‘Nigeria’s Microfinance Policy, Regulatory Framework among best in the world’
GODWIN EHIGIAMUSOE has just completed his tenure as the managing director of LAPO Microfinance Bank. Over thirty years ago, he took a very simple step of setting up Lift Above Poverty Organisation (LAPO), which has grown into a number of mutually reinforcing institutions serving low-income households. In this interview with Hope Moses-Ashike, he speaks on record success story of the bank and how he will be providing leadership for the LAPO Group, which consists of institutions in micro-insurance, micro leasing, health, agriculture and social empowerment.
Until recently, you were the managing director of LAPO Microfinance Bank. Give you us your perspective on the current state of the microfinance sector in Nigeria?
The microfinance sector has come a long way. Against the background of the practice at the launch of the Nigerian microfinance policy and regulatory framework, tremendous progress has been recorded.
Why do you say so?
Before the policy, microfinance was confined to the non-profit space. It was common then for people to ask in surprise, ‘what is microfinance.’ The penetration rate of microfinance in Nigeria was far behind most countries even in Africa. Today, the practice has experienced a quantum leap, which has put the Nigerian microfinance sector ahead of most nations.
Let us talk about LAPO. Why and how did you begin?
Lift Above Poverty Organisation (LAPO), as an idea and eventually as an action, was a response to the spike in spread and severity of poverty immediately after the adoption of the Structural Adjustment Programme (SAP) in 1986 by the then government of General Babangida. The central components of SAP were devaluation of the naira; gradual removal of subsidies; rationalisation of workforce in the public sector, and liberalisation of foreign trade. The cumulative effect of these social and economic interventions was the sudden rise in the level of poverty. There were some personal factors. Certainly, it was not the expected explanation of personal experience with poverty. No, our household in the immediate community I grew up was very comfortable. My father built his first-storey building in the village in the year I was born— that was when the number of storey buildings in Benin City was less than fifteen. The personal factor was my early ideological sensitisation on what meaningful development is. Meaningful development interventions are those which target people at the bottom of the society. The condition of living of large number of people at the bottom end of the society is a credible indicator of the level of development of that society. The founding of LAPO was the practical express this development fact.
How did LAPO start?
LAPO was initiated as non-profit in Ogwashi-Uku, a town now in Delta State. When on a vacation job in 1980 with the then Bendel State Government, I was posted to the Cooperative Office in Benin City. The short period was enough for me to realise the potentials of the cooperative enterprise as a veritable tool for rural transformation. When I eventually graduated and sought employment with the state government, I opted for the cooperative department. After one-year study for a post-graduate diploma in cooperative studies, I was posted to Ogwashi-Uku to grow and supervise cooperative societies and unions in the then Aniocha Local Government Area. Very soon, I became disillusioned, mainly because of the over-officialisation of the cooperative movement. I will explain. Government officials right from our boss at the headquarters were deeply involved in the management of cooperatives with little initiative by the members who should be the owners. Approval for formation, inspection, audit exercises, and appropriation of surpluses by the cooperatives were either carried out or sanctioned by government officials. The provisions of cooperative laws and regulations in states across the country were not significantly different from the provisions of the Cooperative Ordinance of 1935, which the colonial masters designed to ‘manage the cooperatives for the natives.’ I doubt if this has changed now. Disillusioned, I reached for my idea and opted to adopt a non-governmental voluntary approach.
What were the initial steps?
I took N300 and gave N100 each to three women in my local Christian denomination, Christ’s Chosen Church of God, which my father introduced us to in 1962. The three women were a wife of an elderly member, a wife of a driver and a very industrious young girl who had just completed her secondary education. Every ‘Afor’ market day in the evening, I would go around to collect repayment of N10 each. There was one incident that remains fresh on my mind. I went to collect the repayment from a lady, one of the early borrowers who joined after the first three. As I knocked at the front door, she came out promptly as if she was expecting me. When I requested the repayment, she promptly denied ever taking money from me. I was so stunned, given that she made repayment few days before. I simply turned away and headed for the house of another borrower. The denying woman ran after me and said as she caught up with me because her husband was in the sitting room and she did not want him to know that she had borrowed money. This incident and perhaps other factors made group approach very attractive and we opted for it.
Many people tend to associate LAPO with the Grameen Bank of Bangladesh. Many call you the Professor Yunus of Nigeria. How did these come about?
My contact with Dr Muhammad Yunus, as he was then known, was perhaps the greatest factor in the pace of development of LAPO. Around 1990, I read about Grameen Bank in Business Times, a very popular and only business newspaper then. It was so inspiring and close to what I was doing. I wrote a letter but had a problem with the address since the address of the bank was not in the Business Times feature. I decided to address the envelope ‘Dr Muhammad Yunus, Grameen Bank, Dhaka, Bangladesh.’ Some months later, I did not only get his reply with an impressive signature but with newspaper cuttings and studies on the Grameen Bank. I was so excited and I wrote to thank him. Dr Yunus published my letter in their newsletter called Grameen Dialogue. Fortuitously, a programme officer at the Lagos Office of The Ford Foundation subscribed to the newsletter. One day, I got a letter from Frank Hicks, the programme officer, who wanted to know more about the project, LAPO. He added that anytime I would be in Lagos I should stop by their office then at Church House, Marina. I did not wait for anytime to be in Lagos, I came to Lagos. Less than a year later, The Ford Foundation claimed the distinction of being the first agency to support LAPO.
Back to Grameen Bank, in April 1991, Dr Yunus invited me to the International Grameen Dialogue along 27 participants from Europe, Asia, US and Africa. The 14-day session, including a field visit, was not only eye-opening but also very inspiring. I remember at a private meeting with Dr Yunus when I appealed for funding support. He looked at me intensely and said, Godwin, you will get funding but first, do everything to do it right.’
On the eve of my department, I turned on my bed at Mid-Town Hotel, Gushan, Dhaka, and said Lord, I will never go back. A year later in April 1992, I resigned from my formal employment. Since then I have enjoyed the confidence and support of Professor Muhammad Yunus who, in 2006, won the Nobel Peace Prize for his work with Grameen Bank and other poverty-focused initiatives.
What do you consider as milestones in the LAPO journey?
LAPO journey and microfinance journey, if you like, are essentially the same.
LAPO was right at the beginning of what was later to be known as ‘microfinance revolution’ and we have lived and witnessed all three phases of development. These are the feasibility phase when we all struggled to prove if putting loans in the hands of poor women and expecting proper utilisation and repayment is possible, and the sustainability phase which was concerned with institutional sustainability of institutions which serve poor people. This was after the feasibility of poverty lending or microcredit as microfinance was called then has been demonstrated. The final and current phase is the full-bloom commercialisation of microfinance with private capital interventions and the accompanying profit-taking. That we went through all the phases and still survive speak volume of LAPO’s institutional resilience. There were several milestones. First is our decision to exit grant mode and reach for commercial loans to fund our loan portfolio. This was unheard off then for a non-profit to seek loans and not grants. We were determined, based on our reasoning, that if we desire to make impact on poverty, we needed to reach a very large of the poor. Grants cannot do that. Grants are adequate for implementation of pilot projects and obviously inadequate to implement growth plans. We were prepared for the challenges and requirements for accessing commercial loans. This singular bold step propelled LAPO to where we are today in Nigeria and indeed Africa. The second major step was our decision to go under regulation with the emergence of the Nigerian Microfinance Policy and Regulatory Framework. It was not attractive to microfinance NGOs then.
What were the enabling factors for LAPO and the challenges as well?
First is my firm commitment to assisting the people at the bottom of the society to break out of the grip of poverty. This came out of my commitment to meaningful development, which is about the development of the ordinary people. Therefore, the founding of LAPO was deliberate. For instance, six operating assumptions were formulated very early to guide the services, the structures and targets of the organisation.
By the way, what were these operating assumptions?
First was that the poor are disadvantaged to meaningfully benefit from services provided by very formalised organizations and agencies.
Second, the poor are not necessarily lazy. Of course, the poor women and their male counterparts work from dawn to dusk with very little to show for it because they operate from a very slim economic base.
Third is that an improvement in the socio-economic situation of the poor would take place if financial services were added to support their physical labour and skills. We believe in the power of capital as an effective escalator out of poverty.
Fourth, small groups have tremendous influence on cooperating individuals.
Fifth, poverty is reinforced by problems such as too large family size, malnutrition, ignorance and disease and, sixth, poor women and children are relatively more neglected.
These obviously are not original but simple statements of fact which define what we do, how we do it and whom do we do it for?
LAPO, from the very beginning, prioritised informality in all we do; provide financial services in addition to health and social empowerment services; apply group methodology and focus more on women and children.
What were the other enabling factors?
Committed people. I have only been the face of LAPO, but there have been thousand of Nigerians who bought into the LAPO vision and are running with it. What is interesting about these young people is that they all came into LAPO fresh at least at the beginning. Many were retained members of the National Youth Service Corps. With determination and commitment, we created what is widely regarded as a great organisation. Also, very early we prioritized integrity and later consolidated it by sound corporate governance processes. In relationship with some of our partners, we lost some on the basis of unwavering commitment to integrity, but on the long-run, LAPO has gained enormously from its goodwill. Solid reputation of integrity has also helped us to attract enormous support. And, of course, my tendency to live in the future is another enabling factor. We have, in many instances, taken leaps to the future which many of our contemporaries would consider pure foolishness.
What do you consider as the accomplishments of LAPO, if you like, the impact?
Accomplishments of LAPO can be best understood in three dimensions.
First is our performance on our primary objective, which was to assist poor women break out of the grip of poverty with micro-credit as we would say then. We wanted to create access to institutional credit for the largely excluded poor women on a sustainable basis. On this, we have done well given that cumulatively, we have delivered over N1 trillion to operators at the lower end of the economy.
Second is our impact on microfinance practice in Nigeria and Africa. LAPO has been at the forefront of the promotion of microfinance on the continent. I made a huge input into the formulation process of the Nigerian Microfinance Policy and Regulatory Framework. I remember I came in from Benin in 2004 and spent one week at the Lagos branch of the Central Bank of Nigeria to review the initial draft of the Microfinance Policy and Regulatory Framework. Someone said recently that LAPO at one point saved microfinance in Nigeria. I can understand her point. LAPO was one of the first set of vibrant microfinance NGOs. Unfortunately, for a combination of factors of which loan repayment delinquency was prime, these institutions were badly hit. We at LAPO made strong commitment to enforce credit discipline and we survived and, by extension, the first wave of microfinance practice survived. That was before the introduction of the microfinance bank policy and microfinance banks as we know them today. LAPO is the only institution from the first generation of microfinance banks that successfully made the transition and still at the forefront of the industry.
Thirdly, job creation might not have been our initial prime objective, but now we have made huge impact on job creation. Many young men and women have passed through LAPO. Currently we have 10,245 full staff within the LAPO system with the LAPO Microfinance Bank accounting for 7,210 as at May 31, 2020.
No doubt, there were challenges. How were you able to deal with them, especially the problem of loan default?
As one of the early pathfinders in the industry, LAPO encountered obvious challenges at various stages of our development. At the very beginning at Ogwashi-Uku in Delta state, it was a challenge of acceptance. LAPO’s procedures and requirements were considered too good to be true. For instance, we talked about giving loans without collaterals or surety. We overcame that with extensive training and motivation sessions. Growing acceptance came with the problem of inadequate funds to meet increasing demand for loans. This we addressed with accessing commercial loans from local and international financial institutions for on-lending instead of dependence on grants. Of course, the challenge was inadequate trained staff. There were no microfinance institutions to poach experienced staff from then; we had to invest hugely in staff training. We set up a training institute which has growth into a well-resourced accredited institute.
Loan repayment delinquency was a challenge, as many microfinance NGOs then were crumbling under the weight of loan default. We quickly turned the ‘mirror of blame’ at ourselves. That is, we looked seriously at ourselves. We needed to re-examine our operating processes and actions to detect where we, as a lending institution, was at fault. We discovered many areas to amend and we overcame the problem.
What were some of the areas of institutional defects?
Our loan officers were not well- equipped to engage potential borrowers as support agents as against just being credit officers. We were only interested in loan appraisal but our follow-up institutional structures and processes were inadequate and our approach to enforcing credit discipline was weak and ineffectual. We took some firm decisions and implemented them. In the process we saved LAPO and also the microfinance practice here.
Let us come back to the microfinance sector in Nigeria. Why are rates charged by microfinance banks quite high?
In the industry worldwide, it is said the microfinance is expensive because it is expensive to deliver micro loans. Here is an example; if a commercial bank is to deliver N10 billion as loans, perhaps it will be for only five borrowers and managed by one relationship manager. On the other hand, if LAPO is to deliver N10 billion, it will be for 100,000 borrowers and managed by over 3,000 loan officers. This means that there will be 100,000 applications to appraise, 100,000 accounts to monitor, among others. These have implications for cost.
Also, because of the low level of confidence in microfinance sector, microfinance banks are unable to mobilise adequate deposits from which they can make loans to borrowers. They have to borrow from local and international financial institutions with interest. An average Nigerian with free N50,000 will head to a commercial bank to deposit, but if in need of N100,000 loan, he or she turns to a microfinance bank. High cost of fund and extremely high cost of operations combine to make interest rates on micro-loans high. The only solution is the existence of a sustainable re-financing arrangement that can ensure reliable flow of cheap funds to microfinance banks to enable them deliver cheaper loans to our people. Various intervention funds are fantastic, but a regular institution, rather than ad hoc approach, will avail much. This is what obtains in nations where microfinance has sufficiently been designed to make the desired impact on the micro, small and medium enterprises.
What are the prospects for microfinance in Nigeria? Are they bright?
Here is a nation of not just with huge population, but also with men and men who are exceptionally enterprising. I have visited close to 40 countries, mostly developing nations. In most of them, you will need to motivate people to get into business and take loans. Not for Nigerians. Two, in spite of the obvious challenges in the operating environment, operators in the set have done so much to close the skills gap that was apparent in the past and, finally, the Nigerian Microfinance Policy and Regulatory Framework is one of the best enabling microfinance policy documents in the world. A combination of enterprising people, skilled operators and enabling policy is a good recipe for a vibrant microfinance sector anywhere.
Let us go personal; who are you?
I am simply a person who decided very early in life to make firm commitment to the service of God and humanity. For the latter, I have been committed to creating access to life- transforming opportunities for members of low-income households. Note that LAPO is not just about loans. Lift Above Poverty Organization (LAPO) has vibrant institutions which serve low-income people with micro-insurance, micro-leasing and health services. We obtained license to deliver micro-insurance recently. For the former, I mean service to God, it is still a race.
Many honours and recognition must have come your way. True?
Sure; several. Many of them are very dear to my heart. In 2006, we won the Grameen Foundation’s Award of Excellence in Microfinance which came with a cash prize of $10,000, which we applied as seed fund for the current LAPO Scholarship Fund. Over 5,000 children of our clients and those in difficult situations have benefited for secondary and tertiary education. Each award takes the beneficiary through all the years of study. The FATE Foundation, the enterprise support non-profit founded by Mr. Fola Adeola, selected me as Model Entrepreneur in 2008; Prof Schwab Foundation’s recognition as Outstanding Social Entrepreneur for Africa came in 2010. I was a joint-winner with Governor Peter Obi of the Distinguished Alumni Award of the Alumni Association of the Lagos Business School in 2014. In 2016, the University of Benin, Benin City, where I did my first and second degrees, honoured me with the honourary degree of Doctor of Science. Several Rotary Clubs have honoured LAPO.
Above all, I cherish the amazing show of emotion and appreciation by our clients. At a client forum organised for our clients in South- South, a lady walked to me with others and said, ‘Sir, I vowed that the day I would meet the founder of LAPO, I would prostrate to thank you for all he has done for women in Akwa-Ibom’. Of course, I did not allow her. Another was a lady in Benin City who came to me at the close of a wedding reception. She put her mouth close to my ear and said ‘You picked us out of the pit’. As she recognised that I was wondering whether she was my distant relative I might have assisted, she added, ‘I am not your sister, I am a LAPO woman.’ Instantly, tears of joy flowed down my cheeks.
How do you want to be remembered?
Perhaps, as one who took simple steps to make huge impact on the lives of persons at the bottom end of the society.