What is the public perception about microfinance banks?
My take is that microfinance is the bank of the future. When microfinance banks (MFBs) started, fortunately I was part of it about ten years ago. What has happened over the years is that there has been one or two issues. But with capacity building initiatives in the industry which the central bank has introduced, through the Microfinance Certification Programme and a few other capacity building institutions that have come of age, I think the industry is getting better.
Over time, I think it would become much more interesting because I know that a lot of MFB promoters came in with their commercial bank mindset. I know fully well that MFB is quite different from commercial banking. What we are doing right now is to ensure that a lot of them know how to appraise those customers because a lot of customers they are dealing with are illiterates. I assume also that a lot of them are women. So, your ability to appraise them in terms of loans so that you don’t give them excess loans is one of the things that is in the industry. And things are much more better once they understand that training is very important.
What is the rate of customer default in the sub-sector?
We normally use the word portfolio at risk. It varies from bank to bank. But on the average, currently, I think we have over 1,000 MFBs in Nigeria and averagely I think it’s about 40 per cent because of the level of default by customers. I also want to tie it to what I said earlier, the ability to appraise a customer is the major reason why a lot of defaults are happening and some customers wouldn’t tell you the whole truth about their businesses.
So, our ability to teach customers how businesses are done is the major way which those level of defaults can be reduced and secondly, I think loan monitoring is very important. You can’t just give out loans to customers and go to sleep. You must ensure that you monitor them as much as possible.
How are the MFBs coping with the challenge of poor infrastructure in the country, which obviously would be affecting their profitability?
It affects their profit immensely because the cost of doing business is quite high in the industry and you have to take care of any bill that is attached to it. Your ability to a reasonable extent to reduce cost as much as possible so that you would keep your head above water and stay afloat is very important. One of the major parameters for MFBs is that you work within a radius of your environment, maybe 5-10 kilometres, so that you don’t see yourself extending to places that is going to cost you so much to transport.
Then possibly, if you can afford solar, you should put those things in place so that it would reduce your level of buying diesel or fuel because over time, solar can last for the next 20-25 years as the case may be. So, if you can afford that, you would discover that it reduces your cost. Of course, there is the initial cost, but over time, it would reduce. On how they are coping, the major thing is outreach. You must ensure that you cover a lot of customers so that you are not just dealing with few customers.
You must endeavour to be dealing with a multitude so that over time it weighs out the cost of doing business. For example, for the kind of product we offer, we do group lending and it is expected that an account officer would have at least 200-250 clients he or she is dealing with over a period of nine months to one year. So, with that, if you are given X amount, you see that the cost of doing business is spread rather than dealing with one customer. So, your ability to have more outreach covers a lot of cost for you.
What measures do you think should be taken to improve financial inclusion?
Well like I said earlier it’s a function of outreach. A study has shown that only about 33 per cent of the entire population has been to the four walls of a bank and about 65 per cent have not, particularly in the rural areas. It is a very interesting place to look at where people can now begin to set up businesses or branches as the case may be, in rural areas and ensure that they market them because a lot of them need loans to expand their businesses or whatever they are doing.
So, financial inclusion includes that those customers are now being part of the financial system where whatever money they have is no longer kept under their pillows but now being accounted for in the sector. The CBN can do a lot in assisting the MFBs especially in the area of training because you find out that one area of deficiency in the sub-sector is knowledge, commercial banking inclusive. So, helping to sponsor or co-sponsor training of staff in the microfinance institutions would affect the quality of the workforce and that would make a huge impact.
Can you highlight some challenges facing the sub-sector today?
One of them is capital and access to funds. You would realise that many of them were set up with N20 to N50 million. So, it is quite difficult for them to reach out and with the cost of doing business in Nigeria, you need a sizable amount of money for you to do a sustainable business.
And for you to have a very small capital and you are struggling in an environment where you have to provide your own power and all sorts of things, it is quite difficult. Even if you want to borrow, the banks are not lending and for the development funds from the CBN, because of the conditions attached, it is also not available. It is only the big microfinance institutions that have access to foreign development organisations and that’s why some of them are doing well. But they are very few. We have less than 10 of them in Nigeria, whereas the other MFBs that are over 900 do not have access to funds.