Information Technology (IT) has enhanced financial inclusion, according to Akinwunmi Lawal, managing director, NPF Microfinance Bank Plc. He also gave insight to other issues in this interview with Hope Moses-Ashike.
What is the impact of the economic crisis on customers’ loans in recent times?
Basically, we all know that purchasing power is generally weak in the economy. I have always been an advocate of the saying that everybody needs money but not everybody can manage it. I won’t just give you money simply because you said you need money, but your ability to engage the money into a productive system. These are the things we evaluate. We do an evaluation to ensure that you have the capacity to translate this money to economic value, that is you have the capacity to invest the money profitably and make income out of it and then payback the money.
The evaluation is to ensure that you have that capacity. Because of the high cost of living, inflation has weakened the purchasing power and people’s take home pay can no longer take them far. So you have to prioritize and see what is most essential to you. The value of money is quickly depreciating by the day, so it’s just for you to prioritize your spending and then cut off all forms of exclusive things that might affect your disposable income badly. Even organizations like ours have been trying to see how we can manage our costs.
Despite insecurity in some parts of the north, the bank recently expanded operations by opening branches in such areas?
The bank, in her quest to serve the public, has opened branches in many States with about 32 branches and is still planning to open more. The recent branch was opened in Borno State where the Governor was so excited and encouraged people to come out and patronize NPF Microfinance Bank Plc. Banking service would give the people a sense of belonging and I think much is being done to ensure that peace returns to all those areas. Whichever way you look at it they are Nigerians, they are human beings and they also need financial services. To encourage people to come and serve, the governor of the state made a pronouncement of N100 million, N50 million to be deposited in the bank, N30 million to give loan to deceased police officers; N25 million as scholarship or award to children of deceased officers.
What are your assessments of digital banks, which are strong competitors to the MfBs?
Take it from me, Information Technology (IT), has further enhanced financial inclusion. Through these, a number of people are now financially included, with this they can affect financial transactions on their phones, open an account without visiting the banking hall.
These are strong value addition and financial literacy has actually improved around us when it comes to credit creation or trying to give loans and advances to these customers. A lot of due diligence is required to ensure that there is the capacity to repay. As a financial institution, we should also not create a situation where because of competitiveness, you drop your guards and give out credit facilities aimlessly without doing due diligence of the person’s capacity and capability to service the loan and make that loan good.
We should not be reckless, but do things conservatively by ensuring that customers are well profiled to ascertain that they have the capability to deploy the money profitably and to service the loan and make it good. What goes round comes round, by the time you create an atmosphere of what we can call serial borrower, where you borrow from every institution in the ecosystem, the loans would in no time turn to bad loan and when it turns to bad loan it will kill the institution and eventually it will rub off on members of the public because funds in the banks are owned by people and by the time the institution goes into extinction, they will lose their money.
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IT and fintech have strengthened and improved financial inclusion, a number of people are now financial literates. When it comes to advancing facilities I think we need to be extremely careful so we do not create a situation where we have allowed some people to be getting to a point where they cannot meet their obligation. Some people just borrow for consumption; you must have an expectation and a means where you would be willing to put that money into productive capacity. How to pay back must be a factor that each institution must put in a strong credit appraisal system to ensure that if we have that in house facility that we are granting to customers they should have that capacity to pay.
How do you assess borrowing capacity and repayment capacity presently?
In the first instance you don’t give somebody money that is too small to do his business and don’t give him too much. A proper profiling, proper looking at your sales capacity, ability to market the product and translate it into revenue is key in determining your survival in the ecosystem.
What is the level of investment in IT to ensure effective service delivery?
There are no two ways about it, today it is information technology and fintech that can drive your business and you have to grow the numbers. When you grow the numbers the profit will definitely come because it is through the numbers that you can make you can recover your costs. With information technology and the social media platform we’re actually growing the numbers induced by the day and a number of people have embraced the various platforms, the USSD platform, the mobile app platform in opening accounts and then in running creative activities. Banking is about service, so in as much as you can provide that service delivery effectively and efficiently, definitely the income would trickle in and cover your cost effectively and some reasonable margin for your stakeholders.
Your bank was rated A- and BBB+ rating recently, what does this mean for the bank?
Score A- is what we had from Augusto, Triple B+ from GCR and these are investment grades. For Microfinance Bank to have attained that level it shows that MfB is solid, well managed and has capacity to honour its obligation at any time.
Invariably what it means is that having subjected ourselves to these ratings, investors all over the world will have confidence and believe that this is an institution they can entrust their money with and go back to sleep. All parameters, all economic indices that make an organization to stand the taste of time this institution has passed it, so investors can put their money.
The primary purpose is for us to present ourselves to the investment world, to the investing public, and to all stakeholders that this is the position of this organization in the ecosystem in spite of all the challenges. We will not stop at that because there are other higher ratings which we are striving to attain and this will come about by the quality of people that we attract in terms of investment into the organization.
What is the bank doing to sustain the achievement while aiming higher?
The truth is that you have to choose your risk, meaning that you have to ensure that the quality of your asset gets stronger. You have to ensure that you grow your asset base, liability base and your capital base, these are things that will enhance the value. If you have a low risk asset, your loans and advances that you have given to customers are of no risk. High risk means that the tendency of people to repay is low. But low risk means that the repayment of people is apt and optimal. So our Non-Performing Loan (NPL) has been brought down. By industry standard it is five percent, by the threshold in the bank itself, the bank standard is three percent. Our strive is not by industry standard but by the bank threshold – to go below three percent in terms of our NPL asset. If you have attained that, it means your quality of assets is great. Our deposit liability will increase. By the time we translate that to profitability, our return on asset or dividend payout to our shareholders will go high and our retained earnings will also go up. All these are factors that show that the stronger it is, the more we improve on the rating which means we would be able to grade from this A- to AA and from triple B we can move to A as an official investment rating. So we aim to do much better in our next rating.
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