Mr Taiwo Joda, who took the reins of leadership at ACCION Microfinance Bank, one of Nigeria’s largest MFBs, spoke with BUKOLA IDOWU on sustaining operations of MFBs as well as financial inclusion and microfinancing. Excerpts.
How well would you say the Microfinance sector has fared in Nigeria?
The microfinance subsector since it came into the part of the banking industry since 2002 has made very significant and remarkable growth in all spheres of the Nigerian economy. We have been in the forefront of driving financial inclusion, we have been in the forefront of empowering the vulnerable sectors economically and also alleviating the poverty in the land.
Nigeria is a big country, it is a country with an estimated population of 190 million and out of that 80 million are people who are vulnerable or who have lack of access to financial services either in terms of savings or in terms of making payment and this is a vulnerable sector that the microfinance bank sectors have come to serve and I think we’ve done so well in the last 12/15 years.
When you talked about your support for the vulnerable sector, some may want to disagree with you because we still have a lot of people who are still looking up to institutions like the MFB’s to support them and they don’t get such support, what will you like to say about that?
Well for those who have not been able to get the services, the issues could be in two folds. When I say vulnerable sector I am talking about the people who I refer to as the active poor, those who are doing economic activities, who are into one form of business or the other.
Now microfinance is not to subsidise the poor, microfinance is to provide finances for the active poor and that means the traders, those who do petty business to be able to grow their business and we believe that when this businesses come together they come together they form the catalyst for economic growth.
So, when we said the reach or the depth of intervention has not been sufficient there are so many reasons that could have been responsible. One of those reasons is availability of fund or liquidity to on-lend to the sector. MFBs in Nigeria is the only banking institution that is loan led. When I say loan led, they hardly get people to give them deposit before they start giving loan so they thrive mostly on capital and there is so much that can be done with individual capital to intervene in the market.
The market is about 80 million in terms of number that you need to attend to and so where funds are not sufficiently available to intervene in that market you can only do so much. The second reason is financial education even the vulnerable sector that we talk about may not even be aware that they can access funds from microfinance banks. So we need to also be able to create that awareness, we need to be able to educate them to let them know that you can go to the microfinance banks and access funds.
Even though the Central Bank of Nigeria and development financial institutions have intervened in several ways to make funding available, what we realise is that there is still so much to be done in that area. If we talk about 80 million people for example this year alone from January to date ACCION MFB has disbursed a total of N8.4 billion in micro loans to different sectors of economy.
That N8.4 billion as huge as it is has only been able to cover about 50,000 loan users. So if you look at the proportion of 50,000 out of 80 million, you will see that there is still huge grounds that needs to be covered. So yes the microfinance banks are doing so much but there are still a lot more that needs to be done.
Looking at the rates of collapse of microfinance banks from 2002 when the initiative was introduced, one would notice that a lot of them they come on board and they don’t last. But ACCION over the years has remained strong. What is that thing that ACCION is doing right that others are not doing?
First and foremost for ACCION Microfinance Bank, our main stay and our main strength has been in the area of our very strong ethics and corporate governance, divorcing conflict of interest in the management process and if you look at it, ACCION MFB came together not by the wimps and caprices of individuals, the shareholders are corporate entities.
We have the likes of ACCION International in the United States, we have Ecobank, we have Citibank we have Zenith International bank and we have IFA a subsidiary of the World Bank. Now these are institutions with very strong ethics and corporate governance and what you see is that we bring the best global practice to bare on our activities and so in most of the microfinance banks that are failing one of the key things you will see is the failure of strong corporate governance in these organisations.
So what in your opinion are things that should be done to reduce the rate of collapse of MFBs?
The first and most important thing to ensure survival of the microfinance bank industry, is the entrenchment of very strong corporate governance. Second is adequate capital to run a business, because when you don’t have adequate capital to run the business, if there are any loss or adverse situation in the economy you will not be able to handle it or successfully sustain it.
The third one is to be focused. We have seen a lot of microfinance banks come up and they become a mini bank in the process not knowing the business of microfinance but giving out big loans and stuffs like that. Once you lose focus you are not going to have a very strong and dynamic microfinance bank that can stand the test of the time.
The two key critical areas that microfinance banks should look at is area of financial sustainability to be able to be there in the long run and area of social sustainability to be able to impact the society that they serve.
You mentioned capital as one of the issues that microfinance banks have, now with the new capital base do you see microfinance banks doing more as they progress?
Yes, the capital base is supposed to create a strong and viral microfinance sector and that gives the capacity for every microfinance bank to be able to do more and also to be able to increase the volume of loan it gives in terms of size to the end users. Yes obviously capital is going to create a very strong viral microfinance banking sector that can confidently intervene to alleviate the poverty around.
The issue of capacity and manpower remains a challenge for MFB’s, what do you think should be done to raise the level of skills in that subsector?
The capacity is not just a main challenge for MFB’s, capacity is a challenge to the banking sector. Capacity is a challenge to the Nigerian economy as a whole. The quality of education needs to be improved upon, but then the microfinance banks came together and created what we call the microfinance learning and development centre in 2017.
We started training microfinance bank practitioners from the beginning of this year and we will continue to do that to increase the skill set and the capacity. We also have the chartered institute of bankers in Nigeria. We have the FITC, there is a professional qualification the microfinance certified practitioners qualification exam that every microfinance bank staff or employee is expected to write and pass.
And these are initiatives that are taken to increase capacity and skill. On the part of the organisation itself, in ACCION MFB this year alone we have trained over 360 of our staff across 15 different kinds of training modules both external and internal to enhance capacity. Training and retraining is a key to developing skills in that sector. However a lot has been done and of course we will continue to push.
What’s your market share?
Currently our market share is about 10 percent. ACCION Microfinance Bank for 10 years operated as a state microfinance bank, so we were only allowed to operate in Lagos and that affected our spread. But in the last two years we are currently in 12 states, that means we have added additional 11 states to Lagos state so the first 10 years may not be a significant yardstick to measure market share but in the last two years significantly our market share has grown and we hope that in the next five years we would have covered 36 states of the federation.
Financial inclusion is one of the things that is being driven right now and microfinance banks based in their structure are supposed to be at the forefront of this, what do you think that microfinance banks should be doing to grow financial inclusion in the country?
One thing that is critical to the growth of financial inclusion is the option of technology. The brick and mortars will not drive the skill that we want, so if we want to reduce the cost of acquiring a customer, the cost of engaging a customer the cost of serving a customer and you want to do it in large scale you have to drive significantly, automation of your process or as they call it now financial technology or digitalisation of your process.
In ACCION MFB all our loan processes are fully automated. Now we are even at a stage where we are doing without papers even where our customers need to sign documents they fill and sign documents using digital application, so technology is critical. I agree technology is expensive but it can be done in phases and that is the next big phase that microfinance banks should look at.