The Managing Director/CEO, KCMB Microfinance Bank, Kwara State, Mr Abayomi Ajayi, a qualified and results-oriented banking professional with 16 years of success in varying/increasing positions of responsibilities and duties in this interview with AYOBAMI ADEDINNI speaks on the roles of the Micro Finance Bank sector in the nation’s economy, challenges affecting the body and possible solutions. Excerpts:
What can you say about the Micro Finance Banks in Nigeria?
I believe when it comes to the actualization of the Financial Inclusion strategy of the Federal Government, the way to go is through the MFBs in Nigeria.
Incidentally, we had a Financial Inclusion Retreat with the CBN earlier in the year at Abuja where some startling statistics were revealed to us to wit: 46.3 per cent of the adult population of about 96.4million people is financially excluded.
This gives almost 45 million people. 55.1 per cent of this figure is attributed to females, mostly women with children, which of course makes matters worse from the social impact angle.
I believe the role of the MFB in Nigeria with respect to financial inclusion alone is grossly underrated. So badly, it is unbelievable. At the last COMBINs’ meeting, the current President of National Association of Microfinance Banks (NAMB) pointed out that whenever CBN has a meeting with Commercial Banks, a press release is done where highlights of issues discussed are revealed.
Beyond revealing the highlights, the very action demonstrates the confidence the regulatory bank has in these banks and this is seen and understood by the public.
However, meetings held with MFBs seem to be held in secret and quietly, as if it is a meeting that would not be held if it could be avoided.. The body language is not good and the lack of belief in the strength and relevance of MFBs stem subconsciously from that.
Moreover, the unwillingness to allow big banks fail (as can be seen in the way provisioning for bad loans is addressed for them) validates this belief. For banks which do not have the capacity to lend, do not want to lend and can even survive without lending at all via dodgy revaluations and placement in T-Bills, the fact that they even have a safety net in AMCON as well as kinder provisioning is amazing.
I am of the opinion that MFBs have the very rough end of the deal. It seems MFBs can somehow be ‘allowed to fail’ which is just painful as we are the ones that can drive financial inclusion and actually touch base with the rural people.
The fastest way to reach out to the 45 million people who are financially excluded is logically through MFBs. The areas financially excluded were excluded for a reason, probably poor infrastructure, peculiar security issues (such as terrorism) and general unfriendly/unwelcome environment to financial services providers. MFBs are more easily adaptable to such situations.
You don’t need a ‘standard’ or ‘branded’ branch as you would for a commercial bank in a rural area. You don’t need a 2-tonne AC and heavily armed men or even ballistic doors, as rural areas by default should provide some measure of safety since everybody knows everybody else.
In short, the amount of money and efforts needed to deploy a branch (or even an outlet) of an MFB can be less than the cost of an ATM. Recruitment of staff is also cheaper and more impactful with respect to actual market penetration.
Access to credit can really only improve via MFBs. For me, DMBs do not have the capacity, the willingness or the motivation to lend to ‘small people’ CBN Financial Stability Report, 2016 reveal that only 50 customers (yes, 50!!) have outstanding exposures of about 33.4 per cent which is about N5.23 trillion out of a total outstanding exposure of about N15.68 trillion.
My only conclusion here is that DMBs lack the capacity to appraise and avail small credits.
I hear many say that Nigeria is an unfavourable environment for availing credit and I shudder when I hear ‘experts’ say that.. So should we stop availing credit completely, except to the big defaulters (like Etisalat, which by the way is another indication of lack of capacity-otherwise what on earth is the meaning of Negative Pledge as collateral for that volume of loans availed?) or should we study our environment so that we can package environment suited loans for those who need them? I lean towards the latter. And as an MFB, I even have no choice.
In conclusion, what I will reiterate about MFBs in Nigeria is that the actual role MFBs should play is being undermined and the required impact frustrated.
What are some of those policies you have challenges with?
The policies guiding MFBs are good and well thought out. For about a couple of years ago, the problem I have with the policies are that they are not dynamic. Policies in a volatile country like Nigeria should be ever evolving, and should be formulated with the help of the players on the field. A billion researches cannot make up for a single action taken and from which failure or even losses have occurred. Experience remains the best teacher and as such should not be discounted.
The cap of 10 per cent of deposit liabilities in investment in T-bills so as to encourage liquidity in MFBs really should be reviewed. If it is true as DMBs keep saying and regulators can confirm, that the business environment is unfriendly for lending, then MFBs should be permitted to acquire safer assets.
MFB deposits are expensive to acquire, the confidence is not there among the public and as such they come with a premium.
To break-even in respect of such deposits, the MFB needs to act very quickly. If she is restricted from buying forex and then prohibited from investment in T-bills, she will have to create assets or simply pay the cost of the funds from the fund itself.
Which brings me to provisioning.. The requirements are too stringent. Quickly, I still wonder why you have to make 100% provisioning for a restructured loan especially since your system disallows you from accessing the accrued interest anyway.
And if the client is paying back on the new terms and conditions, should provisioning still be 100 per cent? Our policies should reflect current realities, in my opinion. In the last two years, the economy has shrunk which has necessitated revaluing prior terms and conditions.
Heck, more than 10 airlines left Nigeria last year due to the economy. Big companies shut down and laid off staff, even state governments found it hard to pay salaries. To expect that this will not affect MFBs is not to take all this into consideration.
In fact, regulators should be surprised if any MFB can maintain that she does not have bad loans.. It is simply not in accordance with what obtains in the society. And I wonder how you can operate outside of the dictates of your economy.
The provisioning requirements should also be reviewed in all honesty. Five per cent provisioning after 30 days of default, 20 per cent between 31-60 days, 50 per cent between 61 and 90 days and 100 per cent after 90 days may not work for this environment anymore.
The limit of 5 per cent PAR (Portfolio at Risk) is also something that should be addressed. I believe the regulators can do a survey of what currently and truthfully obtains and take a position from there. If it has been difficult to attain a 5% PAR in the last 5 years, then maybe it is impossible to attain. The problem I have with the insistence of 5% PAR is the mindset behind it, which is the MFBs are not doing enough. Nothing can be farther from the truth.
I believe I speak for many MDs that the issue of PAR is the greatest headache we have. Virtually all MFBs do everything legal and even illegally to collect their monies back. Recovery of funds is a different animal in Nigeria. And the animal is very wild.
In all, regulations/policies should be dynamic and should reflect current realities. Since policies are by nature reactive, then they should be reviewed once in 2 years so as to reflect realities.
MFB customers have alleged that the way you retrieve loans kill their businesses. How do you react to that?
Not necessarily true. If retrieving loans from you killed your business, then you didn’t have a business in the first place. It meant you converted the loan to equity. This was not the arrangement. The loan was supposed to augment what you had, not be an injection into your business. We are not part owners, we are just funding you in part.
And talking about the way, I don’t really understand that. If we had to even retrieve loans from you, then that is a red flag. You signed an agreement in respect of when and how to pay back, didn’t you?
So why make the MFB to find a way (which you are now not happy with) to recover loans from you as a client?
My sincere reaction is that the clients who allege that we are not fair to the MFB. It would have been fairer if he/she had been forced to take the loan at gunpoint. But to be offended that you are being made to pay a loan you took at the time you promised to pay back is not fair.
On the issue of financial inclusion, the major challenges stakeholders have with MFB is the issue of high interest rates. Since MFB is the grassroots bank, the interest rate should be lower than that of the Deposit Money Banks (DMB). What are you doing as regards that?
Really, it should. But cost of funds determines high interest rates. Cost of funds are higher for MFBs due to lack of confidence as opposed to DMBs; and also due to the Federal Government’s decision (surprisingly) to create T-bills and Government Bonds at rates that are extremely unfavourable to MFBs. Unfortunately almost all investors now are very knowledgeable. Even the so-called market woman knows to shop round for rates and the Government is not exactly quiet on investment options and rates.
What we are doing first of all is to wait. Things cannot continue like this. It should not. In the alternative, we intend to grow our savings via more penetration into the hitherto unreached locations so that we can have cheaper sources of funds to work with. By that, we can lower interest rates. Our treasury unit has been charged with that.
Sir, how have you been coping with the recent directives that MFB customers should have BVN?
In view of the approaching deadline, we are doing our best. I will want to commend the executive management of NAMB, both past and present.. They have made concerted effort towards each MFB acquiring her own BVN machine. It is really worth commending.
I however sincerely hope the FG will not need to extend the deadline beyond December once more. The response has not been encouraging, really.
Recently, the CBN issued a circular on returns on Anti Money Laundering by Other Financial Institutions (OFIs), how compliant are you with this?
Our bank software, BANKONE enables easy compliance. We also have an internal prompt in this regard. The bank is also very wary of paying any penalty. We have a dynamic and very aware board that is really on top of issues. I can’t imagine presenting my accounts to the board and trying to explain an avoidable fine. I do not even know how to present it.
Why should indivi-duals bank with you?
Individuals should bank with us because we are designed round your needs. We offer all the services you can expect from a bank and we can tailor or customize those services around your desires. Our strength lies in the flexibility (without compromising standards) in our bid to attend to our numerous clients.
We are essentially geared towards financial inclusion and as a result we try to be creative in our bid to satisfy all clients, since we believe that no two clients are the same.
What can you tell us about KCMB Microfinance Bank?
It is a bank that is forward-looking. The bank is governed or guided by experienced members of the board who are professionals in their various fields. They bring invaluable direction to the members of management who are tasked to direct the affairs of the bank.
KCMB Microfinance bank as a unit bank located in the capital of Kwara State has experienced a significant growth trajectory since its birth.
Using measurable indices, the bank has been able to grow shareholders’ fund by 112 per cent (from inception in 2009 to the end of 2016); Cash and Short-term funds by 89 per cent during the same time frame; Total Assets by 74per cent ; Deposit and Other accounts by 94 per cent; Loans and Advances (net) by 87 per cent and Gross Earnings by 73 per cent.
The efficiency of the bank is seen in the fact that the bank’s Operating Expense within the same time frame that is the resources committed to achieving the aforementioned figures grew by just 48 per cent.
The bank is definitely poised to do better in the coming years, having learnt from some of the mistakes made as well as from the inevitable lessons inherent in recession.