Microfinance banks need more time to recapitalise –Adegbami

Adegoke Akinola Adegbami, Managing Director/CEO, Mainstreet Microfinance Bank recently barred his mind on challenges and opportunities of Microfinance banking in Nigeria.

He spoke with Dele Onatade

How we raised $20m via  debt products.

Thank you for the opportunity to have this conversation. First we must remember the fact that the core of our business is financial intermediation. We get money from those that have surplus and channel it to those that need it for productive purposes. And two things are important here. The more of it we can get more our ability to manage and deploy it profitability. The product in question was actually launched in 2018 and we had just paid down a foreign debt of about N700million at that time.

Our first option was to look for a similar foreign facility as a replacement, but because Nigeria entered a recession in 2016, coupled  with the sharp devaluation of Naira, it was impossible for us to get a foreign replacement. Besides, we were not ready to carry the foreign exchange risk, we believed that was not our area of strength. It was this dilemma that made us looked inwards and launched that product we called Main Treasure Note. It is typical of a commercial paper, except for the fact that we handled everything by ourselves, including the marketing of it. The tenors grange between 180days to 12 months with very attractive interest premium. The target was that with aggressive marketing, some people will be able to pull out their deposits from commercial banks and give parts or all of it to us. We marketed it to the middle class, high network individuals and corporate entities. That gave us about 800million in 2018. We marketed mostly within family and friends network in 2018. We had subscription ranging from N5million and above.

All we did late 2019 and 2020 was to leverage on the confidence we got from the 2018 success story and rework our marketing strategy. Today we have agents that market this product for us on commission basis. We got all our staff involved, including back office and other support staff. We also continued to place advert in the news papers and online platforms. The people who have patronized us since 2018 are very happy with the attractive interest and our prompt, quality services. Our investment grade credit rating by Agusto & Co also served to boost their confidence in our bank. With the very low interest regime in 2020, many of them now found us as their investment destination. Even though this particular product is revolving in nature, we have a portfolio of over N8Billion on that product as we speak. If you use N400/$, that translates to $20million.

You spoke earlier about the ability to deploy fund profitably. Are you able to deploy all this money?

That question can take us a whole day to answer. What I will say is that we are able to manage the funds very well. And by managing the fund we are not only talking about deploying the money to loans. We are also talking of the ability to pay back the money as and when due and that we have done creditably well. We took this into consideration right from the design of the product. The debt note is not subject to premature termination. If you are doing 6months or 12months, it has to stay till the end of 6months or 12months. We have factored that into the interest premium that we are paying. By the way, we still have our regular fixed deposit where you can call for your money at will. The no pre-liquidation nature allows us to enjoy stability and plan the utilisation well. It enables us to plan for replacement when necessary. We ensure that our loan tenors align with the tenor of the money we use to fund them. In reality, there will always be at least a little gap between fund raising and deployment but that is for us to manage. That is our job. We also make sure that we keep adequate liquidity far above the regulatory requirements.

How are MFBs operators faring with recapitalisation

 Like many of us, I believe capital is very important for the success of any business, but particularly a banking business. I also believe that the regulators mean well for the sector. However, there is a need for the regulators to consider the issue of timing very well. Even if the timing was right as at when the CBN initiated the current capital increase, COVID-19 has made the timing wrong. They gave extension of 12months, but that was with the expectation that the world would be able to deal with COVID-19 in maximum of 12months. The reality today is different. Almost 2years down the line, the world is still grappling with COVID. Covid-19 has now become COVID- 21, particularly with the current experiences of India, Turkey and Brazil. Dont forget we live in a global community. And we also have our own peculiar problems in Nigeria. My advice is that the regulators should give us more time. They can apply their new requirements to new entrants but they should give more time to existing institutions. I dont think anybody will benefit from these businesses being closed down, at least not the regulators, employees, shareholders, government and the Nigerian economy at large.

Impacts of COVID -19 pandemic on MFBs and prospects for the future

On the quantitative side, we have grown our total assets by 81per cent year on year. Our portfolio has grown by 80 per cent. Our gross revenue and profit before tax have grown 71 per centand 74 per cent respectively. To be able to fund the growth in portfolio, we have grown our deposit moderately and debt funding significantly. Despite the challenges of the last 12months, our bank has won a number of awards and recognitions. At the Fintech Innovator Merit Award 2020, we won Africas Most Innovative Micro Lending Service Brand of the Year 2020. We were recognised as the Microfinance Bank of the Year 2020 by the Classic Magazine. We were also selected as the Microfinance Bank of the year 2020at the Peace Legend Award. At the global banking award in London, we got an award for our Auto Loan Scheme. And to answer your question, our strong belief is that the future ahead of us is very bright.

How we’re preparing for African Continental free trade agreement:

Taking from the experience from other parts of the world like the euro zone, this is naturally supposed to lead to increase in trade, market size, movement of goods and services and ease of doing business. But every member       nation has to take conscious steps to take advantage of those benefits. Businesses and individuals must also make conscious effort to take the right advantage. Of course, government must take the lead. But individuals and business also have roles to play. If we dont do that, Nigeria may end up becoming a dumping ground. Other nations with smaller markets may benefit more than Nigeria. As an organization, we are reviewing the situation to be able to take maximum advantage.

Government policies on Nigeria’s economy SME, and effect on Microfinance Banks Banks

The solution to the Nigerian economic problems lies with the SMEs. We must do everything to make SMEs thrive. Like I said in a recent interview, MFBs have done relatively well in supporting SMEs in Nigeria, considering the amount of resources available to us. The government needs to support us. SME lending is still a very risky venture in Nigeria. Through our SME support loans we help government to get many people engaged. Without what we are doing, the level of criminality could have been worst.

Can you talk about your fund raising program, performance and plan for future?

We are currently raising a 5years bond. We have other things lined up in our strategic plan that was launched in January 2021. The purpose of the Bond is to dilute the short and medium term funds that we have. The new strategic plan is to run from 2021 t0 2025. That plan clearly identifies people, funding, technology and the market as major success factors. We are committed to pursuing all these.

My stance on the CBNs restriction on crypto currency transactions

My first reaction was that the CBN appears to want to control what is clearly not within its control. But CBN has also clarified that they did not ban crypto currency transaction in Nigeria, neither do they criminalise it. What they are saying is that you cannot pass it through banks that are regulated by the CBN. This is because they believe it is prone to fraud and it is difficult for the CBN to regulate. They cannot take responsibility for or guaranty the safety of your money in those transactions. I think that is fair enough. We also have information that all regulators and government agencies are now working together to find a way around it.

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