Adegbami: MFBs Receive Little Support from Government

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Managing Director/CEO, Mainstreet Microfinance Bank, Mr. Adegoke Adegbami, is also the General Secretary, National Association of Microfinance Banks, Lagos. In this interview, he speaks on the central bank’s revocation of licences of 42 MFBs and other topical issues in the sub-sector. Oluchi Chibuzor provides the excerpts:

What was 2020 like for Mainstreet Microfinance Bank?

As a bank, over the last 12 months, we have done quite a few things that we can look back and be grateful to God for and we can conclude that we have made a lot of progress in the last 12 months. Considering the peculiarity of the year 2020, I think our most significant achievement is the fact that we have all survived the COVID-19 pandemic so far in one piece. There were also the issues of #ENDSARS and other security challenges, which are peculiar to Nigeria while COVID-19 is a global crisis. That we have survived all these, is a great achievement in my opinion. We can now look at a few qualitative and quantitative achievements we have made.

On the quantitative side, we have grown our total assets by 81 per cent year on year. Our portfolio has grown by 80 per cent. Our gross revenue and profit before tax have grown 71 per cent and 74 per cent respectively. To be able to fund the growth in portfolio, we have grown our deposit moderately and debt funding significantly.

Despite the challenges of the last 12months, our bank has won a number of awards and recognitions. At the Fintech Innovators Merit Award 2020, we won ‘Africa’s Most Innovative Micro Lending Service Brand of the Year 2020’. We were recognised as the ‘Microfinance Bank of the Year 2020’ by the Classic Magazine. We were also selected as the ‘Microfinance Bank of the year 2020’at the Peace Legend Award. Finally, our Bank gained international recognition at the ‘Global Banking and Finance Review Award’. As the only OFI (apart from Bank of Industry) from Nigeria in the 2020 Awards, we got two classes of awards as ‘Best Microfinance Bank Nigeria 2020’ and Best Bank for Auto Loans 2020’. As the MD/CEO, I was awarded ‘Banking CEO of the Year Nigeria 2020’. All these are testaments to the impacts of our efforts on the society and the assurance that the future is bright for us with hard work and commitment.

The CBN revoked licenses of about 42 MFBs recently. What were the factors responsible for the revocation and how does this affect confidence in the sector?

My first reaction was that the way the media reported the news of revocation of the licenses was misleading. There is a major part of the news that the media avoided for reasons I don’t understand. That was the fact that all the affected MFBs were those that had closed shops on their own for a long time. The CBN made it clear that these 42 MFBs have been out of operations for some time, and so, the revocation was just a formality which has to happen by the laws establishing the CBN and NDIC. To be fair to the CBN, they briefed the leadership of our association about two weeks before it became news headline.

We still have more than 800 MFBs in Nigeria today, serving millions of Nigerians. We have some of these MFBs that are as big as some commercial banks in Nigeria. There are new licenses and new acquisition of existing MFB license happening every day. You should report all these too. I don’t also subscribe to the notion that the information should not have been leaked to the public. The public has the right to know and to know the correct and complete truth. Half-truth is still a lie. In reality, there is no way anyone could have completely kept this kind of thing away from the public. At least, NDIC has to do its work and CBN has to do its work. They are accountable to the public because they are public institutions. As to the factors responsible, there are many factors. Some of them are common while others are peculiar to individual organizations and people. One thing that is common is the fact that doing business in Nigeria is very difficult and expensive, and it is not getting any better. The rate of business survival is very low, particularly for small and medium businesses. This is not peculiar to microfinance sector, it cuts across. Check all the sectors and industries within our economy, you will see the same trend. In my opinion, MFBs have actually done better than some other sectors in terms of business survival in Nigeria. There are also a number of regulatory policy defects that negatively affect the operational success or failure of MFBs. There are other specific factors like poor corporate governance, lack of capital, liquidity problem, poor management, lack of discipline on the parts of management and board. Some people adopted wrong business model, particularly those who assume that microfinance is just a small version of a commercial bank. Some are victims of circumstances. There are normal business problems that you should be able to overcome over time, but if unfortunately, those problems coincide with wrong timing like recession or pandemic, it becomes extremely difficult to survive.

As MFBs, we receive little or no support from the government and this is very serious because microfinance banks everywhere around the world normally receive a lot of support from the government. This is because we are serving high risk section of the economy. The risk involved in lending to SMEs and low-income class is very high, particularly in Nigeria. Yet we take the risk. Commercial banks will only lend to rich people whom they perceive as less risky. They can collect deposit from anybody, including beggars, but they will only lend to the rich. They create a situation where you collect from millions of poor and middleclass and make the money available for a few rich people. Ironically the society likes them for helping to increase the economic inequality in the society. That is the reason why even some of the low-income people that we serve will like to keep their money with these commercial banks and come to microfinance banks to collect loans. Some of them even expect us to charge the same interest rate with these commercial banks sitting on top of money contributed by the high and low. So the government owes us a lot, for serving the vulnerable people without which the level of violence and criminality in the society would have been more than what we have now. The society should also appreciate and support us to serve them better. In my opinion, the solution to our economic problems lies more with the microfinance operators and MSMEs. The government should do everything possible to support us. On the issue of confidence, I believe what matters is for the society to be properly informed. The reality is that whatever has happened is not peculiar to our sector. You know that the CBN recently revoked licenses of some Payment Service Providers. Meanwhile, it’s not long ago that the CBN licensed those Payment Service Providers. The regulatory policy for the Payment Service Providers is a recent one. But the way the media reported that was different and very mild compared to the way that of microfinance banks was reported. They also revoked the license of one of the switch license holders. Attention should not be only on the negative, people should look at the positive too. They should look at what some of us are doing and the number of people we are reaching. Today, we still have over 800 MFBs, many of whom are doing very well. You cannot stop patronising people who are doing well simply because some people fell by the way side. There are thousands of road and motor accidents in a year. Yet, we have not stopped plying roads or riding vehicles. Even when you have very fatal accident, you still need vehicles to evacuate people from the scene, whether they are dead or alive. People die of wrong diagnoses from time to time, yet we have not stopped patronising doctors and hospitals. The same reality is applicable here.

How do you see the global and national economy and the microfinance sector in 2021?

Of course, you know I am an accountant and not an economist. There are different predictions about the global and national economies for 2021. All of them point to the fact that economy will begin to recover at different degrees, at different times during the year, depending on the peculiarities and quality of responses by governments and people around the world. One of such drivers of events in the year is the availability of vaccine against coronavirus. Others are the global distribution model and effectiveness of the vaccine. The effectiveness news you have here and there now are products of clinical trials. As far as I am concerned, that is still theory. The reality of the effectiveness and actual side effects will be known after live applications to millions of people. But one thing is clear. The world is better positioned to respond to the pandemic than it was in 2020. You must have read about new variants of the virus in different countries around the globe which are products of the mutation of the common variant? I can tell you that the new variants did not come as surprise to serious stakeholders. The mutation of the virus was predicted and anticipated. In fact, based on scenario planning models, a number of advanced nations have mapped out their responses to the new variants, unlike the first one that caught everyone unawares. To that extent, it can only get better in 2021.

However, much still depends on the specific responses by individuals, organisations and governments. Some will fare better while others may fare worst. In general, people will find ways around the handling of coronavirus. There will be protocols to follow, but people will adapt better. I just returned from a visit to some East African countries, I took the COVID-19 test in each of the countries I entered. In fact, there was a country where they told me I must take polio vaccine. I never knew that adults are supposed to take polio vaccine. You will have such protocols and procedures, but life must continue.

For Nigeria, the economy will bounce back. Not necessarily because of anything we are doing better, but in response to recovery of the global economy and the oil market.

Further devaluation of naira is not unlikely. General income decline, higher inflation, low purchasing power, unemployment and uneven distribution of income are possibilities. As a people, we will find ways around it. We are a very resilient people. With good planning and critical thinking, a number of businesses will figure things out while others may drop by the way side. Of course, the pandemic has created a new economy; this is the best of times for certain people and certain businesses. That trend will continue and people will adapt and adjust. We should expect more of government intervention programs, stimuli, palliatives and so on. The problem in Nigeria remains the fact that these programs are not always properly thought out and strategically directed. As a nation, we will continue to struggle with our debt burdens. For the microfinance sector, the business will always be there. In fact, a recession will naturally increase the available market for microfinance businesses, the number of people that need microfinance services will increase. At the same time, the risk of the microfinance business will increase and that simply means we must be very careful in our business and customer selection. We need to beef up our risk management system. We need to deploy technology; we also need more money to deploy. The bottom line is that microfinance is going to become very critical to the recovery of millions of active people at the bottom of the economic pyramid. The government must note this and make conscious efforts to support microfinance operators. The government must also do this without creating a monopoly in the market. Creating a monopoly will be counterproductive.

What will be your advice to operators and regulators in the Nigerian microfinance sector to ensure sustainability?

Honestly, I think that question regarding operators shouldn’t be directed to me. I am an operator and I need to listen to non-operators advise us. However, since you have asked the question, I will make an attempt to highlight some of my thoughts. Firstly, I believe it is very important for a MFB to drive liquidity aggressively. With the level of disruption and uncertainty that we have, your survival and ability to withstand shocks depends largely on the level of liquidity you have. Secondly, all of us must prioritise risk management and corporate governance. We are not talking of only credit risk, but all the risks we are exposed to as MFBs, including those of compliance to laws and regulations. Risk environments are becoming more sophisticated and we must respond accordingly. Right staffing and training are very important here. Thirdly, we must improve on our brand awareness, we must all be deliberate in investing money and other resources in creating awareness of the good work we are doing. You don’t need a huge budget like the commercial banks, but you must deliberately invest in this line based on your level and capacity. Fourthly, we must all embrace and deploy appropriate technology. Five, there must be efficient cost management. Ensure you only spend on essential things that we directly or indirectly bring the money back to you. Things don’t necessarily have to be expensive for them to be good and effective, the key is to set your priority properly.

Six, we all need to be deliberate in driving or beefing up our capital base from profit and external sources. The key word here is being ‘deliberate’. Seven, there must be good performance management. We must work towards a point where every staff delivers some quantitative value to the organisation than cost. The value must be measurable. Eight, we must be sure we deploy the right product, most of us still run on generic products, We need to invest in tailor made products that deliver specific value to specific people or market. Number nine is leadership. All of us at the decision-making levels of our different organisations must do our best to continue to improve our leadership skills. Each of us must develop what is now called ‘Agile Mindset’. Boards are to be ready to invest in developing leadership capacity of their business managers. Each of us at management levels also need to take personal responsibility. Don’t spend all your salary on food, use part of it on personal development. If you effectively increase your learning, you will invariably increase your earning. Ten, we need to continue to adjust our business models and the way we conduct our businesses and serve our customers to align with the reality of today. We have to continue to move gradually away from our brick-and-mortar business models. I need to also add that each of us must strive to drive volume.

You can start small, but you cannot afford to remain small for too long, that is eleventh point or so? Let me stop by saying that what I have mentioned here are not in any particular order.