‘Microfinance banks better positioned to grow small businesses’

Adegoke Adegbami is the Managing Director/Chief Executive, Mainstreet Microfinance Bank Limited, the only surviving subsidiary of Skye Bank Plc. In this interview with Ibrahim Apekhade Yusuf he speaks on the funding gaps of small businesses. Excerpts:

Microfinance banks are supposed to be a major boost to the small and medium scale enterprises, but not many of those operating MFBs are mindful of this fact as they sometimes want to compete with the conventional banks in terms of product outlook and what have you. Does this not negate the whole idea of MFBs if you look at the precursors of the bank itself with respect to the Grameen Bank of Bangladesh?

Microfinance is supposed to drive the growth of SMEs, but that is just one side of the story. If somebody is going to drive the growth of SMEs the person needs resources, and the resources must come from somewhere. If somebody is going to drive the growth of SMEs, the person must have resources to do that.

The question now is where is the resources supposed to come from? I think the fundamental problem we have here is that as a civilised society, we have not really defined what the role of Microfinance banks should be and what do they need to be able to play that role.

The point is this, if Microfinance banks are not playing their roles, it’s not only the problem of operators. Everywhere the microfinance institutions are playing the role very well, the government has not left the microfinance as orphans to go and fend for themselves.

What is supposed to happen is that microfinance entrepreneurs, people who own microfinance institutions or who run microfinance banks should have the basic standard to meet that will assure the government and public that you have capacity to run the business.

After they have done that, the government should have a way of pushing resources to them but that is not happening in our society. You will discover that the money in our society is actually sitting with the commercial banks; you want the microfinance to fire the engine of growth of SMEs from where?

The government money is with commercial banks, the individual money is with commercial banks, the corporate money is with commercial banks. In fact, I can even tell you that except in few cases; most of the people that come to the microfinance banks come only to take loans.

When they have small savings, they take it to the commercial banks and those commercial banks will never attend to their loan needs, and these are the loans that the SMEs and the low income people need to be able to grow and change levels.

Therefore you cannot put the blame entirely on the operators alone. It’s a society thing. The government promised in 2005 to create a Microfinance Fund. That is not done till date. They later created MSME Fund that was high jacked by the commercial banks and state governments.

Secondly, you know that in our own society when the people see a line of new business, as long as they feel that there is money to make their , they just go and look for money and go into that line of business. People don’t think about the fundamentals of that industry, they don’t think about what are the success factors.

Because most people in our society believe money is what it takes to do a good business. My interpretation of that is many of the people we call investors and as entrepreneurs are just traders, you know it’s a trader that just wants to sell goods and just make margin and move on. Investors and entrepreneurs think of long term.

That mentality is part of what is affecting the industry; it is making even the operators of MFBs think the attractive thing is to be like the commercial banks. I think otherwise. The opportunity in the Microfinance sub sector is huge.

You should also remember that many people that came to manage MFBs are people that came from commercial banks, particularly after the consolidation of commercial banks in 2005. That is what they know how to do and many of them are modeling their MFBs after their knowledge of commercial banking.

Knowledge will help anyone to know that you can become anything you want to become without copying the commercial banks. You can learn from them. But you cannot run MFB with the mentality of a commercial bank.

I must also add that the rate at which microfinance operators chase after being like commercial banks has drastically reduced because the knowledge is increasing in the system. The CBN has supported the knowledge base since 2010 by ensuring that all the management staff of microfinance banks are trained and certified.

Aside that, there have been other initiatives that have helped the knowledge base in the industry. Like the way the commercial banks have the Financial Institutions Training Centre, we also have a training centre that is basically for the microfinance banks and that has helped us a lot.

We also have a number of players from outside Nigeria, who have done it in other places; they have entered with the knowledge from better developed climes. Operators are now exposed to a number of international trainings.

In 2012, I went for a program at the School of Africa Microfinance in Mombasa in Kenya, we had participants from about 32 countries in Africa in attendance. At that programme, the number of participants from Nigeria was equal the number from Kenya-the host country. If I am not mistaken, CBN alone sponsored 18 people to the programme.

You have the caliber of a Deputy Director from the CBN at the programme. In recent years, I have been to different Microfinance programmes around the world; you will always see Nigerians there. A number of MFBs in Nigeria have also done well and have been recognised internationally.

And that is giving the confidence to other people that if you do the right thing, there is nothing anybody can become in the commercial bank that you cannot become.

Today in the microfinance business we don’t only have MDs, we also have Executive Directors, we have GMs, and we have DGMs. So if you run your business very well, all these are going to happen.

I also want to correct a notion. When people are talking of Microfinance copying commercial banks, what some people think is that if you are a CEO of a microfinance bank and you are using clean Toyota Camry car; then you are copying the commercial bank. They felt that you are only doing microfinance if you are riding a bicycle.

There have been places where microfinance staff or agents ride bicycles, but that is not necessarily the yardstick of being the right microfinance business. That is a reflection of the type of society where those people operate. The issue is that you must know the level of cost your business can sustain.

You must also take note of the level of your business per time. What you cannot afford today you should be able to afford later. There is competition in our sub-sector too. If I don’t pay my staff very, they will leave me for my next door neighbour. We also need experienced hands and experience comes with cost. Our staff go to the same market with the commercial banks staff.

There were certain things we could not do 11 years ago when we started, if we are able to do it now why not. There is a regulatory requirement to the kind of fixed asset you can acquire. Our customers are not limited to the low income earners that we give loans.

We also need to gain and sustain the confidence the people that give us money, they are also our customers. In fact they are very important to us because if they don’t give us money, we will not have money to service the so called poor people and SMEs.

Our space is big enough. Remember equity bank of Kenya- a Microfinance bank that grew to have a commercial bank as its subsidiary. It can also happen here.

Do you think MFBs are undercapitalised? And what in your own view should be the minimum capital requirement for a going concern, like the MFBs?

That’s a very difficult question to answer. Depending on where you are; for example the time we had minimum if you are operating a Unit MFB in Lagos, N20million is not enough for you to open even a shop. Particularly in the city centres, that amount cannot take care of your expenses.

By the time you take a five years lease, acquire software and computer system; you don’t even have money to pay staff for the next six months. Normally, the 6months is the time you are processing license, training your take-off staff, trying to study the market and crafting out your strategies.

And don’t tell me MFBs are supposed to operate only in the rural areas. There are poor people everywhere and all of them must be attended to.

People also erroneously think they can run MFB with customer deposit. In reality, your loan portfolio must be greater than your deposit portfolio at all times. So you really need strong capital and other funding to do well in this business.

But there are MFBs in the rural areas that don’t even have what to do with N50million. For those people, asking them to bring N200million will be counterproductive.

In fact, there are some of them that what they do is to place all their money with the commercial banks and be waiting for monthly interest from the commercial bank.

Therefore, the issue of whether somebody is undercapitalised is more of a personal thing, like I said; anybody that knows his onions will not wait for the Central Bank to increase the minimum capital before he looks for more money; because regulatory capital is what CBN is controlling, regulatory capital does not necessarily make you to do well, it’s too small.

It is the minimum you required to remain in business in the short and medium term. We must all continue to beef up our capital and other funding even without the CBN asking us to do so.

For us even without having minimum capitalisation issues, before CBN thought of new capital benchmark, we have always looked for more money. When we got debt from outside Nigeria; it was not the CBN that asked us to do so. Money is our stock in trade and we must continue to look for more of it.

What has Mainstreet Microfinance Bank has been up to in the last 12 months or so?

Mainstreet Microfinance Bank over the last 12 months, we have done quite a few things that you can look back and be grateful to God and you can conclude that we have made a lot of progress in the last 12 months.

Within the last 12 months, we successfully deployed our mobile banking application which is now up and running, we started the process sometimes back but within the last 12 months we have deployed it and it is working.

Secondly, we have also launched our internet banking application which is also up and running. Within the last 12 months our card business is also not excluded, our customers can now use ATM like customers of any commercial banks.

In relation to this, we have also trained our staff; to be able to respond positively to this new level of business, you have to train staff on how to do these things like responding to customers appropriately and how to also make sure that the assets of the bank are protected because by the time you have exposure in the internet and mobile banking such exposure comes with its own risk.

So we have had to train our people on how to make sure that the bank’s assets are not unduly exposed. That is part of the achievements, and beside that we have actually been able to grow our assets over the last 12 months.

As at the last count, at the end of December 2019 if you look back compared to December 2018 our total assets has grown by 104%. Our risk asset which is the loan has also grown by 72% which is not a small growth if you understand what happens in the industry.

Beyond that, the brand of the bank has been improved on a lot. If you go online our outlook has changed, and even if you walk into the banking environment you will discover that we have changed a lot of things.

The idea is that we want to do everything to make sure that our customers are comfortable and they enjoy our services. We also want to be sure that our staff members are proud to work in the bank.

In terms of funding, we have been able to secure a lot of funding into the business. The kind of funds that we have expected for more than 24 to 30 months, we got such in the later parts of 2019. Within the year 2019, we launched our Mobile banking application, we launched our internet banking, and we deployed our debit cards successfully.

We also lunched our USSD service within the last 12 months. We have also activated our correspondent banking platform during the period. Today, any of our customers can walk into any branch of Stanbic IBTC and transact on their accounts with us real time.

Yes, they can make deposits to us from there or withdraw from their accounts with us from there. They can make transfer on their accounts with us.

Within that period, we got an institution rating of Bbb- by Agusto & Co. In 2019, we opened a new branch in Ikorodu area of Lagos.

We had our 10 years anniversary in November 2019, it was a whole week activity and it was very successful.


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