Joda: With Stronger Capital, MFBs Can Intervene in Poverty Alleviation

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The Managing Director/Chief Executive Officer, Accion Microfinance Bank Limited, Mr. Taiwo Adesina Joda, in this interview speaks about the likely effects an increased capital requirement will have on the microfinance banking sub-sector. He also speaks about other issues in the sub-sector. Obinna Chima presents the excerpts:

What is your assessment of the microfinance sub-sector presently?

The microfinance sub-sector, since it was created in 2002 has made very remarkable growth in all spheres of the Nigerian economy. We have been in the forefront of driving financial inclusion, we have been in the forefront of empowering the vulnerable sectors economically and also in alleviating poverty in the land. Nigeria is a big country, with an estimated population of 190 million and out of that, 80 million people do not have access to financial services, either in terms of loans, savings or making payments, and that is the gap that the microfinance sub-sector was created to fill. And I think we have done so well in the last 15 years.

But some persons may disagree with you in terms of the contribution of the sub-sector in addressing the challenges faced by those that are vulnerable because a lot of persons still do not have access to loans?

Well, for those who have not been able to get the services, the issues could be in two folds: When I say vulnerable sector, I talk about those I refer to as the active poor. These are people who are involved in economic activities and are into one form of business or the other. Now, microfinance is not to subsidise the poor, but to provide finances for the active poor and that means the traders and those who do petty business, to be able to grow their business. So, when we say the depth of intervention has not been sufficient, there are so many reasons that could have been adduced for that. One of those reasons is the availability of funds are liquidity to on-lend to the sector. So, microfinance banks have paucity of funds. They are the only banking institutions that are loan-led. When I say loan-led, I meant that, they hardly get people to give them deposit before they start giving loans. So, they thrive mostly on capital and there not much that can be done with individual capital to intervene in the market, which I said is about 80 million. So, where funds are not sufficiently available to intervene in that market, you cannot do so much. The second reason is financial education. Even the vulnerable sector that we talk about, may not even be aware that they can access funds from the microfinance banks. So, we need to also create the awareness and educate them, so that they would know that they can approach any microfinance bank to access funds. Even though the Central Bank of Nigeria (CBN) and the Development Financial Institutions (DFIs) have intervened in several ways to make funding available, what we realised is that there is still so much to be done in that area. If you talk about 80 million people, for example, this year alone, from January to date, Accion Microfinance Bank has disbursed a total of N8.4 billion in micro-loans to different sectors of the economy. That N8.4 billion, as huge as it is, has only been able to cover about 50,000 customers. So, if you look at the proportion of 50,000 out of 80 million, you will see that there is still huge ground that needs to be covered. So, yes, the microfinance banks are doing so much, but there is still a lot more that needs to be done.

You mentioned capital as one of the challenges faced by the sub-sector. With the new directive by the central bank that firms should recapitalise, what are your expectations?

Yes, the capital base is supposed to create a strong and virile microfinance sector and that gives the capacity for every microfinance bank to be able to do more and also to be able to increase the volume of loans it gives in terms of size and in terms of a single obligor limit to the end-users. Yes, obviously, the new capital requirement is going to create a very strong and virile microfinance banking sub-sector that can confidently intervene in poverty alleviation.

But the issue of capacity and dearth of manpower has remained a challenge for your sub-sector. What is being done to address that?

Capacity is not just a challenge to microfinance banks. Capacity is a challenge to the banking sector as well as to the Nigerian economy as a whole. The quality of education needs to be improved upon. But then, the microfinance banks came together and created the Microfinance Learning and Development Centre in 2017, and we have started training practitioners from the beginning of this year and we would continue to do that, to increase skills and capacity. I am the acting managing director of that centre. We also have the Chartered Institute of Bankers of Nigeria (CIBN), we have the FITC and there is a professional qualification – the Microfinance Certified Practitioners – that every staff of a microfinance bank is expected to write and pass. These are initiatives that were taken to increase capacity and skill. On the part of the organisation, Accion MFB, this year alone, we have trained over 360 staff across 15 different kind of training modules, both external and internal, to enhance capacity. So, training and re-training, is key to developing skills in that sector.

Despite the high terminal rate in the sub-sector, Accion MFB has remained strong. What are those factors that have kept your bank going over the years?

For Accion MFB, our main strength has been the area of strong ethics, corporate governance and divorcing conflict of interest in the management process. And if you look at it, the shareholders of Accion are corporate entities. We have the likes of Accion International in the United States, Ecobank, Citibank, Zenith International Bank and we have the International Finance Corporation (IFC), which is a subsidiary of the World Bank. These are institutions with very strong ethics and corporate governance. What you see is that we bring the best global practice to bear on our activities. So, most of the MFBs that are failing, one of the key things you will see is the failure of strong corporate governance. So, the first and most important thing to ensure survival is the entrenchment of very strong corporate governance, secondly is adequate capital to run the business. When you don’t have adequate capital to run the business, any loss or adverse situation in the economy may affect your business. The third one is to be focused. We have seen a lot of MFB come up and in the process they become a mini-bank, without doing the business they were set up for. Once you lose focus, you are not going to have a very strong MFB that can stand the test of time. So, two critical areas MFBs should look at are the area of financial sustainable – to be able to be there in the long-run; and social stability –to be able to impact the society that they serve.

What is Accion’s present market share?

Currently our market share is about 10 per cent. Accion MFB for 10 years operated largely as a state MFB. So, for 10 years, we were only allowed to operate within Lagos and that affected our spread. But in the last two years, we have expanded to 12 states. That means we added additional 11 states to Lagos. The first 10 years may not be significant yardstick to measure market share. But in the last two years, significantly our market share has grown and we hope that in the next five years, we would have covered 36 states of the federation.

What are some of your products in the market?

Accion MFB has quite a number of products. Our saving product is called SaveBrighta. This product allows you to save and provides you with an insurance benefit. That is, within the savings product, there is a health insurance cover that covers you and your children. This is actually targeted at women that live in rural areas. We are working with some micro-insurance organisations to deliver on this. So, if you open an account as low as N500, you are entitled to an insurance cover. We have several loan products. We have a special loan for people living with disability. This comes at single digit for people living with disability. We have the PayGo. With this, if you want a loan for 30, 60 or 90 days, it is available. We have school loans. We have loans for housing renovation or to allow you to build and develop your house in stages. We call it MyHome loan. We started MyHome loan four months ago and today we have disbursed over N100 million. We have education loan for school owners to be able to renovate their schools, equip their laboratory and different things the school would need to progress. Our biggest product is the working capital loan for business owners and it is available for MSMEs to grow their businesses.