conventional regulators like the central banks do not understand how microfinance banks work. He also suggested that regulators need to put a cap on interest rates on microfinance lending.
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