Foreign Investors Return to Nigerian Microfinance Banks

The foreign investors that exited their investments in microfinance banks in 2016 are now gradually coming back with diversified financing following relative stability in the foreign exchange market.

The foreign investors sold their holdings in the heat of shortage of dollars occasioned by sharp drop in the prices and production of crude oil. Some of the foreign investors are the International Finance Cooperation (IFC), which has renewed its investment in Grooming Microfinance Institution this year and FMO, a Dutch development finance institution, among others.

Nigerian microfinance banks with international affiliation such as LAPO, Grooming, AB, Accion, Microcred, were affected as they could not pay their foreign loan obligations due to scarcity of foreign exchange.

The CBN’s financial stability report for December 2016 showed that the total assets of microfinance  banks  (MFBs)  decreased  to N341.68  billion  at  end-December  2016,  from N455.96  billion  at  end-June  2016,  reflecting  a  decrease  of  25.06  per cent.

The shareholders’  funds also decreased  by 42.91 per cent from N135.09  billion  to N77.12  billion  at  end-December  2016.
With relative stability in foreign exchange as a result of increased oil production, prices and continued intervention in forex market by the Central Bank of Nigeria (CBN), the investors are making a U-turn.

A European investment bank is making plans to invest in Grooming Micro finance in Nigeria in the third quarter. “We are still in the process of closing our first transaction in Nigeria in a micro finance bank and we want to be sure we can indeed lend in USSD with the customers structuring adequate hedge,” the investment bank said.

Rogers Nwoke, President, National Association of Microfinance Banks (NAMB) explained that the reason the foreign investors exited was because of the problem of foreign exchange as many microfinance banks and deposit money banks that were exposed to dollar facilities could not meet their obligations due to scarcity of dollar.

He said it is the stability in FX has renewed the interest of foreign investors, adding that with stability in FX in the last one year, there is confidence in the economy.

“We were affected but we cleared all our foreign loans. We are getting fresh loans now,” Nwoke said. The renewed investment interest he said will enhance liquidity and there would be access to funds for onlending to micro borrowers.

The CBN financial stability report for June 2017 indicated that the total assets of microfinance banks (MFBs) increased to N375.17 billion at end-June 2017, from N354.09 billion at end-December 2016, reflecting an increase of 5.95 per cent.

The paid-up capital and shareholders’ funds of MFBs also increased by 0.97 per cent and 14.36 per cent to N63.50 billion from N62.89 billion at end-December 2016, and N79.78 billion to N91.24 billion at end-June 2017. The increases in paid-up capital and shareholders’ funds were largely attributed to additional capital injection and increase in retained earnings, respectively.

BusinessDay gathered that the investors now have a strategy of diversifying their investments to triple down to other sectors instead of having a strict focus on micro finance banks.
In April FMO, a Dutch development finance institution organized a syndication of deal where they gave to Access bank over $100 million to increase their agricultural lending portfolio.

Furthermore, FRAGG Investment Management Limited in collaboration with Development Finance Institutions is rolling out funds for debt and equity investment in financial institutions, particularly, Micro Small and Medium Enterprise (MSMEs).

“There is a change compared to two years ago, when investors were pulling out their money because of the difficulties in the economy, now the situation has changed, making them to come back,” Franklin Odoemenam, managing director/CEO, FRAGG Investment Management Limited, told BusinessDay in an interview.

Source: BusinessDay