Femi Adeoti, managing director and chief executive officer of Inlaks Limited spoke to BusinessDay’s FRANK ELEANYA on the challenges and the solutions that need to be in place to accelerate growth in IT as it relates to Microfinance Banks.
As the foremost ICT infrastructure company in Nigeria, what has it been like doing business in Nigeria?
Doing business in Nigeria has been challenging because of the issues we have with the environment in terms of infrastructure, in terms of unrest that we have in some parts. I will also say it’s been quite good because we are in a place where we have so many problems to solve and problems represent opportunities. We are providing the solutions.
Inlaks currently have operations in about seven African countries such as Nigeria, Ghana, Guinea, Liberia, Sierra Leone, Gambia and Kenya. We are the foremost ICT infrastructure solutions provider and we have been around for quite a while.
Nigeria recently celebrated its 57 years Independence. ICT is one area that’s been identified that receives significant attention because of its potentials for economic development. How do you rate the ICT performance?
I will say – to a reasonable extent – we have done quite well, although, there is a lot of room for improvement. For example, we came from the years where the number of telephone lines was near zero waves. Currently, we have almost a 100 million lines. We have our own national switches. We have mobile money. We have internet collocation which is growing. So compared to other African countries, I will say we have done quite well.
For example, our broadband penetration is very low. You will discover that it is only in major cities that you can really experience what we talk about in IT. It’s something else in other places, like the rural areas. How do we get broadband to penetrate into those areas? What happened to financial inclusion?
Of recent, the Central Bank of Nigeria (CBN), introduced BVN. You also discover that the entire country has about 30 million bank accounts and that’s a population of 180 million people and about 90 million adults. So what happened to the remaining 60 million people? So we have found ourselves in an area where there is a lot of room for improvement.
Nigeria has a target of reaching 30 percent broadband penetration by 2018 and at the moment we are doing about 21 percent presently. Some have said we need to have bigger targets, but how do we get to that target and possibly surpass it?
I hold that even the target of 30 percent is very low. If somebody scored 30 percent in an examination, we wouldn’t say he or she passed. But that is where are starting from. We are setting a very low target. There has been some talk about the national broadband policy. It needs to come into effect.
Broadband penetration has to be faster. If you talk about reaching 30 percent in 2018, which is just few months down the line, it is possible to reach it. But 30 percent should not be our goal. Nigeria is a leading country in Africa; we should reach for something much more higher.
In July 2017, Inlaks announced a partnership with the CBN for the deployment of a single core agent banking solution for Microfinance Banks. What exactly does it mean and your goal with this?
It is meant to achieve financial inclusion. I mentioned the fact that only in major cities you experience what the banks are doing, what the IT companies are doing. There are about 1,000 Microfinance Banks in Nigeria. They are the ones that are close to the grassroots. But what you discover is that most of them cannot afford the core banking solutions that drives their business. They cannot afford agency banking solutions that drive their businesses too because those things are actually very expensive. If you are going to buy a core banking solution depending on the number of users that you have, you will be talking about several hundreds of thousands of dollars or even millions of dollars. Then you will be talking about the infrastructure that you have to run to make that work and the staff that will run the infrastructure. These Microfinance Banks can’t afford these things.
What the CBN has done is come into a partnership with us to do some cloud-based solutions for all of them. So that the same advantage the commercial banks have the Microfinance Banks will have that also. In view of financial inclusion, they can roll out services. Microfinance Banks can have their ATMs, their own mobile money, and things can begin to happen in the rural areas too. It is a major project, about 1,000 Microfinance Banks from all over the country, bringing them unto a single platform where they can be able to transact among themselves.
There will be a lot of collaboration to make this possible, how far have you gone?
As an organization, it is a familiar terrain for us because we did the same thing for the country of Ghana. In fact, we are behind in Nigeria, because we did this thing for Ghana eight years ago. We brought all the rural banks in Ghana unto a single platform. It is the same thing we are doing for Nigeria.
We are currently running a pilot. We are expected to deliver the first 110 by January next year. But the CBN expects that come June next year we would have completed the project.
Can you give an estimate of the cost reduction for MFBs as a result of this project?
The cost reduction is so phenomenal. Like I told you, if an average Microfinance Bank is going to set up banking infrastructure, they will need to spend up to a billion dollars. But with this, they are spending a fraction of the entire cost, something that they can easily do and what they can be able to roll out much faster.
What does that mean for the customer?
For the customer there will be cost reduction. There will be new solutions, there will be new services. An average Microfinance Bank, if you check, their interest rate is always very high, the reason is because their cost of operation is very high too. But you will begin to see a reduction in rates which the customer can afford.
ATM is arguably your most popular product. What has happened so far?
The ATM has been a success story for us. About seven years ago we bought into the ATM business; today we have about 5,000 ATMs all over the country. There are about 20 banks that are using our ATM machines. All over the country you have a total of 17,000 ATMs, which means we have a third of the entire ATMs install-base in the country. We ensure maximum up time for our customers.
Some of your competitors are beginning to look for better ways of saving bank clients’ money, like ATM-as-a-service platform, how is Inlaks positioning for the new landscape in ATM business?
It is actually not our competition alone that is thinking of that. We are putting process in place to run ATM-as-a-service because it is not all the banks that will want to continue to invest capital expenditure (CAPEX) in ATM. They want some form of service which we are able and willing to offer. So it is something that we have in the plan and we will be getting into something like that.
Last month marked 50 years since the ATM was invented. Looking at our adoption as a country, do you think Nigeria is behind other countries in terms of ATM innovation?
We are behind. The entire country with a population of 180 million people has only 17,000 ATMs. One customer alone in India has 90,000 ATMs to choose from for one bank. All the banks in Nigeria put together has only 17,000, that gives you an idea how far behind we are. There is still a lot of room for growth in that area. Maybe it will be through ATMs, maybe it will be through other channels; mobile money, USSD. We are still a bit behind as far as payment is concerned.
How can we use regulation to scale the number of ATMs in the country?
You are right, if ATMs will grow, if payment channels will grow, our regulation will have to be more relaxed to encourage the investors to participate? Currently, the regulators are doing a lot but there are still a lot of things that should be done. That is why you see the queues everywhere. People go into business when it is viable for them and when it makes business sense. If it does not make sense people will not deploy more capital. This UNITA is very expensive. If the regulation allows them to be able to make enough more, if maintaining those ATMs are easy, if our notes are better – because the quality of our notes are not very good. What it takes to keep those ATMs running is quite a lot.
Can you specifically point to a regulatory policy that should be in place to drive growth in the IT industry?
It is the Central Bank that regulates banking service. There is this challenge about payment when on us or not on us; how much do we get? All of that may not be too encouraging to the banks. But the banks are always in discussion with the CBN; hence a lot of work is being done in that area.
From your experience working with banks, with would you say is the challenge with ATM maintenance?
The number one challenge is power. What happens in an average home also happens in the business. The amount of power we generate in Nigeria is so low. As a result companies resort to alternative power solutions to power the ATMs. At times the alternative power sources will work well, other times they will malfunction. The other challenge is connectivity. It is a major problem for the ATMs because if they are not connected to the switch or to the banking location, then it will not be able to transact money. You can have money in the safes but if you cannot connect to be able to verify account you will not be able to make it run. The other challenge is the quality of our notes. When the notes are not too good, you tend to have a lot of cash jams on the ATMs and when the cash is jammed until somebody comes to clear it and put the ATM back in process, no transaction will happen. The other thing is that the ATM as a device is very expensive. All of these are what affects the quality of uptime on the ATM machines.
You run a data centre; do you share the view that hosting data locally will drive latency and connectivity?
We are already hosting data locally. In fact, according to the CBN rule, data that has to do with banking transactions has to be hosted locally. It is the same thing we are doing for the all the microfinance banks. We cannot host that data outside of Nigeria. It has to be hosted in a data centre here in Nigeria. So it is a very great idea to host data locally.
What is the trend in non-bank ATMs in Nigeria?
There was a time we had a concept; there was an organisation called ATM Consulting (ATMC) which was to do non-bank ATMs. But for whatever reason they could not succeed. So it did not work well. But it is something that needs to be revisited, most especially for offline ATMs. Online ATMs are ones that you have in bank branches. But it is not everywhere that banks can have branches. There has to be people that will put the ATMs there. The ATMC idea did not really catch on well but it is something that needs revisiting. We are already in discussion with some other partners on how we can leverage that idea because it is a very interesting one. It is important if we will experience the type of growth we desire.
What other banking channels do you want to see more focus on?
Apart from ATM, we can have the Point of Sales (POS) terminals, USSD, mobile money, internet banking and other channels. For me all this payment platforms should be made better. Although we are currently working on new products, including other similar organisations, improving on what we have first should be the focus.
Where do you see e-payment in Nigeria by 2020?
Payment using electronic channels is the future of banking. We really do not have a choice other than the e- payment better. We are a big nation and most Nigerians are commercially oriented. We must make e-payment attractive. It is not every time that we can use cash. We have these channels that people can now use to make transactions. However these channels need to be more reliable.