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We exclusively focus on SME lending – Auto Bucks CEO Olasukanmi Olaoye CEO, Auto Bucks Lenders Limited, one of the subsidiaries of Alert Group, in this interview with Hope Moses-Ashike, speaks on challenges facing lending to Small and Medium Enterprises (SMEs) and other issues, excerpt. What specific risk management strategy did you implement to maintain portfolio at risk below 1 percent? In our inaugural year of operation, we disbursed over N80 million in loans. The income generated from these disbursements, coupled with the fact that they constitute a healthy portfolio, mitigates any risk associated with our portfolio. Therefore, the revenue derived from fees and charges enables us to generate income without exposing our portfolio to risk. The robust health of these portfolios significantly contributes to the achievement of our income targets. How did you manage costs and operational efficiency to achieve profitability within seven months? To achieve profitability within seven months, we implemented several strategies. Firstly, we focused on securing cheaper funds, as lower financing costs enhance operational efficiency significantly. Secondly, while maintaining competitive pricing, we ensured that our rates were adequate to cover our cost of funds and other operational expenses. Moreover, we kept our management expenses minimal, contributing to overall cost reduction. Leveraging technology was another key aspect of our approach. By deploying advanced technological solutions, we streamlined various business processes. For instance, our electronic collection system eliminated the need for manual cash transactions, enhancing efficiency and reducing the need for field officers. Through these measures, we optimized operational efficiency and effectively managed costs, resulting in positive outcomes within the initial six months of operation. You mentioned disbursing approximately N80 million; how many individuals or businesses were beneficiaries of this loan? We exclusively focus on SME lending. To date, we have successfully disbursed loans to over 1,000 SMEs. This achievement underscores our deliberate commitment to positively impact the Nigerian economy through targeted support for SMEs. Since our inception, every loan disbursed has been directed towards SMEs, reaching a total of over 1,000 beneficiaries. How do you ensure that the beneficiaries are utilizing the loans provided to them for business growth and to contribute to the economy? The primary way we ascertain the proper utilization of the funds we disburse is through their repayment behavior. If beneficiaries have diverted the funds and not invested them in their businesses, it would reflect in their repayment patterns. Additionally, we implement rigorous monitoring mechanisms once the loan is disbursed. This ongoing monitoring allows us to assess the impact of the funds on their businesses and on the economy as a whole. Furthermore, maintaining a positive credit appraisal is crucial. A strong credit record not only facilitates future loan requests but also enables beneficiaries to potentially access larger loan amounts. Therefore, we emphasize the importance of maintaining a favorable credit history. When you mention that your portfolio at risk is below 1 percent, does that imply that you do not encounter other challenges? The strategy we’ve employed acknowledges that some clients may face difficulties in repayment, particularly during certain business cycles such as festive or fasting periods. For instance, clients in the fast-moving consumer goods (FMCG) sector may experience reduced returns during fasting periods due to decreased consumption levels. Our proactive monitoring of these clients helps mitigate potential challenges and aids in the recovery of funds. As previously mentioned, we exclusively provide loans to SMEs with a minimum of 12 months of consistent business operation and cash flow. This ensures that our borrowers have a track record of financial stability, as evidenced by their bank records. We do not extend loans to startups but rather focus on established businesses with a proven track record. Our credit analysis process is thorough and detailed, assessing the borrower’s financial history and ability to repay. For instance, if a borrower has transacted less than N500 million in the past 12 months and seeks a N5 million loan, we evaluate their monthly turnover to ascertain their repayment capacity. This rigorous process ensures that loans are utilized effectively and that borrowers can comfortably meet repayment obligations. Additionally, we implement regular monitoring to ensure that funds are used appropriately and not diverted for non-business purposes. We are mindful of seasonal factors, such as festive periods, to prevent misallocation of funds. Our commitment to responsible lending practices and diligent monitoring safeguards against potential diversions and ensures that our support truly benefits the MSMEs we serve. What are some of the other challenges your business faces? In the current macroeconomic landscape, businesses encounter various hurdles. The high cost of operation is a prominent issue, compounded by volatile market conditions. Fluctuations in prices, especially due to foreign exchange (FX) challenges, pose significant obstacles. Even after procuring goods, market dynamics can swiftly impact prices, leading to uncertainties. Moreover, macroeconomic indicators like inflation rates, currently at 33.2 percent, further complicate business operations. Elevated inflation affects purchasing power and overall business viability. Additionally, the cost of funds presents a considerable challenge. While securing financing is crucial, prevailing market conditions have increased the cost of capital, with investors demanding higher returns on their investments. Despite these challenges, we actively seek solutions to mitigate risks. This includes sourcing affordable and stable funding options while prioritizing long-term relationships with fund providers. We also recognize the importance of stable economic policies in fostering a conducive business environment. Efforts by the federal government and the Central Bank of Nigeria to stabilize the economy, particularly in areas like FX markets, are crucial for SMEs to plan and navigate business operations effectively.

Top bankers bag CIBN fellowship awards

Hope Moses-Ashike Oct 23, 2023

Some bank executives have been conferred with honorary fellowship awards by the Chartered Institute of Bankers of Nigeria (CIBN). Read...

UK court dismisses $11.5bn P&ID arbitral award against Nigeria

Isaac Anyaogu Oct 23, 2023

•Tinubu hails verdict, says victory is for Africa A UK judge has dismissed the $6.6 billion judgment against Nigeria –...

Naira falls to all-time low of N1,210/$ on demand pressure

Hope Moses-Ashike Oct 23, 2023

On Monday, the foreign exchange (FX) market resumed trading after the weekend, with naira hitting an all-time low of N1,210...

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No assassination attempt on my life – Kogi Governor counters Information Commissioner

BusinessDay Oct 23, 2023

Governor Yahaya Bello of Kogi State has denied reports of assassination attempt on his life by gunmen in military uniform...

Atiku demands audit of power sector debts, accuses Tinubu of misleading Nigerians

Supreme court reserves judgment on Atiku’s application

Godsgift Onyedinefu Oct 23, 2023

The Supreme Court has reserved judgment on the application filed by Atiku Abubakar, the Presidential candidate of the Peoples Democratic...

ICPC says N71.2bn out of ₦100bn student loans fund diverted

FG begins payment of student loan January 2024

Cynthia Egboboh Oct 23, 2023

President Bola Ahmed Tinubu has announced the federal government will commence the disbursement of student loan to Nigerians by January...

Here’s your guide to getting building approval in Lagos, avoid demolition

Chuka Uroko Oct 23, 2023

At a time in Lagos, Nigeria’s commercial nerve centre, when spate of building demolition in the state is on the...

Nigeria’s N23trn fiscal deficit may pressure gains of new tax regime

Rising FAAC inflow seen improving fiscal deficit

Hope Moses-Ashike Oct 23, 2023

Inflow into the Federal Account Allocation Committee (FAAC) account has increased from about N800 billion monthly to over N1.7 trillion...

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News

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Accion MfB, CAFET empower fashion entrepreneurs, creatives

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Top bankers bag CIBN fellowship awards

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No assassination attempt on my life – Kogi Governor counters Information Commissioner

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FG begins payment of student loan January 2024

Here’s your guide to getting building approval in Lagos, avoid demolition

Rising FAAC inflow seen improving fiscal deficit

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