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Capacity has grown tremendously in the Nigerian Microfinance Sector – Adegoke Adegbami, MD/CEO, Mainstreet Microfinance Bank
Exclusive interview with Adegoke Adegbami, Managing Director/CEO, Mainstreet Microfinance Bank
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. We had a customer forum, and we hosted our partners all over the country, we also hosted a number of leaders in the industry. It was a very successful activity. As part of the programme, we also did a lot of corporate social responsibility, like the visits and donations to the less privileged homes like the School for the Deaf and Dumb. We also did health walk and campaign. We also organized a football competition with some of our competitors and it was very interesting. Our staff members and other people that participated were very happy. These are parts of the achievements in the last 12 months.
A lot of Microfinance Banks have had to go under as a result of their inability to meet the capital benchmark of the CBN. How did your bank achieve this feat despite the regulatory headwinds?
First of all, it’s not anything unusual for CBN to ask for new capitalization in accordance with reality. It’s what should be expected. The CBN set the current capital benchmark when naira was going for 150 naira to a dollar. Today, it is 360 naira to a dollar. This is an indication of the value of naira, the purchasing power and inflation effect over the period. If you started a Unit Microfinance Bank with 20 million then, and you are still running with that 20 million, you will discover that it’s going to become very difficult for you to be able to cover your cost. So the issue of the new capital requirement as much as it is painful and demanding, it is what we should expect from time to time.
For us as an organisation, before the new capital requirement came, we were far ahead of the minimum capital required for the type of license we currently operate with. When we needed N100million as minimum capital, we were actually operating with capital above N1billion. As operators, we must recognize the fact that there is a different between regulatory capital and business capital, or what you call operational capital. So even if the CBN does not say you should bring new capital, a lot of us were supposed to know that by virtue of the business that we are doing, we have to continue to increase our capital base. Cash is our stock in trade, the more of it you have, the better for all stakeholders, provided you have the capacity to deploy the money effectively. It is not only the minimum capital that the CBN is changing; even the regulatory guideline is changing completely. Prudential guidelines we are using now was launched 2005 and was reviewed in 2011. There is a new one that is coming out with more stringent requirements. CBN released the exposure draft in 2019 and some of us have made our observations and contributions as required. I was part of the Committee that reviewed the exposure draft at the National Association level. What I can establish from the review of those new requirements is that you cannot continue to meet them by playing small. You just have to do big business, if you do business of N20million or business of N50million, you may not be able to stay in business for more than three years, because the expenses alone will erode whatever you have.
The quality of staff you need to run a system that will take care of the new requirements is different with what we used to have. So you cannot keep people who are not trained, who are not developing themselves or who are not cerebrally sound and say you are running a Microfinance business. If you do that you may be out of business very soon. Microfinance business in Nigeria is also facing global competition because we have a lot of foreign players entering into the market. You must be ready to compete globally. You also have to do the business in a way that you can pay your staff well if you don’t want to lose them to competitors.
We do our best to stay ahead of capital and other regulatory requirements. Like when the CBN introduced the code of corporate governance, which deals with how the Board and Board Committee should operate, we discovered that more than 75% of the requirements of code are the things we have been doing before. Because we were a part of a commercial bank before and most of those requirements have been in operation in the commercial banks for years. We have copied many of them from our parent bank since we started out in 2009. These are the things that have helped us to stay afloat. We believe that even with the new capital requirement, we will still do very well. We have also made up our minds; we will not wait for CBN to ask us to look for new capital before we beef up our funding and capital.
Your bank achieved the industry rating recently, what does this mean to you?
I must say that I am very happy because rating is an indication of the confidence of the market and of the stakeholders in our business. This is the second time we are being rated, and each time we have been rated, we have what is called ‘investment grade’. That is to say that people could have confidence to invest either in our shares or in giving us money as debts or even in placing deposits with us. It’s an assurance of the confidence of the stakeholders and people that have the knowledge of how a typical Microfinance that is forward looking with a good outlook should be. So it’s about the confidence.
If you look at the rating, after giving us the rating of Bbb- the rating agency also stated that Mainstreet MfB has ‘stable outlook’. This is despite the harsh and unstable environment where we operate. It is important to note that Bbb- is an investment grade. That gives people confidence to invest their money in our bank. This is an expression of confidence in the quality of our Board, Management and Staff. Our commitment is to do even better in the future.
To what extent have you been able to boost investor confidence in the bank bearing in mind that the operating environment has been anything but favourable to the banks in recent times?
From what we have said so far, you can see that the investing public has confidence in us. By investment we are not only talking of shareholders, we are also talking of people who give us debt funds and deposit. One thing we have achieved as a Microfinance institution is that the kind of money that people could not place with a number of our peers, they have confidently put with us over time. You people taking their money from commercial banks to give to us. It is a display of confidence in the capacity and integrity of our Board and Management. We also invest in our staff so that they can hold their head high anywhere they go and anywhere they represent the bank. All our Board members have undergone some of the best international trainings in corporate governance and risk management. You can see we have been able to grow our asset size from about N2.4billion in December 2018 to N5.2billion in December 2019. We have also seen a lot of people that are also indicating interest to partnering with us one way or the other. We have local and international partnership interests. Banking is a business of trust and all these are demonstration of trust and confidence the society has in us.
With what you have achieved over the last couple of years thus far, is there any plan to go back to being a commercial bank?
First of all, we have to know that having a commercial bank license is never the ultimate. There is enough business in the Microfinance sub sector, if you know what to do and you have the resources to do it. The potential in our space is very huge. The number of people in poverty in Nigeria is very high, according to global statistics. And the number will continue to increase because our population is increasing. You also know there is no clear plan in place to check our population. Therefore, the Microfinance market is growing daily.
For me, getting commercial bank license is not a priority for us now. Of course, I am just one person on the Board. The Board may have a different opinion on this. For me, we would rather be looking at creating a group first. There are other businesses that you can create within the Microfinance sub sector, related businesses and if you now have a group, the directors can decide whether we need to go into commercial banking or not.
Microfinance banks are supposed to be a major boost to the small and medium scale enterprises, but not many of those operating MFBs are unmindful 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 civilized 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 recognized 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 Microfinance Bank still have access to credit?
I can say that there is still access to credits but not like we used to have 10 years ago. In those days, if you run a Microfinance bank well, what you are going to be looking for is not only cheap credits but also grants and donations. But today the donations and grants are no longer there. Grants and donations are now facing areas like climate change, renewable energy, Fintechs, refugee issues and so on. But you can always get commercial funds. Your money will always run after where it can get the best return. The global community is now seeing the Microfinance sub-sector as matured enough to run with commercial funding. Before now Microfinance was seen as a development activity.
Do you think MFBs are under-capitalized? 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 5years lease, acquire software and computer system; you don’t even have money to pay staff for the next 6months. 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 under-capitalized 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 capitalization 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.
In terms of accolades and what have you, can you please share with us some of the awards you took home?
I thank God as a person for a number of these awards I have received is related to this business. In 2016, I got African Award for Leadership Excellence because of what I have done here and other things outside this place. You know I am also an author on leadership, financial empowerment and entrepreneurship. In 2017, I was recognised by the Institute of Credit Administration. In 2019, I was awarded Microfinance CEO of the year by the International Center for Strategic Alliance. The Award ceremony was held in Ghana during the annual Digital Banking Summit. Also in 2019, I was awarded Credit Director of the year by Institute of Credit Administration. I have also received award of excellence from the National Association of Microfinance Banks both in 2019 and 2020. Our bank has also been nominated for an award of excellence for what we have done in supporting the SMEs.
Your organization has achieved a whole lot since inception. What are your projections for the new and the nearest future?
Let me start from the assets side because there is a way a bank is measured. We are looking at increasing our asset size to N8billion by the end of 2020. Part of this will come from N1billion growth in our shareholders funds. Of course our strategic projection is to grow our assets to N20billion in 5years from 2019. In terms of loan size, we are growing our loan portfolio, currently we have about N3.5 billion and we are growing the loan portfolio to N6billion in 2020. We are also increasing our staff base by an average of 30% this year. Of course, technology will play its own role. Therefore, number of staff will not grow proportionately to the size of business. And we want to ensure we have well paid and well motivated staff at all times. We want to grow our customer base to 120,000 customers. Today we have about 100,000 customers. We also want to ensure that the customers we have are actively doing business with us.
We are launching our mobile lending application very soon. In fact, our target is that within the first half of the year, it’s going to be up and running. We are also looking at deploying a savings and investment application which we are going to drive as a product. We also have a few other products that we are rolling out to work together with all those that I mentioned earlier like the size of the asset and the size of the business. Our agency banking platform will soon be deployed. We are increasing our brand awareness on social media, on outdoor publicity, print and electronic media as well. We want to make our presence more visible than before, and all these are targeted to make our esteemed customers happy and also to create an enabling environment for our staff. We want to give all stakeholders remarkable experience. We also plan to do more in the area of corporate social responsibility. That reaching out to people we are not really expecting financial benefits from. Ultimately, we are out to make our shareholders and investors happy by giving them good return on investment.