Premium assessment, collection in Nigerian micro-finance institutions

Mrs. Eunice Mgbojikwe, Director, Special Insured Institutions Department, NDIC
Mrs. Eunice Mgbojikwe

SECTION 16 of the NDIC Act of 2006 defines insurable deposit as “all deposits of a licenced bank or any other financial institution with the exception of staff and directors deposits, collaterised deposits and other deposits approved by the NDIC board. Section 1(5) of the Banks and Other Financial Institutions Decree (BOFID), No 25 of 1991 further clarifies that “a person shall be deemed to be receiving money as deposits:

•If the person accepts deposit from the general public as a feature of its business or if it issues an advertisement or solicits for such deposit. •Notwithstanding that it receives moneys as deposits which are limited to fixed amounts or that certificates or other instruments are issued in respect of any such amount providing for the repayment to the holder thereof either conditionally or unconditionally of the amount of the deposits at specified or unspecified dates or for the payments of interest or dividend on the amounts deoposited at specified intervals or otherwise, or that such certificates are transferable.

After defining what constitutes deposits in the foregoing section, the BOFIA, in Section 1(6) specifies what does not constitute deposits as follows:

“Notwithstanding anything contained in this section to the contrary, the receiving of moneys against any issues of shares and debentures offered to the public in accordance with any enactment in force within the federation shall not be deemed to constitute receiving moneys as deposits for the purposes of this Act”.

We have taken time to quote the definitions of insurable deposits from the enabling laws in order to emphasise the fact that the Nigeria Deposit Insurance Corporation is usually guided by the provision of the law rather than what is presented to it by the insured institutions or their external auditors. Furthermore, it can be seen that insurable deposits is simply total deposits less exempted deposit

The items constituting total deposit and exemptible (non- insurable) deposit will now be examined in details.

Components of total deposits
The total deposit of an insured financial institution comprise of the following

Demand deposits: This represents credit balances due to customers on their current accounts with banks and insured institutions. The deposit amount for purpose of premium assessment should be net of debit balances and uncleared effects. That is, debit balances should be added back since they reduce effective credit balance while uncleared effects should be deducted since the subject fund is yet to be released to the insured institution.

Savings deposits: Savings deposits with accrued interest payable on them would be treated as part of assessable deposits. Also, dormant savings account will also be treated in the same manner since the Corporation would be under obligation to pay the depositors in the event of liquidation.

Fixed term or call deposits: These are funds invested with the insured institution by the public for fixed tenors. It can take the form of investment products such as Esusu, House Savings etc. It should also be noted that matured deposit and accrued interest, where they exist, are to be treated as part of assessable deposits.

Other assessable deposits: As earlier mentioned, the Corporation reserves the right to recognise any deposit item found in the records of an insured institution no matter the treatment accorded it by such institution. Hence, any deposit item found mixed up with “other liabilities” or in the general ledger of an insured institution will be treated as assessable deposit.

Exemptible deposits
Section 16 (a), (b) and (c) of NDIC Act 2006 define exemptible deposits to include:

(a) Insider deposits, that is, deposits of staff including directors of the insured institutions.

(b) Counter claims from a person who maintains both deposit and loan accounts, the former serving as collateral for the loan.

(c) Such other deposits as may be specified from time to time by the NDIC board. For example, the board recently exempted Interbank deposits for universal banks.

The exempted items are examined in details as follows:-

•Insider deposits: The NDIC Act exempts only deposits of current staff and directors of the insured institution. Hence, deposits of past staff, shareholders, director’s family members, companies in which directors have interest and other associate companies and individuals are not to be treated as insider deposits.

•Collaterised deposits: Section 16(b) of NDIC Act explains collaterised deposits as those deposits that have been used to secure loan facilities, particularly where the depositor and the loanee are the same legal person.

There is need to apply the rule of lower of actual deposit or amount of exposure as at December 31 of previous year. That is, the bank can only rightly claim actual exposure or deposit, whichever is lower as the collaterised deposit.

•Other exemptible deposits: Section 16(c) of NDIC Act empowers NDIC board to regard other deposits specified by it as exemptible deposits. This decision is the prerogative of NDIC board and cannot be delegated or taken up by any insured institution.

Premium rate
In line with Section 17(1) of NDIC Act of 2006, MFBs and PMIs are to pay 8/16 of 1 per cent of their deposit liabilities for the preceding year as premium to the Corporation. As examples, premiums payable for different deposit liabilities level will be as follows:-If the assessable deposit is N3 billion, the premium due will be N15 million; if the assessable deposit is N2.5 billion, the premium due will be N12.5 million; if the assessable deposit is N2.0 billion, the premium due will be N10.0 million; if the assessable deposit is N1.0 billion, the premium due will be N5.0 million; if the assessable deposit is N750 million, the premium due will be N3.75 million; if the assessable deposit is N500 million, the premiumdue will be N2.5 million; if the assessable deposit is N300 million, the premium due will be N1.5 million; if the assessable deposit is N200 million, the premium due is N1.0 million; if the assessable deposit is N100 million, the premium due is 0.5 million; and if the assessable deposit is N50 million, the premium due will be 0.25 million

Maximum coverage
The basic insured limit for a depositor is N100,000.00. (Section 20(1) of NDIC Act, 2006). A depositor is thus insured up to N100,000.00 in the aggregate with respect to deposits he or she holds in the same right and capacity in each MFB and PMI including branches, if any. (The terms “Right and Capacity” refer to the nature of ownership of deposits, such as individual, joint or trust deposits).

Premium assessment process
Based on the existing practice for universal banks, premium assessment and collection usually take the following stages:

i) Collection of certified deposit liabilities from the approved auditors in line with Section 17(1) (a&b) of the NDIC Act of 2006. The deadline for submission is January 31. For institutions that fail to meet the deadline, the last returns submitted by such institutions would be used for the assessment. However, the Corporation will be counting on insured financial institutions to submit their December returns early.

ii) Computation of premium payable is based on certified deposit liabilities (where received) and based on last returns rendered by such institutions.

iii) Demand letters would be written to the insured institutions stating the amount of premium due, mode of payment and deadline for payment.

iv) On due date, payments would be collected by direct debit or through remittance or by cheque from the insured institutions.