The Chief Executive Officer of Baobab Micro Finance Bank Limited, Dr Kazeem Olanrewaju, in this interview with Eromosele Abiodun, says the directive by the Central Bank of Nigeria that commercial banks should increase their loan-to-deposit to a minimum of 60 per cent cy will stimulate economic activities and be beneficial to microfinance banks. Excerpts:
Your bank is celebrating its 10 anniversary. Can you to tell us about the journey so far?
The journey started 2009, when we got our license. But we opened our first branch in March, 2010 and we made our first disbursement in 2010 in Kaduna. Like most institutions, we started from a very humble background in one shop in Kaduna; from there we grew to about six branches in Kaduna till 2015 and in 2016, we got the national license that brought us to Lagos and Abuja. So, today, we have about 20 branches in our network and we are still expanding.
The journey has not been easy, but with the help of God and good strategy, we have seen ourselves where we are today. There is no doubt that we are one of the leading institutions in this sub-sector in Nigeria by whatever parameters you want to measure. Whether it is by the number of customers, the asset base, number of branches, financial performance in terms of profitability, the earnings, the staff size, we are number one.
So we have come a long way in10 years and we are starting another slate and trying to build on what we have done. One is happy to say that we have seen growth consistently in the last four or five years. Every year has been better than the previous year and we hope that this can continue for a long time to come.
You operate in a very tough environment. Can you tell us some of the challenges faced in the last 10 years?
We faced a lot of challenges. Firstly, for the first five years, I was not in this institution, but I read through all that happened and I know that there was a challenge trying to establish in Kaduna with limited infrastructure. Of course, with the customer base, per capita income and population and everything, among the national microfinance bank, we were the only person that started from Kaduna. There was no other one that started from Kaduna. Only one started from Abuja which does no longer exist. The issue of insecurity that came up, the Boko harm crisis which we have been battling with, of course that made it impossible for you to get the best hands to even work in a place like Kaduna because nobody wants to go that area, so we had to make do with what we have and train the people and see what we can get.
Then you also talk of the fact that the market is limited. We started in a place where it was difficult to expand. So, we had just six branches in five years. It was not that easy to grow, so if you want to talk about staff, there were not there. Customers, branch network and financial resources were limited. The type of banks that were coming to give us some form of on lending fund in Lagos were not ready to do that in Kaduna because they simply cannot see you.
Then the issue of deploying the products that we have, because of the limited demand in Kaduna, we couldn’t do so many things. So all these summed together explained to you that it was very challenging. But also a very good place to start, when you start with a very challenging environment, and you move to some other environment, the challenges are different. What we see in Lagos is different from that of Kaduna. In Lagos the market is there, but you have people that are very high and financially literate, so it is difficult for you to bring any garbage and people will buy it. Then you have a lot of competitors in Lagos and a lot of people who willingly default in Lagos. So these are two different markets with different kinds of challenges.
One place, the business is not really there, but the customers are what you want them to be. The other one business is there, market is large, but there are a lot of competitors and customers are so literate, some of them are out to do fraud from day one and default is very high. Of course in Lagos it was easy to find funds unlike in Kaduna where to grow the deposit was really challenging. I can tell you that since we came to Lagos, our deposit has jumped by more than 10 times in like three years. So there are different opportunities and challenges coming.
How were you able to overcome these challenges?
Let’s start with the people that matter most which is the staff (getting the right hands). We have very dedicated and loyal staff. I think as an organisation what we have done is to be able to train them. We have trained people to think in the way we want them to run the company and a lot of them follow this and that has helped us. So training, good manpower, loyal dedicated staff, and the other factor is to emphasis your strength. There are areas if you look at the microfinance bank maybe we will not be counted.
There are areas too that we are doing very well, better than most microfinance banks. So we emphasis our area of strength and try to build on it while we try to correct areas where we have deficiencies. For instance, our loan book is one of the best in the country. In terms of the risk, while some people are saying it is impossible to get their repayment, I can tell you that in the last four years, we have never had a portfolio at risk, people that are supposed to pay back your loans and didn’t back at the particular time, for instance 30days has consistently been less than 3 percent. While some people are telling you theirs is between 15-20 per cent ours has been different.
So part of this is what helped us and then our customer selection too, it is not all comers. It is also very important to say that it takes on the average four days to process our loan, but it is subjected to maximum scrutiny. So if you pass through our system, I can to a very large extent say that you’re very good customer. We meet our words to the customers in terms of commitment, timing, prompt delivery of services, also we tell the customer that they are pay as it when due. In terms of efficiency and strictness with repayment, we are high up there.
So if you’re not a good customer, we don’t need to tell you, you will not even come to us, you will find your way and go elsewhere, of course there are so many microfinance banks in Nigeria. However, for the good ones, who want to do business and wants efficiency and good services they will always come to us. I think the other thing that is very important to mention is the support we enjoy from our shareholders and from the group. We have shareholders such as the International Finance Cooperation (IFC), PROPACO, Boabab, which used to be Microcred. All have been very supportive by given support in finding funds, market studies, product development, and so many other things, they have been very open to supporting us.
So those kinds of shareholders you are also very happy to push forward. Then we have a board that is very dynamic and made up of serious minded people and they have been very supportive too. I think a combination of all these and of course every product that we bring out is tailored towards the market. So there is a market study, you do your investigation and you come up with what the customer will prefer and so we hardly have a situation where you launch a product that fails because we will do all the rigorous work that is needed to be done. Let me say and one of the things which is most important is the good management.
The kind management we have here is the experience, dedicated and loyal people who are forward thinking. A lot of people tell us we have achieved so much, but for us we have not even started. So based on the management team that I see, I’m not in doubt that this company will not grow by leaps and bounds in the coming years, and I can tell you that it is just a matter of time; we will overtake a lot of the commercial banks.
Can you talk to us about some of your products?
First of all, there is a broad division of the product into four. One is the savings and deposit product, loans and advances product, transactional product, and insurance products. For the savings, we have the regular savings, which is generic-current, fixed deposit and savings. Beyond that we have target savings, for instance, Ajo, which is targeted at you getting maximum interest sometimes up 100 percent of the deposit that you make.
Then you have savings for schools and others and they have been doing very well because they are targeted at specific kinds of people who will need to those services and they have been using it very well. Then for loans and advances, our minimum loan today is N20,000 and our maximum is N50 million. So you discover that both micro, micro plus and SME clients can find their space in our company. So if you are a N20,000 customer, we will give you that service. If you are a N50 million customer, we will give you that service.
Now we are trying to extent this to N100 million which will happen before the end of this year, so if you want N100 million, you will be able to get a buy back, if you want 20,000, you will be able to get a buy back. Again, we have try to automate some of these loans, we have the one that is called Taka, which is fully automated and you get at the click of a button.
Then we have Alip, which is a scoring system that is based on your performance of your previous loan, a customer gets automatic renewal and a 20 percent increase immediately, so if you enjoy like N1 million loan, and you pay back very well, you will get N1.2 million. You don’t need to talk to everybody, no new documentation is required, you just sign the offer and it is something that can happen within five minutes. Of course we have housing loan to address to housing.
Presently, our housing loan disbursement is close to about N700 million. We just started recently, but it is growing really fast. Let me say for Baobab, we will give you loan if there is a proof of cash flow that are repaid the principal and interest. Of course we have 21 exclusion list, which we don’t touch at all such as deforestation, brothel, sex work, and anything that is harmful to human being. We have 21 of them, we don’t touch those ones. Outside of that these 21, any business that you ran that we can see that there is cash flow to pay the principal and pay the interest, you are on-board, then we have transaction such as transfers, and making payments, then we have insurance, today we have both health and business insurance.
There is no customer with a loan in the bank without insurance. These premium are negotiated to the minimum possible level you can think of. So if you run into any difficult such as fire, burglary, theft and accident, there is insurance to cover all those things, so you will hear that a customer of the bank died and we go after the family, we don’t do that because the individual is covered by insurance. We will go to the insurance and the insurance company will pay. It is just to make life easy for our customers, so these products we have put together, which is not common in most of the microfinance banks, just to appeal of our customers. Like I tell you, all of them are doing very well.
What happens to Baobab bank if you are not there tomorrow as the chief executive? What is the succession plan?
We have a good succession plan. By regulation too, if I do well the company can keep me for 10 years, now I’m crossing the fifth year and I still have a long-time. But beyond that too, we have a good succession plan. As CEO, I believe my success is the success of my subordinate. I’m not hiding anything from anybody; I try as much as possible to impact my staff with knowledge, ideas and everything, I am doing. So if you are really ready to learn, there is a lot to learn. For me, I also believe that your wealth is how you are able to impact people. I particularly like staff that are ready to learn and of course when you’re coming in, you will see that we have a library.
I think this is the only branch of a company where you have a library; I take studies and knowledge very serious. From next month we will have a session which is going to be called a brain trust, where people will come and make a presentation. I will be the one to start it. Weekly, somebody will come and make presentation, where I can make my contribution. Anyone who is ready to learn, there is enough opportunity for the person to learn and be able to carry on. We have very strong management team who are specialists in their areas, and so if today I decide to take a leave maybe two or three weeks, the company will not suffer in anyway. We have a very strong management that will have built over time and we will together for a while to come.
Let’s talk about recapitalisation, the last time we spoke, you told me you will be ready by September or October. Where are you now?
Well, the plan is still on. You know the Central Bank of Nigeria (CBN) also changed the date. Before the end of this year, we will be able to meet the recapitalisation plan. The board has directed that we should conclude this before the end of September, I think that will be shifted and I can tell that it will happen before the end of the year. Also, if you go by the profits we have made, we are well over N3 billion now. From the computation that we have made, maybe what we will need will be N1.2 billion. Given the kind of shareholders that we have such, as the IFC and others, these are international investors. When you look at the group level, you have Axa International, European Investment Bank, and IFC; it is a very small amount for one to cover, so I don’t think it is one of the things that disturb my head. I see it like a done deal.
Commercial banks seem to be focusing on the real sector now, because there is a rule by the CBN for them to increase lending to the real sector. How does this affect your market going forward?
The directive by the CBN to commercial banks is for them to increase their lending to at 60 per cent of their deposit is a step in the right direction. First of all, let me say this is what microfinance banks have been doing. For instance, my deposit today is about N4 billion and my loan book is about N10 billion. So my loan book is higher than my deposit.
The reversal is what you see in the commercial banks, this is the scenario and that is why I think the CBN is saying that if the money is good enough for you as deposit, then they should be good enough for you to extend your lending to which I think is a very good and smart thing to do. But let me say that as to the effect of Boabab, it is two ways: one is the competitive landscape; we have SME customers who are now the target of the commercial banks.
Some of them even offer loans as little as N100, 000, which is not happening before now. It is a big competition for everybody, I see it as something very good and it is going to be bring about innovation, and customers getting the best. You can longer sit back and dish out whatever thing that you like. You have to be careful what you take to the market. So customer is the eventual beneficiary, so competition is there by this directive.
But let me tell you another beautiful thing that is also happening, interest rate is coming down from the market. Because of competition, banks are trying to offer the best rate possible. This is going to stimulate the economy and production is expected to be higher and generally if you grow the economy, it is for everyone good in the long run.
Short run, there will be competition; maybe you grow some of your clients. At this point I want to look at point I want to be patriotic, grow the economy, and make it very robust and the best it can be and let other people partake in the economy and probably, we can erode things such as insecurity, kidnapping and other things.
Generally, it is a very good thing. The other leg of it is that because this directive has gone out, banks are also scrambling to get customers like us, so their lending to microfinance banks has to go up, because they need to meet this requirement and then the rate has to come down. So, yes on one side is negative, competition and prices are dropping in the market. The other side is that you can grow the economy and lending to the subsector, the microfinance banks, will become higher for us to on-lend.
This has been my experience, I have seen banks approach me now, with very ridiculous rate that they will not have done about a year ago, I cannot even think about it. If you like, it has its positive and negative on my business. But overall, I think the positive are more than the negative and everyone can find his/her space within the economy, which we are trying to do at Boabab. As things come, you also been able to develop strategy to overcome those things because they will continue to come, it is a market and it is dynamic and will continue to change. We saw this coming; probably will prepare ourselves to overcome whatever difficult that we have. In terms of affecting my financials, no, in fact, it has helped us and I can get new lines from the bank which is better than before, even though my customers are asking for lower rates, over all I think it is good for everybody.
When will Baobab be listed on the Nigerian Stock Exchange (NSE)?
We have been in discussion with the NSE for three main reasons: First, is to raise a bond, commercial paper bond and listing. Baobab will be listed. Of course, will achieve full recapitalisation and add more to the expansion we are doing, and then we will come to the market.
I know our brand is already an attractive company for anybody who wants to invest. We will make it more attractive and our return will justify our coming to the market. I don’t have any doubt that the day we will come it is going to be oversubscribed. It is going to be very soon, I can assure you that before the end of 2022 we will be in the market.
What should we expect from your bank in the next 10 years?
In the next few months to come, what you see about Boabab is a digitalised bank. So you will be able to do most things that you do in the bank in the comfort of your home with your tablet or with your phone. The second thing is that we are likely to see the rapid growth because what we have been doing by way of strategy is to open two to four branches every year.
Now we have the workforce that can propel us to open more branches without suffering any hitch at all. You will see more branches open; we will go to different locations in the country. Apart from the fact that we are using digital tools, physical presence is there, we are also looking at agency banking. We are going to spread across the country, using our agent network to reach our customers.
We have also said that we are coming out to provide opportunities for people who want to invest in Boabab in no distance time. But above all we are going to make our customer the best in terms of the returns they get from their business, the confidence they get from their bankers, and the services that they get. Our customers will be the best. We are not going to be the best bank; our customers will be the best that you will have around, so that both of us will grow together.