Microfinance is supposed to drive the growth of small and medium enterprises (SMEs), but that is just one side of the story. If somebody is going to drive the growth of SMEs the person needs resources, and the resources must come from somewhere. The question now is where is the resources supposed to come from? I think the fundamental problem we have here is that as a civilised society, we have not really defined what the role of microfinance banks (MFBs) should be and what they need to be able to play that role.

The point is this, if microfinance banks are not playing their roles, it’s not only the problem of operators. Everywhere the microfinance institutions are playing the role very well, the government has not left the microfinance as orphans to go and fend for themselves. What is supposed to happen is that microfinance entrepreneurs, people who own microfinance institutions or who run microfinance banks should have the basic standards to meet that will assure the government and public that you have the capacity to run the business. After they have done that, the government should have a way of pushing resources to them, but that is not happening in our society. You will discover that the money in our society is actually sitting with the commercial banks and you want the microfinance to fire the engine of growth of SMEs, from where? The government money is with commercial banks, the individual money is with commercial banks, the corporate money is with commercial banks. In fact, I can even tell you that except in few cases; most of the people that come to the microfinance banks come only to take loans. When they have small savings, they take it to the commercial banks and those commercial banks will never attend to their loan needs, and these are the loans that the SMEs and the low income people need to be able to grow and change levels. Therefore you cannot put the blame entirely on the operators alone.  It’s a societal thing. The government promised in 2005 to create a microfinance fund, that is not done till date. They later created MSME Fund that was hijacked by the commercial banks and state governments.

Secondly, you know that in our own society when people see a new line of business, as long as they feel that there is money to make there, they just go and look for money and go into that line of business. People don’t think about the fundamentals of that industry, they don’t think about what are the success factors, because most people in our society believe money is what it takes to do a good business. My interpretation is that many of the people we call investors and entrepreneurs are just traders, you know it’s a trader that just wants to sell goods and just make margin and move on. Investors and entrepreneurs think of long term. That mentality is part of what is affecting the industry; it is making even the operators of MFBs to think the attractive thing is to be like the commercial banks. I think otherwise. The opportunity in the microfinance sub-sector is huge. You should also remember that many people that came to manage MFBs were people from commercial banks, particularly after the consolidation of commercial banks in 2005. That is what they know how to do and many of them are modeling their MFBs after their knowledge of commercial banking. Knowledge will help anyone to know that you can become anything you want to become without copying the commercial banks. You can learn from them, but you cannot run MFB with the mentality of a commercial bank.

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But I must add that the rate at which microfinance operators chase after being like commercial banks has drastically reduced because the knowledge level is increasing in the system. The Central Bank of Nigeria (CBN) has supported the industry’s knowledge base since 2010 by ensuring that all the management staff of microfinance banks are trained and certified. Aside that, there have been other initiatives that have helped the knowledge base in the industry. Like the way the commercial banks have the Financial Institutions Training Centre, we also have a training centre that is basically for the microfinance banks and that has helped us a lot. We also have a number of players from outside Nigeria, who have done it in other places; they have entered with the knowledge from better developed climes. Operators are now exposed to a number of international training

Do you think microfinance banks undercapitalised, and what do you think should be the minimum capital base for a microfinance bank?

That’s a very difficult question to answer. It depends on where you are. For example, if you are operating a unit MFB in Lagos, N20 million is not enough for you to open even a shop. Particularly in the city centres, that amount cannot take care of your expenses. By the time you take a five-year lease, acquire software and computer system; you don’t even have money to pay staff for the next six months. Normally, the six-month period is the time you are processing license, training your take-off staff, trying to study the market and crafting out your strategies. And don’t tell me MFBs are supposed to operate only in the rural areas. There are poor people everywhere and all of them must be attended to. People also erroneously think they can run MFB with customer deposit. In reality, your loan portfolio must be greater than your deposit portfolio at all times. So you really need strong capital and other funding to do well in this business.

But there are MFBs in the rural areas that don’t even have what to do with N50 million. For those people, asking them to bring N200 million will be counterproductive. In fact, there are some of them that what they do is to place all their money with the commercial banks and be waiting for monthly interest from the commercial bank.

Therefore, the issue of whether somebody is undercapitalised is more of a personal thing, like I said; anyone that knows his onions will not wait for the CBN to increase the minimum capital before he looks for more money; because regulatory capital is what CBN is controlling, regulatory capital does not necessarily make you to do well, it’s too small. It is the minimum you required to remain in business in the short and medium term. We must all continue to beef up our capital and other funding even without the CBN asking us to do so.

For us, even without having minimum capitalisation issues, before CBN thought of new capital benchmark, we have always looked for more money. When we got debt from outside Nigeria; it was not the CBN that asked us to do so. Money is our stock in trade and we must continue to look for more of it. We don’t see it as unusual for CBN to ask for new capitalisation in accordance with reality. It’s what should be expected. The CBN set the current capital benchmark when naira was going for N150 per dollar. Today, it is above N380 per dollar.  This is an indication of the value of naira, the purchasing power and inflation effect over the period. If you started a unit MFB with N20 million then, and you are still running with that N20 million, you will discover that it’s going to become very difficult for you to be able to cover your cost. So the issue of the new capital requirement as much as it is painful and demanding, it is what we should expect from time to time. It is not only the minimum capital that the CBN is changing; even the regulatory guideline is changing completely. Prudential guideline we are using now was launched in 2005 and reviewed in 2011. There is a new one that is coming out with more stringent requirements.

For us as an organisation, before the new capital requirement came, we were far ahead of the minimum capital required for the type of license we currently operate with. When we needed N100 million as minimum capital, we were actually operating with capital above N1 billion.  As operators, we must recognise the fact that there is a difference between regulatory capital and business capital, or what you call operational capital.

Talking about investors and investments, to what extent have you been able to justify investors’ confidence in your bank?

From what I have said so far, you can see that the investing public has confidence in us. By investments, we are not only talking of shareholders, we are also talking of people who give us debt funds and deposit. One thing we have achieved as a microfinance institution is that the kind of money that people could not place with a number of our peers, they have confidently placed with us over time. You have people taking their money from commercial banks to give us. It is a show of confidence in the capacity and integrity of our board and management. We also invest in our staff so that they can hold their heads high anywhere they go and anywhere they represent the bank. All our board members have undergone some of the best international trainings in corporate governance and risk management. You can see we have been able to grow our asset size from about N2.4 billion in December 2018 to N5.2 billion in December 2019. We have also seen a lot of people that are also indicating interest to partnering with us one way or the other. We have local and international partnership interests. Banking is a business of trust and all these are demonstration of trust and confidence the society has in us.

Without prejudice to the importance of MFBs, do you by any chance have plan to scale up to being a commercial bank?

First of all, we have to know that having a commercial banking license is never the ultimate. There is enough business in the microfinance sub-sector, if you know what to do and you have the resources to do it. The potential in our space is very huge. The number of people in poverty in Nigeria is very high, according to global statistics. And the number will continue to increase because our population is increasing. You also know there is no clear plan in place to check our population. Therefore, the microfinance market is growing daily.

For me, getting commercial bank license is not a priority for us now. Of course, I am just one person on the board. The board may have a different opinion on this. For me, we would rather be looking at creating a group first. There are other businesses that you can create within the microfinance sub-sector, related businesses and if you now have a group, the directors can decide whether we need to go into commercial banking or not.

What is your view on CBN passing its N50 billion intervention fund through only one MFB?

I am not holding brief for the CBN, only CBN can tell you why they decided to pass N50 billion through one MFB out of about 1000 MFBs, all of them licensed by the same CBN. It is also noteworthy that the MFB so chosen by CBN is about the youngest MFB in Nigeria. We have operated under CBN regulations for 11 years now. The one they gave the money to is less than two years in operation. My own opinion is that CBN will soon come with something that will go round all of us. I expect they will set conditions that any MFB that meets such conditions will be able to access the intervention fund. The problems we are facing are multifaceted and only one entity or only one intervention cannot solve the problem. That one institution cannot be everywhere or attend to everyone. I believe the CBN will certainly do something to ensure intervention through other MFBs. Not only for the survival of those MFBs but also to ensure the impact of government’s efforts is felt everywhere and by many citizens. The CBN in my opinion knows better than to create another monopoly in an effort to alleviate poverty. There are reasons why CBN most of the times always passes its interventions through third party institutions. I think one of the reasons is that the CBN does not have the structure to reach all the citizens at the same time. From our various engagements with the CBN on the matter, I believe the CBN will come up with further interventions that will reach all of us. I also look forward to CBN relaxing the loan provisioning guidelines to accommodate some of the loans we have restructured because of the impact of COVID 19.

Poverty as a problem in our society is so big that one million entities cannot solve all the problems. So, the apex bank should not see its new entity as a substitute to the more than 800 MFBs that have been on ground, all of them licensed and regulated by the same CBN. We will solve the problem better and faster by collaboration rather than by competition or a government-induced monopoly. When the CBN came out with the Microfinance Policy Regime in 2005, investors responded not because they don’t have other things to do with their money, many came into the microfinance space based on the faith in the credibility of the CBN in addition to their own individual profit motives.

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