Microfinance Banks have a strong role to play in the recovery of the Nigerian economy but needs the support of the Federal Government, Taiwo Joda, managing director/CEO, Accion Microfinance Bank Limited/newly elected Chairman of National Association of Microfinance Banks Lagos chapter, in this interview with Hope Moses-Ashike speaks more on the issues affecting the sub-sector. Excerpt
Congratulation Sir on your new position as the chairman of National Association of Microfinance Banks, Lagos (NAMBLAG), in your new role, what changes are you bringing in the sub-sector?
The first thing is that we will continue to build on the legacy of what the last executive has done. I must commend them; they have done very well, they have been able to achieve quite a lot, However, there are urgent concerns that borders around capitalization; urgent concern that borders around the ravaging pandemic and how it is affecting our business. Urgent concerns on how we can further engage the Central Bank of Nigeria (CBN) to ensure that the covid-19 fund gets to microfinance bank and also the issue of encouraging strong ethics and corporate governance around the industry.
We also need to be able to drive acceptance with the people; to be able to self-regulate ourselves and not wait for the central bank of Nigeria or the Nigeria Deposit Insurance Corporation (NDIC), or other regulatory bodies to begin to tell us what we need to do.
We need to begin to tell ourselves that this is what we need to do; this is what we should do to gain popularity and public acceptance, to gain the trust of the public that we serve and also of the regulators. With this, we have marshalled strategies with the new committee to ensure we tackle these things one by one and to get to that last mile. So, the first thing we did was to outline collaborators in the industry that we would like to engage with.
We have visited the FinTech Association of Nigeria and they have come up to say we can become a member body of the Association. At various fora, what you see that comes out very pertinent in evolving our business is the issue of digital and FinTech: adopting financial technology in our business, and a lot of microfinance banks are yet to do this.
We felt the initiative – collaborating with the FinTech Association of Nigeria is going to speed up that process of adopting financial technology. Number two is that working with them we have been able to get vendors that are already qualified, that are credible to work with and not FinTechs that will disappear the next minute. We also know that on that platform there are a lot of regulators, and that platform enables us to meet with regulators and put up issues that we think should be discussed.
The other one is; working with industry leaders and organisations like the Chartered Institute of Bankers of Nigeria (CIBN) to develop capacity; to make sure we bring best global practises to bear in the way we do business, the way we drive our business and the way we deliver customer service to our teaming customers. The fact that there are people at the bottom of the pyramid does not mean they don’t deserve excellent service.
We are working with the CIBN; we are also working with the Microfinance Learning and Development Centre. We have signed a Memorandum of Understanding (MoU) with the Microfinance Institute and Development Centre to come up with a curriculum that we think will be beneficial to microfinance banks in terms of training and upgrading their skills and capacity.
The other areas we are looking at are to engage the regulators. A lot have been said about the adoption of NAMBUIT as the core banking software. We want to see how we can handshake the regulator, and by regulator I mean the CBN and NDIC to ensure that the deployment of the technology is seamless. Also, to ensure that the deployment of the technology actually drives and gives us the benefit we strongly desire as an industry. So, we are working on this and quite a lot of things to reposition the industry to fulfil the financial inclusion objective of the federal government.
How as the pandemic affected the sub-sector?
The pandemic had adverse impact on the sub-sector for two major reasons: we serve customers that are at the bottom of the pyramid; customers that are really vulnerable to this pandemic. Most customers that we serve are almost at subsistence level – we call them the active poor; they make daily sales to be able to ensure a daily profit to spend on their family and friends. So the lockdown affected them in so many ways: number one is the intercity lockdown that didn’t allow vehicles to travel round Nigeria, affected the supply chain locally because some of these customers have to travel out of the state to get the goods they want. Those who are farmers were unable to go to their farm; then we also have the border lockdown.
Some of them are traders, some are manufacturers. They get raw materials from outside the country, those things were not there. And it had a spiralling effect because at some point they had to lay off some staff and were not able to generate revenue to continue to service the business. So, it affected their business and their ability to repay the loans that they have taken from microfinance banks. What we are happy about is when the Central Bank of Nigeria said we should go ahead to restructure their loans and make it easier for them.
I think that is a wonderful idea from the CBN, but we expect more. We expect some level of refinancing of their debt so that the debt burden and the interest burden of the debt will be lower on the customer. If for example the N50 billion ‘NIRSAL fund’ have been used to refinance some of the loans through the microfinance banks with lower interest – that interest burden could have been much lower and then the microfinance banks will also be able to have capital to inject more funds into these businesses for them to continue to do business. You will recall that two significant things happened as a result of the pandemic, maybe not necessarily as a result of the pandemic but happened in the economy: one is the hike in exchange rate; the exchange rate of Dollar to Naira went up significantly. The second problem was inflation also went up. So, for a customer that normally do business with N1 million, you will see that to operate at that level of business will probably need N1.5 or N2 million. So the requirements for the fund to survive and stay afloat of the degrees of the business have gone up.
So, yes in one end it has affected the customer very badly and because it has affected our customer very badly it has also affected the microfinance banks very badly. It’s been a very tough year for everybody but particularly for microfinance banks. It’s been a very difficult year.
What effort are microfinance banks making to shore-up their capital? Are we looking at mergers and acquisition?
There have been a lot of webinar; there have been lots of meetings that have attracted foreign direct investment discussions with microfinance banks that are viable for further injection of capital. There are also local investors who are ready to work with microfinance banks. We have also seen increased interest from the FinTechs who want to collaborate with microfinance banks to drive the business.
On one part, yes there are lots of activities going on. Then there are also talks on mergers and acquisitions. We have had discussions with consultants who had sessions with microfinance banks, especially across Lagos state on how they can go on successful merger and acquisition projects if they want to embark on it. But there is a bit of a challenge around that also – so, we are not seeing the kind of traction that we would have loved to see and that is because in a typical pandemic situation or economic quagmire that we found ourselves, the tendency is for investor to adopt a wait-and-see attitude and said let us see how this pandemic pans out.
The pandemic have really slowed down the progress that we would have loved to see in that sector. You know the talk about capitalization started before Covid-19. We have made so much progress that during this Covid-19 everybody was doing a wait and see and quite a number of investors would rather keep their funds in liquid form than rush to invest. You may not get the real value of the company you are buying at this time if you do the valuation. Of course a lot of restructuring of loans have gone up and people are waiting to see after the pandemic, how those loans will perform. And so, for that reason it is clear that more time is needed.
In my own honest opinion I will say that before we even go back to the discussion on the pandemic, we should wait for the pandemic to be over – for the discussion on capitalization; we should wait for the pandemic to be over, then we can really access how the pandemic has affected businesses. And that is not to reduce the importance of raising capital of microfinance banks. I believe strongly in it, I agree with it, but I think the timing needs to be rechecked. At the end of this year it will not be unusual to see a lot of microfinance banks having a worse capital position than December 2019, that’s pre-covid-19 because a lot of microfinance banks will make loses this year. So, we need to access what will even be the capital base of the industry at the end of December 2020 and how we can move from there. That is what will give us the clear picture of number one: how much capital do we need to raise; how long is a feasible time to be able to raise that capital, so that a lot of microfinance banks and a sizeable portion can survive.
What is the outlook from the sub-sector?
I see a stronger microfinance bank sub-sector emerge post pandemic. The regulators and a lot of us have a very good role to play here. On a sad note, we hear that the level of poverty has increased. But, on the flip side, that is the opportunity for microfinance banks to get them back on their feet, to get their business going again, and to bring them into prosperity. It is the critical mass of these small businesses that we are able to help get started again, to start doing business that will grow to become big, and contribute to the economic growth of the economy. I also believe that once you grow businesses, you bring a lot more people into the tax bracket of the federal government, so if you take a future outlook, by the time you help businesses to grow, they start paying tax, and that’s more revenue for the government. That is why, though I see a very bright future, and a strong role for microfinance bank to play in the recovery of the Nigerian economy, Federal Government must rise up to the occasion to ensure that this happens; by supporting the microfinance banks to achieve this.
Where can you place Accion Microfinance Bank in the sub sector now?
Accion Microfinance Bank remains a leader in the sub-sector. A lot of interesting things have happened and one of them is that the lockdown actually gave us a lot of time to drive our digital aspiration and digital agenda. We have revamped our USSD. If as a customer of Accion, you experience a fraud, that is you begin to receive alerts that you have not initiated on your phone, before now, you might need to call our contact centre for them to block your card or block your account , which a lot of banks are still doing today. And in that process, valuable minutes are wasted. But now, if you dial *572#, the 8th item under *572# is self-help, when you click on the self-help, it asks you if you want to block your card, so in ten seconds, you can block your card and disable the activities of fraudsters. You don’t need to call any contact centre. You can even block your account. So we have improved on the features of our USSD. And it has also enabled us to acquire and train and also release a lot of agents into the market.
