Ojoboh: MFBs Must Invest in Training

The Managing Director, Shalom Microfinance Bank, Mrs. Erhi Ojoboh, in this interview with Nosa Alekhuogie, spoke on the state of microfinance banks in Nigeria

 

 

What is the state of microfinance banks in Nigeria?

We serve customers in the microfinance industry. We are really trying to promote financial inclusion among customers at the bottom of the pyramid, who obviously are people who don’t have access to funding for businesses from the typical commercial banks. So, their businesses are not sophisticated enough or structured enough to approach the bigger banks. These are people  at the bottom of the pyramid who have business ideas or who have been in business for some years or even those operating in the informal sector of the economy. We try to help them grow their businesses and make them live out their opportunities and also better their lives and eventually, Nigeria as a whole. Five years ago, it was really unstructured and even though CBN had come out with regulations and requirements for the sector to be structured, I don’t think the enforcement or implementations of those structures were in place and that led to a lot of MFBs’ licences being revoked at that time. But fast forward to today, it is structured and regulated. I have been in the industry for over a year and I have seen that the CBN is doing what it says it would do in terms of support, regulation and ensuring that the banks out there meet the minimum requirements to operate.

And of course, since you are dealing with money, lots of people had their reservations about MFBs. They were scared. They were not sure about the longevity of the banks, but now it’s better. People are more confident. They can give you their money and be comfortable to open a savings account with you, do business and so on. Now we have seen that there is a lot of structure in the industry and because the CBN also raised the minimum capital requirement for MFBs.

So now, there are three tiers of MFBs: there is the Unit MFBs, State MFBs and the National MFBs. Before now, the minimum capital requirement was very low, but now, it has been increased. So, I think that weeded out a lot of people who were not prepared to be in the business for the long run and of course, I think it also brought out seasoned professionals who came together, put money together to form the different tiers of MFBs. I attended a national meeting for MFB practitioners in May and it was well organised. CBN officials were there and they gave us a talk, re -affirmed their support, and also, gave us information about the sector. A lot of practitioners shared their experiences dealing in this sphere and it is ongoing. It is really a structured industry now. So it is much better now.

How are you coping under a tight monetary policy regime?

Well to be honest, it it is taking a toll on us. I must confess. For example in a situation where we have had to do more, invest more in making our presence felt in the market, in cultivating new customers, in mobilising savings and deposits. The things customers used to be able to do easily are now a bit difficult for them to do. For example, our loans typically run for 30 days, from the time when you disburse the loan to when the customer is to repay the loan. It depends on the structure you are running. Here, what we typically do is 30 days. Some people do daily collections, it depends on your strategy as a bank. Some people do daily collections, some weekly, while others do monthly. There are customers in different categories depending on the loan and disbursement. So, I would say in the sector where we wait for 30 days for customers to pay, we’ve seen customers who used to even pay before the 30 days now asking for extra time after the 30 day period, blaming it on slow market activities. So, it has affected business in a way that things that could  easily happen before are now difficult, So, you now have to bring different strategy  to ensure that your money comes back to you as at when due. So yes, business has tightened but we have to strategise to beat the current situation constantly.

The level of non-performing loans in the banking industry as revealed by CBN is about 16 per cent presently. For an MFB operator that deals with people at the micro level, what has been your experience?

 

I’ll say it depends on what your strategy is in this space. Like I mentioned earlier, there are different tiers of loans that is: daily, weekly and monthly collection depending on their level of exposure and business as well. So, when the decision is being taken to grant a customer loan, we look at the dynamics of the customer’s business. So as a micro finance practitioner, you have to be able to make decisions. That’s fundamental for you to guard against, first of all, your non- performing loan (NPLs). From the beginning, examine the type of business. So guarding against NPLs is one thing, but it’s a reality because the business we are in is to create risk assets.  CBN has a minimum requirement when we render our reports on a monthly basis of at most, five per cent NPLs and that is what is called portfolio at risk. It doesn’t mean that everything is going to go bad, but the CBN calls it that because it means a customer has not repaid. At Shalom, one of our strategic goals is to put our portfolio at risk at two per cent on a month-to- month basis and we have tried to reach that since the beginning of January. If it is not at two per cent, it would grow to three per cent and we make sure it revolves around that. Everybody in the bank knows this. So, if you if you do not have the right strategy to the right business, then your NPLs would increase. In the broader view, I think we are doing a lot to keep NPLs low.

What challenges are microfinance banks facing at the moment?

I would say dealing with people at the bottom of the pyramid is a challenge.  Of course, it brings a lot of opportunities but in terms of productivity, the things you would use an hour to do would take longer when dealing with these set of people. You have to take more time to cultivate them, manage them and bring them up to speed with what is required as minimum banking requirements. Another one is access to funding. Although we don’t have that problem here, generally, a lot of microfinance banks struggle with funding in terms of support from the CBN or other financial institutions and at the last meeting I attended, there was a fund meant to support MfBs, but some MFBs who have accessed those funds in the past defaulted in paying back the government and that has affected every other person in the industry. So, to get access to that funding now is quite challenging. In fact, it is non -existent right now. So, we have to look internally to generate funding. I’m coming from a commercial bank, so I understand the dynamics of deposit mobilisation. We don’t only focus on loans here. So, for you to be a sustainable MFB, you have to generate savings with which you give loans to your customers. So, in terms of funding, there is a bit of imbalance right now, but of course we are surmounting the challenge by doing what we need to do. Another thing I would say is human resources. With the level of training and exposure of staff in the microfinance banking space that I have dealt with, shows that we have to train and put in extra work. Some people don’t even meet the basic requirement for a typical entry staff in another industry. The practitioners in the MFB sector have to put in a lot more into our staff so that we can revolutionise the industry. People say our industry is looked down upon and there is a huge imbalance between microfinance bank workers and commercial bank workers.

What are you bringing to the table that sets you apart from others?

Our vision as a microfinance bank is to be a world class customer-centric bank of choice to our customers. Now a lot of focus is placed on our customers. We find out what they want then we tailor our products according to their needs. So, we have a customer-centric approach and our customers are our most important assets – internal and external. Internal being our staff and external being our customers. What we do at shalom is relationship management. Once you are our customer, we have a relationship with you, we manage that relationship, we manage your expectations, we manage your needs, we manage your business. We are in your face, we want to get a share of your mind, because what I like to say is, most times, that your friend would find it difficult to hurt you. That is, when you make these customers your friends, when you make them feel important even though they are at the bottom of the pyramid, such that you don’t have to wear agbada before you address them politely. So, we are building relationships with our customers and not just disbursing loans and collecting it back.