Sunday Akhamiokhor, managing director/CEO, Support Micro Finance Bank Limited, bares his long banking industry experience in this engaging interview with PHILIP OKAFOR, whom he regales with the many challenges staring the nation’s MFBs in the face.
Impact of banking industry crisis on MFBs We have not been affected by the crisis. This is because for a while we saw what was coming.
When the capital market collapsed, we knew that the liquidity was going to be a problem. So this meant that people would have less money to spend and if they had less money to save, it meant there was going to be liquidity squeeze. We took note of that when we finally opened business and ensured that whatever risk asset we were creating was secured.
Also, we strictly adhered to the principle of spreading our risk asset among lots of customers to ensure that no one customer would owe us money that would get us into trouble. So that precaution is the reason we are here today.
Today, if you come to our banking hall, you see people working. Therefore, we do not have any problem. However, in the general sector, the commercial banks’ problem has greatly affected the Micro Finance Banks (MFBs) because the commercial banks were the only window through which MFBs could borrow to meet liabilities that were falling due.
Presently, commercial banks are not lending to the general public let alone the MFBs. So to that extent, I think their operations have been hampered because of their inability to access funds. Due to the economic recession, a lot of people are saving less, which means there is less liability for the MFBs to deal with. If you take it from that aspect, you also find that there is a lot of mistrust because some of the MFBs have failed. So people do not have confidence in the industry. Even for some of us whose doors are permanently open, we are presently not seeing growth. We hope as time goes on and when the CBN sanitises the sector, we will have better businesses.
Support MFB’s provision of credit
The primary objective for setting up MFBs was to create risk asset to low-income earners. However, in the CBN Act that set the MFBs up, it also said that state and local governments should set aside one percent of their budget annually to give the MFBs in those environments in the state for onward lending to the micro businesses. However, the states and local governments have not done this. So the only option available to the MFBs is to source money like the commercial banks for members of the public. Such monies come with higher interest rate. It will be difficult for you to give me money at 10 percent and I say I am going to give it to a micro credit person at two percent. Yes, I will lend it to the same person, but definitely, I would want to make one or two percent extra. Therefore, you find that the rates are not very competitive, they are high.
Government needs to support the MFBs to conduct business properly. If you talk of the micro borrowers, a lot of them borrow without even having business objectives; they do not know what to do with money. We have gone beyond that and support MFBs by providing training to these people. On a fortnightly basis, we train about 75 people; put them in a classroom, teach them what to do and what not to do with business, what to borrow and what not to borrow, because it is simply not enough for you to give them money. It is also important that when you give money; they should be able to generate income through which to pay you back.
Secondly, we do not have any branch. This is the only place where we run business. We also do not have cash offices for strategic reasons. We feel that we have yet to attend to everybody in our area. By the time we are through with that, we can begin to look for cash offices within our locality.
The cost of creating a branch is high. You cannot create a branch without having IT systems in place. You will also have staff in that location. By the time you put it together, this will increase the overhead, which will seriously erode your paid-up capital.
Correlation between MFBs and banking-sector crisis
Nigeria is seriously under-banked. The problem we have with the financial sector is that a lot of people want to play at the centre. Take Lagos State , for instance, the masses we are looking for are not on Victoria Island ; they are not in Surulere and Ikeja. The majority of MFBs in Lagos are highly concentrated in Ikeja, Surulere, V/I, and in Apapa axis. The masses are in Agege, Agbara, Epe, Ikorodu. That is where they should be. But when you locate a microfinance bank at the heart of V/I, what micro business do you want to do in V/I?
So from day one, you set up to have a problem. As economics say, location of an industry is a factor that will probably result in its success. Our location within our own kind of customers is an advantage to us because we do not have to go very far to look for them. That is the reason we are not setting up branches.
Challenges of MFBs
The challenge is mainly on risk asset creation. A lot of us have given out money that we cannot recover. It could have been tackled if there had been a wider spread of risk asset created - meaning that the MFBs should have given more micro loans than the bulk sums they give to individuals. If I give N1million to 20 people at N50,000 each and they default, I would have lost only N50,000 because 15 people will pay back. But if I give the same N1 million to one or two persons and both or one of them defaults, I would have lost half a million. So the problem within the industry lies with risk asset creation. If MFBs follow the CBN directive that you must not give out more than one percent to a customer, they will not have the problems they are having today.
Secondly, lots of them rush to the capital market because they are good, but the number one principle about banking is ‘never lend for speculative purposes.’ They gave out margin loans to customers to buy shares; even some of MFBs did direct investment in the capital market. Today, you and I know what the market is. It is basically the investment and the risk asset that they created.
MFB regulatory body
I am not against having a body to give directives on how MFBs should operate. But what I am for generally is whether or not we agree that the micro finance sector should survive in Nigeria and do what other micro finance banks do outside this country. There is a need for government support, not in terms of grants but in terms of loans at lower interest rate - a finance package for the masses to get the money they ask for.
Do you know it is more expensive to borrow in micro finance banks than commercial banks? And you are saying we should help the masses and the same masses are paying more to access a facility than the commercial banks. So, in most cases, businesses do not survive because the interest rates are high. The microfinance banks will never get money that is cheap, except it comes from government. Unless this is done, we will continue to be where we are now as much as we can mobilise what we can mobilise and lend. How can the masses get cheaper funds when grants are not coming? We are not even saying grant, but give us a window where we can repackage and refinance our transaction at a much cheaper rate so that we can lend out money at a cheaper rate to the masses. When the CBN does this in conjunction with government, then it can closely monitor the activities of those micro finance banks it has given money to.
Money 
