Emerging Risk in MFBs in Nigeria

1. 2021 SENSITIZATION
WORKSHOP ON DIFFERENTIAL
PREMIUM ASSESSMENT
SYSTEM (DPAS) FOR MFB
OPERATORS
DIRECTOR (SIID), NDIC
DATE: 21ST JANUARY, 2021
VENUE: AJUJI GREENWICH HOTEL, ABUJA

2. OUTLINE
1.0 INTRODUCTION
2.0 OVERVIEW OF MFBS’ OPERATING ENVIRONMENT
3.0 EMERGING RISKS
4.0 RISK MITIGANTS
5.0 CONCLUSION

3. 1.0. INTRODUCTION
The world economy is projected to contract sharply by negative 3% by end of 2020. Worldwide
global deficit is estimated at $30 Trillion by 2030 - MGI .
Economic recovery depends on the return of Consumer confidence.

4. 1.0 INTRODUCTION CONT’D.
ISSUES
 How many Workers will be affected Temporarily & Permanently?
 What are the most effective Monetary & Fiscal policy measures to investigate recession.
 How can we restructure the Loan Portfolio for positive outcome?
 Powered by Billions of Dollars from Commercial & Philanthropic Funds, Micro lending space is expanding.
 Some MFBs have graduated to securitizing or selling Receivables, while, most sophisticated MFBs are raising
funds from the Capital Market at lower cost.
 Nature of funding new liabilities and exotic assets have created complex issues on the Balance sheet of MFBs.

5. 1.0 INTRODUCTION CONT’D.
For MFBs to operate and remain sustainable, Board &
Management of these institutions should deepen and strengthen
the Risk Management process.
Institutions with functional risk management process quality
benefits from Differential Premium Assessment System (DPAS)
Forward looking MFBs have taken steps to articulate and
implement functional strategy and
Business Continuity Plan (BCP)

6. WHAT IS DPAS?
Differential Premium Assessment System (DPAS) is a
Premium Assessment System which seeks to differentiate
premiums on the basis of individual Bank’s perceived risk.
The system is based on two (2) components; Flat rate and
Add-ons (risk profile).
 Objective is to promote sound risk management in banks.

7. 2.0. OVERVIEW OF THE MFBs’
OPERATING ENVIRONMENT
 Best Risk Management practices are becoming relevant in micro lending industry
as this sub-sector evolves towards greater unbundling, more competition,
broader product breadth and more complex funding.
Post COVID 19 and its negative impact necessitates Balance Sheet Restructuring.
Oil & Gas, Aviation, Tourism, Transportation &MSMEs requires diligent handling.
Increasing indebtedness of Nigeria and deteriorating GDP Computed at Negative
1.6% as at 31st December,2020.
IFRS 9 requirements especially in areas of Significant Increase in Credit Risks.

8. 3.0. EMERGING RISKS
Credit Risk
a) Even with Group Lending, default increase with borrowers exposures to
multiple loans.
b) COVID-19 affects repayment & Small Savers withdrawal from their Deposits to
the last Kobo, creating a catch 22.
Market Risk/FX/Interest Rate
Micro deposits have higher volatile component, given that the poor are subject to
frequent shocks regarding withdrawals.

9. 3.0 EMERGING RISKS CONT’D.
MFBs should develop approaches to handle such demands without holding larger
cash balances. Deposit balance Characterization Analysis is a must for
MFBs to manage their liquidity.
Operational Risks
Increase in business volume requires conducting periodic scenario analysis to
identify and quantify potential black swam, unexpected losses and constructing
tools to Identify, Measure, Monitor and Control such risks.

10. 3.0 EMERGING RISKS CONT’D.
Investment portfolio Risks
Fintech Risks/Digital Financial Services
Entry of Payment Services Banks (PSB)
Strategic Risk/Rapid growth/New Product Development
Governance Risk
Succession Planning
Entry of Government Licensed MFBs.

11. 4.0 RISK MITIGANTS
Sound Corporate Governance/Board, Management, Risk Management
Functional Strategic Plan
Robust ICT
Focused MIS
Independent Internal Audits
Business Continuity Plan

12. 4.0 RISK MITIGANTS
CONT’D.
 Create a wholistic ecosystem of value that aligns with customer values
 Create strong people strategy around the identified customer value
Establish unique service delivery process that differentiates from competitors

13. 5.0 CONCLUSION
MFBs now have complex Balance Sheet with huge dependency on Micro Deposits
and broader range of products.
To manage such Balance Sheet requires Creative and Reflective thinking.
Board/Management of MFBs should be vigilant to create micro loans to
profitable segments.
Such scenarios creates multiple and complex risks necessitating robust mitigants.
Improved Corporate Governance and Strong Enterprise Risk management will
enhance Risk Management and less premium payments by affected Institutions.

14. THANK YOU