Why microfinance banks can’t offer loan at single digit interest rate – LAPO MD
Managing director of LAPO Microfinance Bank Limited, Godwin Ehigiamusoe, says the 20% interest rate placed on funds drawn from commissioned banks by the microfinance banks (MFBs) accounts for double digit interest rate being charged by MFBs on the loans that they offer their clients, who are majorly operators of Micro, Small and Medium-scale Enterprises (MSMEs).
The situation is worsened by the volatility in the foreign exchange market that poses higher risk and affects MFBs’ lending abilities to stimulate Nigerian economy through MSMEs credit facilities, Ehigiamusoe said, saying unless there is a downward review of the 20% interest rate by the commissioned banks and appreciable level of stability of foreign exchange, MFBs would still offer loans at double digit.
Speaking at 2019 LAPO Clients Forum in Ibadan at the weekend, the LAPO managing director said, “As a microfinance bank, what we set out to do is basically to recognise the potentials that the people at the bottom end of the society could make, the only constraint they could have is access to finance and therefore, we provide finance.
“Just as a lending institution, we periodically provide huge credits, if you look at their (MSMEs) number and we do still believe that giving them for instance N137 billion in a year, for a nation like Nigeria, is not sufficient. The need is huge and unfortunately, the supply has not been able to meet those needs.
“One thing about pricing or interest is about a number of factors. First is how do you access the fund that you use for the credit. The second thing is the nature of cost that is involved. Normally, in the commissioned banking sector, bankers are able to mobilise so much deposit and they can only give a portion of that deposit to the people as credit but in the microfinance space ordinarily this type of people have not been able to make deposits that will ensure credits for them from that fund.
“What we therefore do is that we borrow money from commissioned banks and if you take a loan from the commissioned banks at about 20% and you factor in the fact that you are going to repay. There is no way I borrow from banks at 20% and I will pay lower than that, it doesn’t make any business.
“The challenges of lending are simple: where do you get the fund to do it? Like I told you, you have got to borrow, it is not easy to borrow from Nigerian banks because of issue of collateral. We therefore, reach to international and if you reach international, you are going to be dealing with the risk of foreign exchange fluctuation.”