MFBs must be recapitalized to meet the needs of MSMEs for economic growth – Adesola

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Mrs Ololade Adesola is the Country Representative of the United Kingdom based The Microfinance Association (MA), a global professional body that caters to the needs of microfinance operators. The MA is also dedicated to the development and promotion of the microfinance sector. She speaks to DANIEL ESSIET on digital finance, financial inclusion and poverty alleviation.

Do you agree that over the last decade, Africa has witnessed more poverty than any other part of the world?

Sadly, it is true. Economic growth has not affected the ordinary African. Population is growing faster than GDP in many countries so the effect of economic growth is wiped out. Besides, issues like healthcare, basic education and food sufficiency, which are the main drivers of poverty reduction, have sadly been neglected by many national and sub-national governments.

Do you think the best way to solve problems of poverty in Africa is by throwing money at it by financial institutions?

I am not sure it is the financial institutions that make this assertion. More like African governments and some international NGOs. My interactions have shown that if people are not taught how to correctly to utilise the funds given to them, they mismanage the monies and soon return to their initial levels. Financial literacy is the foundation upon which grants disbursements should be built.

Large infrastructure projects are considered by experts as prerequisite for poverty reduction. How correct is this?

Certainly. Firstly, during construction, the sites become sources of income for various types of micro-entrepreneurs (e.g. food vendors) and casual workers. Upon completion, they enhance the ease of doing business, which in turn empowers existing businesses to expand, and new ones to spring up; leading to additional employment opportunities for the poor.

Would you say the economy has fared well compared to last year – in terms of capital importation, whether as equity investment and portfolio investment?

We are grateful that the economy was able to grow in 2018, but we all know that a lot still needs to be done to bring it to where it ought to be among its peers

As a key player and stakeholder in the economy, what are you doing to raise investors’confidence and what, in your opinion, should be done to attract investors?

What individual business people can do is advocacy within our networks. Another thing is to demonstrate high standards of professionalism, integrity and excellence so as to erode the myths about Nigeria and Nigerians.

The governments, both at national and sub-national levels, need to ensure effective and efficient implementations of policies. We all know that we are never short of good policies, but somehow seem to trip when it comes to implementation and obtaining good results. Governments at all levels need to enhance the productivity of their implementation machinery

How significant would you say the World Bank report on Ease Doing Business Index is in terms of how investors view the country?

For newcomers, it is very important because they have no experience of anything else. Investors, who are already in Nigeria, may be able to overlook such reports because they have learnt to adapt to the environment but new investors consider such reports as one of their major due diligence tools

In your view, what are the main drivers of economic growth in Nigeria?

Sadly, the main driver continues to be the improved price of crude oil. It seems nothing has changed in that regard. Other less important drivers are the CBN interventions that make cheap funds available to MSMEs, stable value of the Naira, availability of Foreign Exchange and political spending.

How does government’s huge infrastructure projects and budget commitments fit into the growth scenario?

These are laudable programmes, but since they would be mostly funded by more borrowing, the government must ensure that the finances are well structured so that their repayments do not stifle economic growth in future years. In addition, the projects must be brought to full completion within the stipulated periods so that the economy can begin to harness the growth ripple effects that such projects were designed to deliver.

How would you characterise the nation’s banking industry? Do you expect the sector to undergo any consolidation in the future?

The banking sector seems to have recovered from the recent issues that affected it as a result of the last currency devaluation. Consolidation is a decision of individual management as we do not expect the CBN to induce any consolidation. However, many banks need additional capital to continue to play relevant roles in an economy of this size. They would raise the capital via equity, debt or a combination of both.

Microfinance has been around since the 70s. But often, it is not well understood. Could you explain what it means and how it has evolved over the years?

Microfinance has been around for centuries, but the formally structured version was introduced in Bangladesh in 1976. Microfinance started as providing micro-loans to the commercially active poor. But it has since evolved to the provision of different types of financial services; hence the evolution of micro-insurance, micro-pension etc. Microfinance is the major tool for the achievement of financial inclusion. Financial inclusion, though not one of the SDGs, is a catalyst for the achievement of about eight of the 17 SDGs. So, financial inclusion and microfinance services are extremely important.

How big is the market now and which parts of the market are evolving the faster?

According to the latest EFINA Financial Inclusion Report, Nigeria has 36.8million entrepreneurs and only two per cent of Nigerians have access to credit. So, we can see that the size of the market is enormous. Financial inclusion is improving, but 79 per cent of the financially excluded live in rural areas. The growth seems to be side-stepping our rural communities and measures must be taken to change this narrative if we want to meet the 2030 SDGs.

How would you characterise the last 12 months in terms of how the microfinance sector has developed?

The CBN has introduced new minimum capital requirements, so those who would have been categorised as doing well now have the bar raised and would need to strategise and synergise with other industry players to meet the CBN requirements. The major risk in the industry at large had always been capital inadequacy. Hopefully, the MFBs that emerge from the recapitalisation process would be much better empowered to deliver microfinance.

However, we know that in Nigeria we have the MFBs and the MFIs. The MFIs are not controlled by the CBN because they are not supposed to be deposit-taking institutions. The MFIs have no recapitalisation requirements. This uneven playing field continues to be a major source of concern to industry watchers.

How developed is the microfinance sector in Nigeria, and what unique offerings do you believe they can give borrowers?

In my view, the microfinance industry in Nigeria is not yet mature. Corporate governance is lacking in many MFBs and MFis. There are some that are professionally run and we can be proud of, but those are a tiny minority.

How are the political and regulatory disruptions impacting the market?

Microfinance is one of the most highly favoured and protected sectors in Nigeria. Every government introduces different schemes to provide funding to the commercially active poor. Our problem, like with every other sector, has been in the implementation of these schemes so that they can deliver the desired results.

With the number of microfinance banks in the country, do you think there is enough to serve the whole country or there is a need for more?

At the last count, we have about 900 MFBs. We have three different categories National MFB with a licence to operate nationally. There are about 20 of such. State MFBs with licences to operate within a state; there are about 100 of such, and unit MFBs, which can only operate in one location. The 18 national MFBs control almost half of the microfinance business. Meanwhile the total assets of all the 900 MFBs is less than the total assets of a commercial bank like Zenith Bank.

From this, we see that we do not need more MFBs what we need are stronger MFBs. The MFIs on the other hand are also playing their part. They control about one third of the micro-credit business, but that is still a far cry from what our 36.8m entrepreneurs need.

What is the role of technology in developing the microfinance banks and making their services more acceptable?

Technology is helping MFBs manage their banks better through the use of bespoke software that have been created to meet their peculiar needs. Financial planning, forecasting and reporting, performance management, delinquency management and many more are now better managed.

What are the trends and technologies driving the sector?

In Nigeria, the National Association for Microfinance Banks( NAMB) and the Association for Non-Bank Microfinance Institutions of Nigeria have each set up digital platforms that their members can upload their information on and carry on their financial services. NAMB has NAMB-UIT and ANMFIN has ANMFIN Cloud Express.

Another trend in the industry is professionalisation. Microfinance is fast becoming a stand-alone subsector in the financial sector and the practitioners are now obtaining professional certification just like insurance, accounting, banking and other financial subsectors. The Chartered Institute of Bankers have a certification programme, while The UK Microfinance Association has its own.

What impact has financial technology had on microfinance?

FINTECH is the future of Banking; whether commercial banking or microfinance. A digitalised financial product enables the roll-out of on a large scale, at lower costs per unit. It also simplifies monitoring and control. For the customers, it delivers convenience, accessibility and immediacy. M-Pesa and M-Shwari in Kenya are excellent examples of the undeniable successes that digital finance can deliver.

What emerging technologies do you think will help enable unbanked consumers to use digital financial services (DFS)?

The main thing is for our Mobile Network Operators (MNOs) to provide the robust and reliable infrastructure on which DFS would run. Nationwide roll-outs must be achieved. Down times must be eliminated. Once these are in place FINTECH companies would collaborate with banks to ensure that all types of products for our unbanked in all the various categories of financial services.

Micro insurance is expected to grow in Africa, what are the contributing factors to this and why should customers consider it?

The growth of micro-insurance would be driven by customers’ demand. There is a need for index-based insurance for smallholder farmers. Poor people need access to good medical services and this can only be provided by effective health insurance products. Other forms of micro-insurance are also desperately required by micro-entrepreneurs.

What is the nexus between microfinance and sustainable development?

Like I said earlier, microfinance is the major tool for financial inclusion, while financial inclusion is the facilitator of sustainable human and economic development. SDGs like eradicating poverty, achieving food security, promoting health, promoting employment, and empowering woman would only be achieved through the provision of various microfinance products like micro-credits, micro-insurance, mocro-pension etc.

How can today’s digital revolution help reach the 2030 Sustainable Development Goals (SDGs)?

Digitalisation is an enabler. Development initiatives and processes can be digitalised so that they can reach a wider population quicker and cheaper.

What are the opportunities for trade finance in the country?

Trade finance still continues to be elusive to many entrepreneurs. Those who can access it are traders because the tenors are very short; usually 90 days or less

What are the risk factors associated with international trade finance and what is the best way to counter them?

The major risks have always been product quality. How to ascertain that products imported and exported meet the expected standards. If goods do not meet required minimum standards, payment may not be made. For Nigerian exporters, the solution is to understand the markets they are exporting to and prepare the products to meet all the standards established for such products, not just by their business partners, but also by the regulatory agencies.

What are the opportunities available to domestic producers win terms of export financing and how do microfinance banks support them?

The CBN does not permit MFBs to be involved in FX transactions. However, micro-entrepreneurs could borrow from MFBs in Naira to prepare their products for export. The export processing would then be done by a commercial bank.

How easy is it to get loans from the microfinance banks?

It is actually easy to obtain microcredits. However many of our MFBs are cash strapped and cannot expand their loan portfolios due to capital constraints, hence the the CBN recapitalisation agenda. However, MFIs have not such constraints and are usually able to meet the needs of their members.

Many people relate with Deposit Money Banks; only a few patronise microfinance banks. Why is this so?

The first reason is inadequate knowledge of what MFBs are doing. Secondly MFBs need to improve their collective reputation and rebuild public trust. The current trend of recapitalisation and professionalisation are geared towards improving the reputations of MFbs and MFIs.

SMEs constitute a large percentage of businesses in Nigeria. Do you think microfi-nance institutions are satisfying the needs of this sector?

Certainly not. Hopefully with the recapitalisation exercise, our MFBs would be better empowered to meet the needs of our MSMEs.

Can you tell us about some of the unique partnerships you have with others to support entrepreneurs?

Working with the Microfinance Association, we have raised millions of dollars for MFBs to lend to their customers, and so contributed to the loanable funds available to Nigerian micro-entrepreneurs. We have provided training for boards, managements and members of staff of MFBs and MFIs and so helped to improve the quality of the people who manage Nigeria’s microfinance subsector.

Is financial inclusion making great strides?

I would not call the strides great. We are falling short of targets we ourselves set. More creative solutions need to be developed and implemented speedily.

Give five reasons to be optimistic that full financial inclusion is possible through digital payments?

It reaches a wider spectrum of customers faster. Unit deployment price/ customer is very low. DFS are easily scalable, so the expansion of outreach is easier and faster. They promise convenience and ease of use, once available in the rural areas (where 78per cent of excluded Nigerians live), uptake by customers would be almost total. The largest age groups financially excluded in Nigeria are those between 18 -25 years; digital payment systems are the surest way to attract them into the formal system and this will immediately improve our financial inclusion performance.

How can Lagos and other cities win digital payments?

It would require careful planning, identifying who the key players would be, allocating resources and implementing the plan religiously. There would be co-operation across ministries and MDAs, public-private partnership would be the main driver of the plan.

Do you see digital payments as a game-changer for farmers?

Indeed, it worked with fertiliser and input allocation in the past. But for me, the best thing our farmers need is working Commodity Exchange where they can confirm produce prices and get value for their labour. A functioning commodity exchange would also serve financiers as it would facilitate price stability and ultimately reduce loan defaults that arise from price fluctuations.

How are farmers benefiting from making and receiving digital payments?

This is not yet widespread in Nigeria as the mobile networks are unreliable in the rural areas where our farmers live.

Where do you see the impact of digital payments in the sector in the next 10years?

Not just in agriculture, in all sectors, digital payments would change the way we conduct payments unidentifiably. Let me quote Bill Gates here – “We would not always have banks, but we would always have banking”.

Your association’s mandate requires helping to fight poverty on the continent. How much of this has been achieved over the years?

Our influence is indirect. We empower those who empower the poor. We are careful to monitor our partners, especially those we facilitate funding for, to ensure that the funds produce the required outcomes. We must say that we are largely pleased with our results in Africa and in particular in Nigeria. An MFI would received $3m to provide funding for women micro-entrepreneurs.

What are the main objectives of the association and how will it support the long-term goal of promoting sustainable growth in Africa’s agriculture sector?

Our main objectives are centred on the development of the microfinance subsector. We do this by firstly, developing the practitioners through capacity development, certifications and advocacy for professionalism. Then we support the capacities of the institutions by helping them to institutionalise global best practices.

Following the group’s efforts to reduce poverty on the continent through financial inclusion, what policy advice would you provide to the government to enhance these efforts?

Financial literacy and entrepreneurship should be part of our schools’ curricula at all levels. Our people need to know how money works and be taught how to develop good money habits that would lead them out of poverty.

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Godwin Okafor is a Financial Journalist, Internet Social Entrepreneur and Founder of Naija247news Media Limited. He has over 16 years experience in financial journalism. His experience cuts across traditional and digital media. He started his journalism career at Business Day, Nigeria and founded Naija247news Media in 2010. Godwin holds a Bachelors degree in Industrial Relations and Personnel Management from the Lagos State University, Ojo, Lagos. He is an alumni of Lagos Business School and a Fellow of the University of Pennsylvania (Wharton Seminar for Business Journalists). Over the years, he has won a number of journalism awards. Godwin is the chairman of Emmerich Resources Limited, the publisher of Naija247news.

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