Challenges Of Microfinance Banks Are Enormous, But A Niche Makes the Difference

Challenges Of Microfinance Banks Are Enormous, But A Niche Makes the Difference
NPF Micro Finance Bank Boss
Microfinance banks (MFBs) will most likely thrive against all economic odds in Nigeria’s business sectors. Akin Lawal, Managing Director/CEO, NPF Microfinance Bank Plc, expanciates on this, while also identifying the prospects, challenges and ways forward in actualizing a profit oriented customer service-driven MFBs in Nigeria in this interview with Patrick Aigbokhan. Excerpts.
Sir, as a result of the ongoing recession in the country, do you observe any negative effect on the operations of MFBs in the areas of depositors’ funds and investment turnover?
Well, what we are seeing is just the obvious. Purchasing power is low, so where do people get the money to save? When people are not even earning enough, cost of living is high, business owners are experiencing low patronage, the recession is affecting everyone, what then is expected?
But, as a banker, you have to choose your risks, you have to evaluate your propositions to ensure that funds released as loans are paid back to the extent of how you evaluate your propositions.
People come to us for loans to start businesses they don’t have deep and reasonable knowledge about, but we shouldn’t allow them to use us as test cases, so that we don’t run at loss. There is need for a loan seeker to have a grounded knowledge about the proposed business for which he is seeking a loan before we can offer such a loan.
So, it’s our responsibility to evaluate their capability of any proposed business before we release any fund. Failure to do this can make the bank to run at loss, so, we tactically avoid it.
Many businesses have packed up today due to the initiators’ lack of knowledge about such businesses before kicking off.
But, for us, we are very cautious of such a trend, and we can not afford to allow it happen on our own part here.
From  your own observation as a key stakeholder in this sector, what are the like challenges usually encountered by the operations of MFBs in the country, and how do you as an operator surmount the challenges?
Basically, challenges of MFBs are common to all. I will start with the problem of reputation and acceptability by the general public, which is common to all MFBs. In the history of microfinance banking in the country, right from the era of community banking, several of them have been liquidated, and for one reason or the other, depositors were unable to recover their funds. So, we struggle to convince prospective customers that our own bank is a reputable one. An adage says, ‘once beaten, twice shy.’ So, even if you were never beaten, the moment you hear of the case of a folded MFB where depositors lost their monies in the process, you may not want to ever have any dealings with any MFB.
Funding is another general challenge, irrespective of your position as a MFB. This is even as a result of reputation challenge. No one willingly comes to the MFBs to deposit money. People’s major attraction to the MFBs is to grab loans. So, as a bank, we have to deploy a strategy to recover any money given out as loans. And unlike the conventional banks where depositors walk in to open accounts with their monies, we would have to go from door to door to convince them of our capability. And the only language that convinces them to bank with us is when we assure them of having access to our loan facilities.
Another challenge is Non-Performing Account (NPA), which is also common in all MFBs. NPA occurs as a situation where customers borrow money from the bank, but may be the economy has battered them to the point that they are unable to pay back their loans. And at such situation, the bank stands the risk of losing that money. So, as a bank, you have to run your own internal control mechanism to make sure you generate money so that the bank can also have enough to release funds.
Operating cost is also a challenge that is peculiar with MFBs. This includes but not limited to high overheads. For instance, we generate our own electricity, so we incur costs by purchasing diesel to operate our power generating set and it’s maintenance. Also, in a bid to meet up with the required standard of electronic banking service, there is need for us to acquire the required technology to serve our customers better. And this costs us a lot of money.
We have the issue of capacity building, which involves continuous training of our staff, so that they can understand the market.
So, how have you been able to stand tall among other MFBs amidst the competition in the market and the present economic downturn?
Like rightly said, MFB by name, and the Small and Medium Enterprises (SMEs), which constitutes the larger spectrum of our target beneficiaries, consisting between 65 to 75 percent of Nigeria’s business operations, it is a sector where you can only do your best, create a niche for yourself and operate successfully with that niche.
I think microfinance banking is the way to go, because the lager spectrum of the population is in that subsector.
And of cause, what the present administration has  been doing is to see how to improve the lives of the people in that subsector.
So, for us at NPF mfb, we choose our market, we understand it, and ensure that our banking service is provided towards that direction. We also choose our risks, how we maintain within the scope of our risks, and we avoid risks that are above our capacity. We advise our customers and refer them to other financial institutions that are capable of taking such risks that are beyond our capacity. We don’t play ‘jack of all trades and master of none’, and we try as much as possible to remain focused within the scope of risks that we have chosen.
At the inception of NPF mfb, which categories of business operators did you have in mind to serve?
The NPF mfb was set up in 1993 under the then militery administration of General Ibrahim Babangida. That was when we got the license to establish what was referred to then as community banking to cater for the wellbeing of the Nigerian police. And in 2007, we graduated to a microfinance bank when Professor Charles Soludo assumed office as Governor of Central Bank, which was done in a bid to upgrade and encourage the community banks.
There are three classes of micro finance banking level in Nigeria, which are national, state and unit levels with capitalization of N2 million, N100 million and N20 million respectively. And since inception, we have operated at the national level. So, even as we were established to take care of the welfare of the police institutions, we are not limited to the police alone. Our services are also extended to the general public, but we don’t make so much noise.
Does the NPF mfb have banking service products available to meet certain specific needs such as empowering specific categories of business operators within the SMEs, and to what extent has the bank been able to impact such business categories through the banking products?
Yes, there are such banking products, and with the products, we encourage our target beneficiaries to keep an account with us, and as a result, we make credit facilities available to them. We empower spouses of police officers to encourage them to run other accounts like current and savings accounts, to inculcate in them the habit of savings, and to ensure we are able to provide them with facilities within their capabilities. We sometimes organize empowerment programmes for them to teach them different kinds of trades at micro level. We engage facilitators to enlighten them on the different kinds of trades. And at the end of the training, we provide them capitals to start up with their trade. That, in a way, is part of corporate social responsibility service to the society.
How would you assess the impact of NPF mfb on its beneficiaries?
Yes, we are doing our best within our own capacity. But if you do your own findings, you will discover that even an average police officer will tell you how we have made impact in his or her life. Don’t forget that we started as a community bank in 1993 when the bank accounts of these officers were not attractive to an average bank. No bank would have opened an account for them with the level of their salaries. And as such, no bank would have offered them credit facilities. But we have been doing it for them since 1993. We have a lot of them who have been able to establish themselves and actualise their dreams through our financial services products.
Compared to other MFBs, how attractive are the interest rates on your credit facilities to your customers?
Basically, our interest rates fall within the best among MFBs, and by extension, about the best among all financial institutions across the nation. I don’t know of any other financial institution that offers a better interest rate than we do.