In this interview with OLUSHOLA BELLO, managing director/CEO Mainstreet Microfinance Bank Limited, a subsidiary of Skye Bank Plc, Mr. Adegoke Adegbami speaks on the challenges facing the micro finance sector among other related issues.
Loan recovery is a major challenge in Nigeria, especially in banks. What has been your experience thus far?
There is an adage that says there are no bad followers but bad leaders. So you need to do your assignment before you pass your money to your customers because once the money leaves your hands and gets to their (customers) hands they have a stronger point. There is also an adage that says ‘The mouth that people use in borrowing is different from the one they use in paying’. That means you need to do your assignment before your money leaves your custody.
We talk about all issues of policies that relates to risk and the type of policy we have are policies that tell us that this is how to begin a loan and this is where to end. There are businesses we can do so, also are businesses we cannot do. The kinds of things we observe are cash flow of the person, the integrity of the person and sustainability. Once the customer has met all the conditions we then disburse the money. Some bad loans are also results of connivance between fraudulent staff and some customers.
In actual fact, we don’t let the customer go and sleep, we monitor them and that also determines the location of our branches. The monitoring mechanism carried out by our Loan Recovery Officers is very right. It is not just about giving out loans, we do our assignment before disbursement, we monitor and make sure the money comes back as at when due because the main asset of a microfinance bank are the risk assets and loans. If the policy of the loan is not well managed and you are unable to recover then it will be eroding our capital and we will be losing money and gradually will be out of the market. The procedure we have put in place has helped us thus far.
What is the future of microfinance banking in Nigeria?
I think we need to basically go back to the definition of microfinance. Microfinance means providing financial services to the small and low income earners. But when you look at the microfinance, there are some that are in the small and medium enterprises (SME) group, there are some that are very micro, those trading in petty markets and so on. It depends on what you want to and for a microfinance bank you can’t attend to all of them. For instance, if we want to tackle poverty we won’t be going to get everybody on the street to come and do business with us.
Some of them will come but they cannot really save their money, some of them are actually involved with one small business or the other. These are the ones we call the active ones because they are actively involved with something, so, these are the ones we target. The ones we believe if it’s effectively done, they will bring their money to save in the bank and they will also be requiring small loans and also employ someone else. They also get their businesses better structured, better planned and maybe need to expand when it gets better with time into a limited liability company.
Tell us about the present challenges faced by microfinance banks in the country?
There is challenge of capacity building which is being addressed by the day. There is also challenge of funding. Microfinance needs stable funding both from private, commercial and development sources. Poor credit culture in our society is also a major problem. I also think that microfinance in Nigeria is currently being strictly regulated compared with what obtains in many East African, South African and Asian countries.
We know that the regulators objective is in response to the nature of our own society. But we should get to a point where some small scale microfinance can operate just like the modern forms of our typical Alajo or Esusu system. Those people will not need N20 million to start their businesses, particularly in our remote villages and their activities would be guided by other business related parts of our laws, pending when they will grow to the level of strict regulation.
At that point, they will be compelled to list for regulation. Also, lack of public infrastructure makes the business of microfinance to be very expensive. Microfinance is naturally expensive because of its small loan sizes and the labour intensive nature. But Nigerian environment is more challenging because of the absence of public utilities.
The Central Bank of Nigeria (CBN) is set to increase the minimum paid-up capital of Unit Micro-Finance Banks (MFBs) to N100 million. What is your view on this?
The 2008 global economic meltdown drew a lot of issues and challenges. There was the challenge of people losing their jobs and then looking for something to do. Microfinance provided an opportunity where they could get some money. For example, those people that lost their jobs could start some small scale businesses. Each of them can also provide jobs for two or three other people. There were also people that lost their jobs in the commercial banks and saw microfinance as the natural alternative.
Shortly before the meltdown, there was the banking consolidation in Nigeria and the consolidation reduced the number of commercial banks in Nigeria from 82 to about 25. Many people in the money deposit banking space lost their jobs in 2006 and 2007 due to reorganisation, rightsizing and downsizing following the banking consolidation. The next thing was for those people to get jobs in the emerging microfinance space.
In a typical Nigerian way, many of these people believed that microfinance means the smaller version of commercial bank. They believed the commercial banking knowledge they had was enough to run microfinance business. They were wrong because at the regulators level, many of the examiners were using their commercial bank orientation to examine microfinance banks. The microfinance market operates on a different ideology and methodology.
It is very dangerous to use the strict commercial bank knowledge and methodology to run a microfinance bank. The market is different, the people we are dealing with, their lifestyle and their needs are different from that of an average commercial bank customer. For instance, there was this belief that you can use the microfinance bank license to mobilise cheap deposit to either fund the micro credit programme or other businesses.
The truth is that microfinance bank cannot even become self-funding in the first two to three years. You are dealing with a net deficit section of the market and so you must get money to bring into that section of the market. Therefore, the knowledge gap was largely responsible for the failure of a number of microfinance banks. People from commercial bank background also had this problem of wanting to keep their expensive lifestyle so they put on microfinance bank the kind of expenses that are unsustainable.
Things have changed today and the operators and regulators know better now. Even our customers now know better because the know that microfinance loan is not a share of national cake and CBN has organised and sponsored certification training for operators. For instance, to be in a management role a microfinance bank in Nigeria now, you must be certified. There are also training programmes for the non-executive directors of microfinance banks.
We must also remember that a number of microfinance banks have done well over time, particularly those that took the issue of capacity building very seriously. Mainstreet Bank Microfinance is one of those that have done well. Here, we don’t joke with the issues of training and planning. Now, to get to the point about the new benchmark set by the apex bank for the microfinance banks, I think the policy ordinarily is good but what I may not say is whether it is timely and that is the opinion of many others industry operators. It is a good policy on paper but in terms of its finesse and practicality, I may not agree with it.
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