The role of corporate governance in banks and micro enterprise development: an African perspective
February 2013 | SPECIAL REPORT: CORPORATE FRAUD & CORRUPTION
Financier Worldwide Magazine
Legitimate businesses and investors seeking to pursue business in Africa, particularly Nigeria, must be protected. Given the instances of interest shown by foreign investors in Africa and Nigeria, it is instructive to state that due diligence in investment must reckon on compliance with all relevant investment laws of the country by contacting authentic professionals and agencies engaged in rendering appropriate designated services.
The legal framework in Nigeria to protect investors includes, but is not limited to, the Corrupt Practices and Other Related Offences Act (ICPC Act 2003), Economic and Financial Crimes Commission (Establishment, etc.) Act (EFCC Act 2004), Advance Fee Fraud and Other Fraud Related Offences Act (2005), Money Laundering Act (2003), Dishonoured Cheques (Offences) Act (1977), Recovery of Public Property (Special Provisions) Act (1984), and the Code of Conduct Bureau and Tribunal Act (1989).
Other anti-corruption initiatives by the government include the Budget Monitoring and Price Intelligence Unit (BMPIU), the Extractive Industry Transparency Initiative (EITI), International Budget Analysis, African Peer Review Mechanism (APRM) Desks under the New Partnership for Africa’s Development (NEPAD) and various privatisation programs of the Nigerian government.
The financial sector ought to constitute the veritable means for innovations towards strategic support for entrepreneurs and increased access to micro finance to promote economic empowerment. Access to credit schemes by prospective entrepreneurs in rural areas is often stalled by the lack of collateral for loans. The scenario is worse for women who are not allowed to own property by reason of culture, religious and gender biases.
Economic policy development for credit schemes is critical for resource mobilisation, accountability, capacity building, mentoring, service delivery and encouraging public-private partnerships with investment and tax incentives. Financial interventions should be holistic. Government funded institutions can also play a vital role in the access to business development funds.
The relevant issue of competence in the administration of banks should not be ignored.
Banks have a critical role to play in micro enterprise development. Their strategic role as financial intermediaries carries the burden of trust, and the presence or absence of the perception of trust is always synonymous with the stability or financial volatility of an economy.
The majority of micro enterprises use banks mainly for savings, payments and deposits transactions. In rare cases, they are beneficiaries of loans to promote their businesses. Irrespective of the use of banks, their purposeful existence is required for the operations, success and relevance of micro enterprises.
The spate of crises which riddled national economies in recent years can be traced to financial impropriety by financial institutions, mostly banks. These acts of impropriety were designed and executed by individuals for reasons of ignorance, greed, ego gratification, etc. These individuals, though subject to various codes of ethical conduct, through acts of omission or commission, betrayed the trust reposed on their offices.
So what has corporate governance in banks to do with micro enterprise development?
A cursory look at the annual reports of banks in the Nigeria banking industry shows that the top five banks based on ratings of asset base have average on-lending facilities to customer deposits ratios between 0.05-0.03 percent. A further breakdown of the loans booked by these organisations would reveal they are invested in medium scale enterprises to large corporate organisations. These organisations by their capitalist bearings are very limited in their capacity to solve the yawning unemployment statistics.
The bulk of the unemployed youth are unskilled to semi-skilled. They include the rural farming populace, apprentices, small retail shop operators, roadside service operators, etc .These micro, small and medium scale enterprises, when standardised, properly regulated, and supervised, have the capacity to provide employment in the hundreds of thousands. What they usually lack is formal and institutional funding.
The role of corporate governance in micro enterprise development is succinctly captured in the definition of corporate governance by the Commonwealth Association Guidelines (International) which states concerns with: the profitability and efficiency of Commonwealth business enterprises; the long-term competitiveness of Commonwealth countries; and the relationship between business enterprises and various stakeholders, including providers of finance.
The boards of the banks are responsible for providing the leadership to guide and grow their organisations as well as impact on all stakeholders. A documented and enforceable code of corporate governance guiding the affairs of those appointed to exercise the required leadership on behalf of the banks is a credible platform for micro enterprise development.
The fallout of an enforced code of corporate governance include continuous innovations aimed at standardisation to provide a transparent level field for competition, developing unambiguous regulations, and executing effective supervision by various government and non-governmental agencies to enforce the regulatory statutes for the operation of micro enterprises.
Institutionalised mechanisms to resolve investment and financial disputes will definitely work towards promoting corporate governance in banks to encourage micro enterprise development.
Ukpeme Akpan is an arbitrator and barrister at La Paix Solicitors and Ini-odu Akpan is an executive director at Vianney Consult Limited (Nigeria). Ms Akpan can be contacted on +234 (0) 80235 35 205 or by email: firstname.lastname@example.org. Mr Akpan can be contacted by email: email@example.com.
La Paix Solicitors
Vianney Consult Limited (Nigeria)