Instead of issuing loan facilities to the real sector and SMEs, some Microfinance Banks (MFBs) now give loans to United Kingdom-bound Nigerians, who use such funds as their ‘Proof of Fund’ (POF) to acquire visas.
POF refers to a document or documents that demonstrate a person or entity has the ability and funds available for a specific transaction. It usually comes in the form of a bank, security, or custody statement. The purpose of the document is to ensure that the funds needed to execute the transaction fully are accessible and legitimate.
In the case of the MFBs and the potential UK migrants, who are mostly seeking to study in the country, the POF is needed to prove they have enough money to pay for their course fees and living costs. This is also known as the maintenance or financial requirement. The students are normally required to submit such financial documents to show that they meet the financial requirement.
How the MFBs come in
Investigations by our analyst reveal that the applicants, in most cases, connive with some members of staff of the MFBs to secure loans which can range from N10 million to N30 million for the purpose mentioned above. Such loans are given at 5% interest per month.
Inside the bank, the racket usually comprises members of staff from the marketing and internal control departments with collusion from the branch managers and other intermediaries.
One of the cases involving an MFB based in Abeokuta, the Ogun State capital, is that of a Lagos-based IT expert, Olusegun Adebowale, who had been offered admission for his Master’s degree at the University of Westminster, in November 2020.
According to him, he got the link of the financial institution through a friend who was a former employee of the bank, adding that he later met the branch manager of the bank and some other staff, whom he assumed work in the internal control department of the bank.
“The branch manager told me without mincing words that aside from the 5% monthly interest rate, which is N750,000, I have to give two of them sum of N50,000 each. I transferred the latter to the branch manager, as soon as I confirmed the disbursement of N15 million into my account.
“It was not convenient but it is cheaper than a similar facility offered by commercial banks, which is about 15% interest or more. This is cheaper because I only needed the fund to seat in my account for 28 days after which I can refund the bank,” Adebowale recounted.
Funds that applicants present to the embassy as maintenance funds (course fees and living costs) must be in the applicants’ or their sponsor’s account for a consecutive period of 28 days (ending on the date of the closing balance).
During the 28-day period, this money cannot drop below the required amount for even 1 day or the applicant will not meet the Home Office requirements and the application will be refused.
Mrs Deborah Adeniji, a teacher, is another patron of one of the MFBs that engage in this act. Her son secured admission into a school in the UK and needed the service to wrap up the visa application procedure.
According to her, she had reached out to a friend to source funds before she was directed to meet one of the board members of a Lagos-based MFB.
Like Adebowale, she also got a loan of N10 million but the interest rate in her own case was 6% and she paid off two staff members with the sum of N150,000.
“I had to claim that the loan was meant to be injected into my farm, as I submitted the papers of the farm. I did that because that was the instruction given to me by the staff of the bank.
“I also submitted the images of the farm and details of some of my business partners, who are my cousins. Initially, I was not comfortable with the arrangement but changed my mind when I realised I can still cope with the interest and other demands.”
What experts are saying about development
Experts in the finance sector have blamed the Federal Government/CBN for the observed development, as they argue that the apex regulator should ensure it monitors the operations of the MFBs.
An ex-banker, Alaba Awe, explained that the development is not limited to the MFBs alone, as she alleged that some commercial banks are also doing the same.
She said, “The banks are only exploring the gaps in the system, as they know that the CBN can’t monitor every loan they give to their clients. They then decide to give loans to people that will refund in one month abandoning the manufacturing sector and other entrepreneurs that actually need the fund more.
“I expect the government to introduce proactive policies that would curb the menace and create an enabling environment for more entrepreneurs/ manufacturers to access more funds.”
Another expert, Dr Sesan Adebayo, who is a fellow of the Chartered Institute of Bankers observed that greed on the part of the MFBs was responsible for the development.
“What most MFBs do not understand or intentionally ignored is that if they give loan to one manufacturer/SME, they have empowered about five people (direct/indirect employees) and a great number of consumers.
“But diverting the loans meant for the people that provides employment and contributes to the GDP to the people that have decided to abandon the nation for greener pastures is actually counter-productive. I am not against people leaving the country in disguise to further their education but it should not be at the expense of the real sector.”
Nigerians typically find opportunities amidst adversities and this is a classic example. However, making money through these means appear unsustainable and unsuitable for optics even though it’s hard to characterize this as illegal.
Issuing paper loans in exchange for fees is not new to Nigerian banking. Some loan marketers rely on it to meet targets giving their bosses the impression that loans have been written whereas there is a deal with the borrower to repay immediately or not to even draw on the facilities.
These practices have now spread to visa issuances and who knows where next.