1.4 Credit is not always appropriate for everyone or every situation.

FUNDAMENTALS OF MICROFINANCE BANKING Give four (4) other reasons why credit may not be an appropriate
tool for poverty alleviation.

1.5 List four (4) critical aspects of outreach for achieving the social
GENERAL COMMENTS
mandate of microfinance.
The questions were standard, simple and within the syllabus. A total of
1.6 Name three (3) policy objectives of the Microfinance Policy,
913 candidates attempted this paper, 379 candidates (42%) passed,
Regulatory and Supervisory Framework for Nigeria.
which include 13 distinctions, while 534 candidates (58%) failed as
follows: F1-36; F2-216; F3-282.
Comment
This is a compulsory question which tested the general knowledge of the
A number of papers were lucidly written and to the point, evidence of
candidate. All the candidates attempted the question which carried 30
careful study. A lot of those who failed did partly because they were not
marks. The performance in the question is encouraging and one expected
prepared for the examination while some failed because they did not care
this to be reflected in the other six questions but this was not the case. A
to read the question well before putting their pens to paper.
total of 913 candidates attempted the question out of which 646 (71%)
passed. It ranked 1st in popularity and 1st in pass scale.
Candidates are advised to prepare adequately and to always update their
knowledge through reading of monetary authorities circulars, journals and Answer
other educative newsprint. 1.1 (i) Securities and Exchange Commission
(ii) Nigeria Interbank Settlement System
Question-by-Question Analysis (iii) Microfinance Certification Programme.
(iv) Economic and Financial Crimes Commission
SECTION A (v) Millennium Development Goals.
Question 1 1.2 (i) Loan sizes, terms and repayment should be affordable to
1.1 Write out the following acronyms in full: the clients.
(i) SEC (ii) Facilities for deposit collection and withdrawal should be
(ii) NIBSS accessible and convenient.
(iii) MCP
(iv) EFCC 1.3 (i) Access to savings
(v) MDGs (ii) Access to cash transfer
(iii) Access to remittances, guarantees and insurance.
1.2 Microfinance services must fit the needs and preferences of 1.4 (i) Small grants
clients. Name two (2) samples of such needs. (ii) Community infrastructure improvement
(iii) Health and education services
1.3 Name two other financial services, apart from loans, needed by (iv) Employment and training programme.
poor households and communities.

1 2
1.5 (i) Cost to clients (iii) Paucity of loanable funds required to meet the needs of
(ii) Depth clients
(iii) Breadth (iv) Absence of support institutions in the sector;
(iv) Worth to clients (v) Weak internal capacity of the microfinance institutions
(v) Length displayed in the following areas;
(vi) Scope. - Incompetent management,
- Poor corporate governance,
1.6 (i) Make financial services accessible to a large segment of - Insider abuse,
the potentially productive Nigerian Population. - Weak internal control,
(ii) Promote synergy and mainstreaming of the informal - Poor credit administration, and
financial sub-sector into the national financial system. - Poor asset quality.
(iii) Contribute to rural transformation.
(b) Factors responsible for the emergence of modern microfinance
SECTION B banks:
(i) Global economic recession in the 1980s;
Question 2 (ii) Failure of government programmes to reach the poor;
(a) What factors led to the failure of poverty alleviation programmes (iii) Failure of banks to serve small businesses;
in Nigeria in the past? (iv) Shift in microfinance lending approaches from poverty
(b) Discuss the factors responsible for the emergence of alleviation lending approaches to sustainable commercial
Microfinance Banks in Nigeria. microfinance.

Comment
This simple and direct textbook question was not popular among the
candidates. The question is in two parts, (a) and (b). Although there were
some good answers from a few serious candidates, a lot of the
unprepared candidates gave the same answer to the two parts. Some
others wrote volumes of out-of-point answers which attracted no marks.
only 446 candidates (49%) out of 913 attempted the question, only of
which less than a quarter (102) candidates (22%) passed. It ranked 6th in
both popularity and pass grade.
Answer
(a) Factors responsible for failure of past poverty alleviation initiatives
are the following;
(i) Inadequacy of skilled manpower required by the
operators to deliver services effectively;
(ii) Unwillingness of conventional banks to support micro
enterprises;
Question 3
Identify four main reasons for the global growth of microfinance.
Comment
This question is one of the cheapest in this diet which could have been a
bonus to any hardworking candidate. Unfortunately, it was badly
answered. A lot of candidates avoided it while some of those that
answered it misinterpreted the question. Instead of giving reasons for
global growth, they wrote on the history of microfinance. Candidates are
always advised to read the question well and understand what is required
of them by the examiner before putting their pen to paper. The question
was attempted by 597 (65%) candidates, out of the 913 that sat for the
examination. only 266(44%) passed. It ranked 5th in popularity and 2nd in
the pass scale.

3 4
Answer
Microfinance is growing for the following reasons
(i) The Promise of Reaching the Poor: Microfinance activities can
support income generation for enterprises operated by low-
income households.
(ii) The Promise of Financial Sustainability: Microfinance activities
can help to build financially self-sufficient, subsidy-free, often
locally managed institutions.
(iii) The Potential to Build on Traditional System: Microfinance
activities sometimes mimic traditional systems (such as
ROSCAs). They provide the same services in similar ways but
with greater flexibility at a more affordable price to micro
enterprises on a more sustainable basis. This has made
microfinance services very attractive to a large number of low-
income clients.
(iv) The contribution of microfinance to strengthening and expanding
existing formal financial system. Microfinance activities can
strengthen existing formal financial institutions, such as savings
and loan co-operatives.
Question 4
What are the requirements for the establishment of Microfinance Banks?
(iv) Proposed name of MFB;
(v) Draft memo and Articles of Association;
(vi) List of the members of the board of directors in line with minimum
qualifications and experience prescribed in the Regulatory and
Supervisory Guideline for MFBs;
(vii) List of management and staff in line with the mandatory minimum
qualification and experience prescribed in the Regulatory and
Supervisory Guideline for MFBs;
(viii) That the MFB shall put in place the following before the
commencement of operations:
Appropriate management information system,
Internal control and risk management procedure,
Manual of operation,
That the manager of the institution shall possess the requisite
certificate on Microfinance Management practices from the
certification institute.
SECTION C
Question 5
Enumerate five (5) policy strategies and five policy targets of the
Microfinance Policy, Regulatory and Supervisory Framework for Nigeria.

Comment Comment
The question is popular among the candidates but the performance was This question on policy strategies and policy targets is a direct textbook
very poor. Majority of the scripts by the candidates showed that most of question that could have been a bonus for any hardworking candidate. It
them never prepared for this examination. The candidates should study was avoided by many. Only 200 (22%) out of 913 candidates that sat for
properly the study manual of the Microfinance Certification Programme as the paper attempted the question, 77 (38%) of whom passed. It ranked
well as update on Microfinance banking circulars from the CBN if they 7th in popularity and 3rd in the pass scale.
hope to pass this examination. A total of 758 (83%) candidates attempted
the question, out of which 160 (21%) passed. It thus ranked 4th in Answer
popularity and 7th in the pass scale. (a) Policy Strategies
i) Licensing and Supervision;
Answer ii) Continuous Professional Development;
The requirements for the establishment of Microfinance Banks are the iii) Savings Mobilisation;
following: iv) Government Participation;
(i) Statement showing type to be established; v) NGO- based Microfinance Institution;
(ii) Feasibility report; vi) Collaboration with Development Partners;
(iii) Capital requirement;
5 6
 vii) Definition of Stakeholders Role;
viii) Submission of Disaggregated Data;
ix) Institutional linkages.
(b) Policy Targets
i) To increase access to financial services of the economically
active poor by 10 per cent annually;
ii) To increase the shares of micro-credit as percentage of
total credit to the economy from 0.9 per cent in 2005 to at
least 20 per cent in 2020 and the share of micro-credit as
percentage of GDP from 0.2 per cent in 2005 to at least 5
per cent in 2020;
iii) To ensure the participation of all States and the FCT as well
as at least two-thirds of all the Local Government Areas
(LGAs) in microfinance activities by 2015;
iv) To eliminate gender disparity by ensuring that womens
access to financial services increase by 15% annually, that
is 5% above the stipulated minimum of 10% across the
board;
v) To increase the number of linkages among universal banks,
development banks, specialised finance institutions and
microfinance banks by 10% annually.
Question 6
Discuss the regulatory functions of the Nigeria Deposit Insurance
Corporation (NDIC) in the operation and development of Nigerian
Financial Institutions.
Comment
This simple textbook question was aimed at testing candidates
understanding of key functions of one of Nigerias financial institutions
regulatory bodies. Unfortunately majority of the candidates who attempted
this question could not satisfy the examiner, hence, the mass failure. Out
of 782 (86%) candidates that attempted this question, only 226 (29%)
passed. It ranked 3rd in popularity and 4th on the pass scale.
Answer
The Nigeria Deposit Insurance Corporation (NDIC) is an agent of the
Federal Government established by Decree 22 of June 1988. It is charged
7 8
with the responsibility of ensuring a safe and sound financial system. Its
main aim is to insure all the licensed banks and other deposit-taking
institutions in Nigeria.
The regulatory functions of the NDIC are as follows:
i) Assisting monetary authorities in the formulation and
implementation of banking policy to ensure safe and sound financial
banking practice.
ii) Granting of loans to the insured banks;
iii) Insuring deposit liabilities of licensed banks in Nigeria;
iv) Direct management of the bank or arrange a merger with another
bank or outright purchases, take-over bids, liquidation etc;
v) Guaranteeing payment up to a minimum of N200, 000 per
depositor;
vi) Supervision of banks in consonance with relevant regulations and
provisions.
Question 7
What are the goals for the establishment of microfinance banks?
Comment
This is the 2nd most popular question among candidates after the
compulsory Question 1, It was also poorly answered. A review of the
script revealed that some candidates were ill-prepared for the question
while others misinterpreted the question and ended up giving wrong
answer to the question asked. A total of 820 (90%) candidates attempted
the question, out of which 226 (28%) passed. It ranked 2nd in popularity
and 5th on the pass scale.
Answer
The goals for the establishment of microfinance banks are as follows:
i) To provide diversified, affordable and dependable financial services
to the active poor, in a timely and competitive manner that would
enable them to undertake and develop long-term sustainable
entrepreneurial activities.
ii) To mobilize savings for intermediation;
iii) To create employment opportunities and increase the productivity of
the active poor in the country, thereby increasing their individual
household income and uplifting their standard of living;
iv) To enhance organized, systematic and focused participation of the
poor in the Socio Economic Development and resource allocation
process;
v) To provide veritable avenues for the administration of the micro-
credit programmes of government and high net worth individuals on
a non-recourse case basis;
vi) To render payment services such as salaries gratuities and
pensions for various tiers of government.