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Financial inclusion impacted GDP positively in Q2, says CIBN

Eniola Olatunji

August 29, 2023

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.

Ken Okpara, president of the Chartered Institute of Bankers of Nigeria (CIBN) has said that the growth in contributions of the financial services sector to GDP is driven by an increase in the number of people using financial services.

“We have seen increase in the number of people using financial services and the banking system, we began to create platforms not necessarily physical structures where customers can get our services which reduced the cost of banking and other services reduced which also added to the bottom line, and the efficiency of the sector has also improved which added to the returns you’re seeing and we will continue to play our role as a pillar in providing support to the economy,” he said.

He stated this on Monday at a pre-conference media parley of the 16th annual banking & finance conference themed, “Nigeria’s Economic Growth and Empowerment the Role of the Financial Services Industry. It is be held from September 5th-6th at Transcorp Hilton Hotel Abuja.

Nigeria’s financial and insurance sector has recorded a 5.47 percent increase over the previous quarter’s result, the latest data from the National Bureau of Statistics (NBS) has shown.

NBS stated that the contributions of the finance and insurance sector to real GDP totaled 5.35 percent in the second quarter 2023.

Read also: Transport activities contributed 1.35% to nominal GDP in Q2 – NBS

Bukola Smith, Managing Director, FSDH and chairman of the consultative committee of the conference said the theme of the event is predicated from the need for stakeholders in industry to drive conversations and design a clear road map for repositioning the financial service industry as an indispensable propeller of the Nigeria’s economy growth, empowerment and stability.

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Smith said “The resolutions of the conference will be made available to all relevant stakeholders and policy makers to enable them reappraise and realign their operations towards reducing poverty, increasingly shared prosperity and promoting sustainable development especially as the new government is desirous of implementing reforms that will the transform the economy and general wellbeing of our citizens.”

The conference is an annual event and a large gathering of banking and finance professionals in Nigeria and Africa, with an estimated audience of 10,000 comprising professionals, policymakers, regulators, members of the academia, operators, and other stakeholders in the financial services industry.

She said that there’ll be a pre conference event on September 4, targeted mainly for Gen Z’s and millennials.

She mentioned that Bola Tinubu, president of Nigeria is expected to inaugurate the conference, while Fola Shonubi, acting governor of the central bank will be delivering a goodwill message, and Shubham Chaudhuri, country director World Bank will be delivering the keynote address .

Some other guest and speakers include, Wale Edun, minister of finance; Nyesom Wike, minister of the federal capital territory; Tope Aladenusi, Partner and Regional Leader of Deloitte; Adedoyin Odufa, chief strategist Deloitte; Olayinka David-west, associate dean Lagos Business School; Nneka Onyeali-Ikpe MD/CEO, Fidelity Bank, John Chukwu, CEO Crowrywise Asset management, Tinuade Awe, chief executive officer, NGX Regulation Limited, Kashifu Abdulahi, director general National Information Technology Development Agency, among others.

Some of the discussions at the event include, Monetary policies and financial inclusion; bridging the gaps, Impact of global economies trends on Nigeria foreign exchange and the way forward, Unlocking economic growth and development through MSME financing, ESG in financial service industry challenges opportunities and the next step.

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