With a sterling career across banking, strategy, entrepreneurship and risk management, ‘FOLAKEMI FATOGBE – Chairman of the Risk Management Association of Nigeria (RIMAN), in this interviews, gives insights into how Nigeria can adopt risk management practices to improve governance, the economy, and lives of the citizenry. Also, how organisations can leverage it for sustained growth. Excerpts:
Could tell us a bit about yourself and your career antecedents?
My professional experience spans over thirty years in central, development & commercial banking, consulting, strategy implementation and entrepreneurship. I recently came to the end of my tenure as the pioneer Director of Risk Management at the Central Bank of Nigeria (CBN) where I also served as a Special Adviser, Banking Reforms & Risk Management to the then CBN Governor, Governor Sanusi Lamido Sanusi, in the heat of the 2008/2009 Global Financial Crisis.
Prior to joining the CBN, I worked extensively in the United Kingdom, in organizations such as: The Bank of England/ The FSA (where I supervised EMEA banks): The Natwest Group (as a Corporate Banking Strategist); Lloyds TSB Financial Markets (as a Basel II Risk Consultant), NCR Teradata (as a Programme Director for Banking) and, the Royal Bank of Scotland (as a Risk Consultant). I also gleaned entrepreneurial experience from working in Property Development and Business Consulting (she co-founded a UK office for Philips Consulting).
In addition to RIMAN I also serve on a number not-for-profit boards (as permitted by Public Service rules) including: Fountain Holdings (the investment arm of the Ekiti State Government); Hampton Preparatory School, Lagos and Ileri Foundation.
I hold an MBA in Finance & International Business from Cardiff Business School and a Bachelor of Arts degree in Communication Arts from the University of Ibadan.
Not many people, including economists, would typically associate economic development with Risk Management, you suggest that there is a linkage between the two; could you explain the nature of this linkage?
Having worked across continents in two different central banks, a number of commercial banks as well as an entrepreneur, I have come to appreciate the critical role that Risk Management can play in Economic Development. Hence I am a strong advocate of Risk Management for Economic Development. I therefore constantly seek ways to leverage my varied work experience beyond traditional Risk Management into Risk & Opportunity Management as a means of achieving inclusive and sustainable economic growth. I see significant scope in using this uniquely progressive, albeit less well known, take on Risk Management to help attract capital to Nigeria and the rest of Africa thereby aiding job creation, poverty alleviation and economic development.
It is this link with Opportunity Management that serves as one of the primary means through which Risk Management can become an Economic Development enabler. They say nothing good comes easy, no gain without pain and therefore, no development without risk. Embedding efficient and responsible risk management practices enhances a country’s ability to withstand adverse events and better exploit economic opportunities. It is for this reason that in the aftermath of the devastation caused by the Covid-19 pandemic that the UK government is considering the recommendations of experts from the universities of Oxford and Cambridge contained in a report titled “Future Proof” regarding the appointment of a chief risk officer (CRO) and the adoption of a risk management “three lines of defence” model to improve the country’s co-ordination and management of extreme risks and resilience. A OECD study found that central governments in the six countries under study have each undertaken a more systematic approach to country risk management featuring concepts familiar to the private sector’s risk management culture.
As far back as 2009 the OECD published a report titled “OECD Studies in Risk Management – Innovation in Country Risk Management”. The report noted that a number of OECD countries had adopted a risk management cultures similar to that of the private sector. The Report also recommended a number of ways in which countries could managerisk at country level including via the appointment of independent country risk officers or via the creation of independent national risk institutes. Given the multitude of issues that Nigeria faces at the moment, including holding the unfortunate sobriquet of being ‘the poverty capital of the world”, it is clear to me that embedding risk management in the centre of government would complement the great risk management work already being done in the private sector and in some parts of the public sector. Ultimately this would be to the benefit of the already stretched public purse as well as the people.
A good example of how effective and responsible Risk Management can be to the benefit of the people and save lives can be seen from what I call, ‘A Tale of Two Earthquakes’. In the year 2010 both Haiti and Chile experienced earthquakes just about five weeks apart. On the12th of January 2010 Haiti experienced an earthquake which was 7.7 in magnitude. It wreaked total havoc in the country and resulted in a death count of over two hundred thousand people. A few weeks later on the 27th of February Chile experienced an earthquake which was 8.8 in magnitude, the fifth worst in the world. It was so powerful that NASA scientists estimated that it moved the axis of our planet and shortened the day albeit by just a fraction of a second. Despite the force of it, just over five hundred people died. Why the devastatingly different experience you might ask? The answer lies in the fact that Chile had fortified itself against earthquakes by building resilience having suffered devastation from the most powerful earthquake in recorded history—magnitude 9.5. Chile had institutionalized a culture of risk preparedness hence Chileans were ready for it. For many years Chileans familiarized themselves with disaster preparedness plans, practicing countless earthquake drills and running through evacuation routes. Children are not left out; their teachers teach them how to react if disaster strikes through classroom simulations.
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When I started exploring the literature on Risk Management for Economic Development there wasn’t much around, truth be told, there still isn’t. However, I did stumble upon the 2014 World Bank, World Development Report titled ‘Risk and Opportunity: Managing Risk for Development’.
The central thesis of the report is that by managing their risks responsibly and effectively developing countries can achieve economic resilience, security and therefore enhanced economic development. Although individuals’ own efforts, initiative, and responsibility are essential for managing risk, their success will be limited without a supportive social environment—especially when risks are large or systemic in nature.
Could you also tell us a bit about RIMAN including what it stands for and what it does?
The Risk Management Association of Nigeria (RIMAN) was founded on 29th March 2000 to promote best practices and advocacy in risk management in Nigeria. RIMAN is the foremost non-profit professional association for risk management practitioners in Nigeria. It was established by Nigerian banks as a means of addressing the risks inherent in the financial services industry.
RIMAN is the pioneer and largest risk management association in Nigeria. Since its inception RIMAN has remained at the forefront of risk management in Nigeria, assisting its members, operators and regulators in the financial and non-financial services sectors to develop critical risk management skills to build capacity and thereby strengthen resilience across the various sectors of the economy. RIMAN partners with all stakeholders, both within and outside the country. It has institutional, individual and student members.
In furtherance of its professionalization of Risk Management in Nigeria objective, the Association runs a professional Risk Management certification examination for Risk Management professionals. RIMAN also partners with regulators to ensure smooth implementation of government policies to enhance effective management of first, the financial sector and now, other sectors of the economy.
In advancing best practice in risk management over the years, RIMAN collaborated with the CBN to see to the establishment of Credit Bureau in Nigeria.
Currently membership of the Association has gone beyond deposit money banks (as pioneers) to other Non-Financial Institutions, regulatory bodies, manufacturing/real sector as well as public sector in appreciation of the existence of risk management in every facet of our business and personal activities. Undoubtedly, RIMAN has in over the last twenty years helped strengthen the financial institutions to avoid the avoidable collapse that happened before and after the banking sector consolidation.
Having been the pioneer Director of Risk Management at the Central Bank of Nigeria what guided your decision to join RIMAN and not any of the other Risk Management bodies/associations?
It really was a no-contest. I did some research both within and outside the risk community to ascertain which Risk Management association was not just the most prominent but more importantly which was the most professional in its service to its members and the wider financial services community. RIMAN came out tops. I have had no cause to reconsider my position given the manner in which the Association conducts itself, the quality of the Board of Trustees and ExCo as well as its mission and vision.
RIMAN’s track record of risk leadership, collaboration and, capacity building is well known.
Why do you think that Risk Management has become more prominent in the last decade or two?
The profession of Risk Management has gained in its prominence in the last decade or two for a number of reasons. In my view, based on my own career antecedents, Risk Management truly came into its own and went mainstream during the Basel II global regulatory event. This saw the beginning of Risk Management’s move from being just a back-office cost centre to gaining a seat in the C-Suite table. Basel II gave banks clear line of sight to the financial benefits that would be derived from having robust Risk Managements systems, staff and governance.
The benefits and advantages enjoyed by banks became noticeable to other sectors, this is why risk management has also made significant inroads into other industries – most noticeably in energy, telecommunications, insurance, manufacturing and now even government.
Given the clarity that you have just highlighted in respect of the positive correlation between Risk Management and Economic Development, how best do you think that a country like Nigeria should best leverage Risk Management to accelerate Economic Development for Her citizens?
Risk Management is not just about building risk defences and resilience, it is also about achieving prosperity by maximizing the benefits to be had from pursuing opportunities. The management of risk is an important part of being able to take advantage of economic opportunities. Research has shown that people in developing countries like Nigeria are not deriving the full benefit of economic opportunities. The path to economic development is paved with risks and opportunities. Opportunities come with risk, the idea is to minimize risks in order to leverage innovation opportunities.
Data shows that Nigeria has the highest number of people living in poverty in the world, this means that millions of Nigerians need to be enabled to pursue opportunities in a way that does not unduly expose them to risks.
Risk Management can be applied to address a number of our current issues such as:
Governance: It was the late Kofi Annan that said “Good governance is perhaps the single and most important factor in eradicating poverty and promoting development”. Risk Management comes with strong governance models that allow for accountability, transparency, monitoring, rules, standards, reporting and consequences.
Diversification: Nigeria has a long standing unresolved issue regarding the need for FX revenue diversification. Risk Management seeks to address diversification issues backed by governance structures to ensure that diversification targets are met.
Threat & Crisis Management: Risk Management has a role to play in the maintenance of National Security. Key Risk Indicators had flagged as far back as 2007 in the north-east region red flags in the areas of youth restiveness, unemployment, poor school enrolment rates etc. as early warnings to the security issues that we are seeing today. Risk Management seeks to ensure that risk data is translated into concrete policy actions. I listened to a very insightful interview by Mr Rotimi Sankore over the weekend that confirmed my view in this regard.
Infrastructure: Infrastructure investment is integral to poverty alleviation. Applying risk management to the way and manner contractors are selected and monitored will ensure higher success rates of national projects. Risk practitioners are uniquely placed to assist in closing the long-term infrastructure financing gap. By helping to identify and de-risk areas of market failure in order to bring in the private sector. Long-term finance has a fundamental role to play in generating higher economic growth/ development and welfare. A lack of infrastructure comes at an enormous economic and social cost
Opportunity Exploitation: Embedded Risk Management will also put Nigeria in a better position to tap into innovation and opportunities in a de-risked manner. The inability to manage risk properly poses significant obstacles to poverty alleviation and shared prosperity. Various reports like that of the World Bank show that effective Risk Management can be a “powerful instrument for development” in that it can help save lies, unleash opportunities and prevent or lessen financial losses.
Managing Volatility to Effect Sustainable & Inclusive Economic Growth: Risk Management helps corporate to effectively hedge against volatility; these lessons can be more widely adopted.
Experts have maintained that governance risk and risk culture have remained key challenges in the public and private sectors of Nigerian economy. What are your thoughts on this?
Having already considered and confirmed the linkages between Risk Management and economic development, it is clear to me that embedding effective and responsible risk management within government and more widely across the public and private sectors will go a long way in creating the type of risk and accountability culture that will facilitate a more judicious and therefore a more inclusive spread of our economic resources thereby helping to reduce poverty.
Embedding risk culture will also be beneficial in our ability to use data as early warnings to prevent some of the other socio-economic shocks by linking dots between different issues e.g. out of school children, high teacher student ratios, unemployment, radicalization, poverty and insecurity.
What in your view, are the key Risk Management learnings from the COVID-19pandemic? What is RIMAN doing differently?
The COVID-19 pandemic has even made it clearer that to survive in the new normal, countries and organizations need Risk management more than ever before. For example, the Pandemic accelerated digitization and created new business models i.e. remote working. The speed of change and innovation brought about by the Pandemic came with their own risks – one of the most noticeable ones being the heightened cybersecurity risks that arose from the widespread accelerated digitization and remote working which involved huge numbers of staff connecting to office systems from offsite locations.
In consideration of the emerging risks, the RIMAN 2021 conference was focussed on Risk Management in a Digital Era. We deliberated on the proactive steps that risk practitioners need to take in order to mitigate the emerging risks to their businesses. The recommendations that came out of the conference included:
— The need for the CRO to be a member of the Crisis Response/ Business Continuity Team
— The need for risk functions to develop IT and digital skills
— The need for realistic and tested business continuity and disaster recovery plans
— The need to convert business processes to digital processes where possible
— The need to give more consideration to rare and extreme risks aka Black Swans
— The need to revise strategic plans with current realities with risk management central to the discussion
— Train the first line of defence to be able to identify risks in their activities especially for those remotely working
— Design policies for extended remote working.
At RIMAN we have adapted to the then ‘new’ normal by adhering to many of the outcomes of the conference and allowing for more flexibility in the way and manner with which we conduct business with and communicate with our various touch points.
What is your view about risk uncertainty and investment decision making in the current climate?
Since the Pandemic, the acronym “VUCA” is often used to describe the current investment/ risk management climate. We often hear or read about “Investing in a VUCA World” or about “Leadership in a VUCA World.” VUCA is an acronym that stands for Volatility, Uncertainty, Complexity and Ambiguity.
Volatility – Volatility refers to the pace or speed of change in an asset, industry or market leading to sometimes unexpected fluctuations in demand and supply. It is typically used to describe the speed at which the price of an asset increases or decreases for a given set of returns.
Uncertainty – Uncertainty refers to the extent to which we can correctly predict future outcomes.
Complexity – Complexity refers to the number of factors that we need to take into account and the nature and extent of their interconnectedness.
Ambiguity– Ambiguity in investment management refers to a lack of clarity and meaningful information that impact the ability to interprete data concerning an asset class, a risk event or other.
The four terms are related and clearly illustrate the need for deep risk: return expertise and analyses given by investors as a result of the prevailing high-risk VUCA environment. However, with high risks come the potential for either high returns or high losses. The key thing that investors need to bear in mind in the current VUCA environment is the need to understand individual and/or corporate risk appetites and hence be comfortable with the risk return trade off of whatever investment they decide to make.
It is clear that RIMAN plays a leading role in enhancing the practice of Risk Management in Nigeria, what more can be done in this area to maintain Risk Management standards and avoid it becoming an all-comers affair?
One of the key lessons learnt from the various financial crises and indeed the Covid-19 Pandemic by governments, policy makers, banks and corporate bodies is the importance of implementing and embedding risk management practices that are both efficient and responsible. The various banking crises/failures in Nigeria have also largely been attributed to failed risk management practices and therefore corporate governance.
Against the foregoing, risk management has over the years grown as a distinct profession, as a result of this, different countries have established professional Risk Management associations that seek to protect and enhance risk management standards and practices by serving as repositories of knowledge, capacity-building and coordination on matters relating to the professionalization of risk management within their respective jurisdictions. To enhance this objective a number of country risk associations run exams for their members as a means of increasing the Risk Management expertise of their members and providing a means through which employers can discern the level of expertise of their existing or potential Risk Management staff. RIMAN has established and continues to run a Certified Risk Management (CRM) program in Nigeria. The CRM is already recognised by a number of regulators. The intention is to seek to obtain a verifiable ‘Chartered’ status for those that successfully complete the program.
Academic Risk Management education in Nigeria is still at the infancy stages with only three Nigerian Universities offering Risk Management as distinct academic courses – RIMAN partners with universities as a means of strengthening their academic offerings.
Legislation is needed to further support the expertise of industry risk practitioners and the professionalization of risk management by giving legislative backing to a recognised and desirable professional Risk Management qualification as has been done in a number of other countries.
What is the role of the RIMAN Board of Trustees?
The key role of the Board is to oversee the business and affairs of the Association, in an advisory capacity. The ability of the Board to oversee the affairs of RIMAN is strengthened by the quality and synergy of the current Board. RIMAN is fortunate in that it has a strong Board that is comprised of experts in different sectors and aspects of Risk Management. We have chief risk officers/executive directors from regulators, banks, wealth management, consultancy, entrepreneurship as well as a Professor of Information Systems from Nigeria’s foremost Business School.
The Board’s other roles include:
§ Reviewing the overall strategic plans and direction of the Association
§ Overseeing and evaluating the conduct and performance of the Executive Committee and the Association
§ Ensuring that the operations of the Association are effectively managed in accordance with the best practice governance and risk management – maintaining high standards of transparency and accountability
§ Establishing a succession plan.
§ Oversight of the implementation of a constitution for the Association
§ Oversight of annual budgets, major capital commitments, the management of assets and other investments of the Association in line with the Association’s constitution.
Embedding risk management in the centre of government would complement the great risk management work already being done in the private sector and in some parts of the public sector
Embedded Risk Management will also put Nigeria in a better position to tap into innovation and opportunities in a de-risked manner
