In this interview with CLEMENT NWOJI, the Chairman of the National Association of Microfinance Banks (NAMBs), Federal Capital Territory Chapter, Dr. Dan Ogun, says the banks are cut off from being the channel for onward lending for various intervention funds of the Central Bank of Nigeria, CBN, and government. He added that this apparent lack of confidence in that of financial services is hampering microfinance banks from helping the economy out of recession. Excerpts:
What is the relationship between Microfinance banking and the micro-insurance?
Microfinance banking is a concept conceived by the government to engage in serious banking inclusiveness for all manner of people at the grassroots that have been seriously unbanked. These are the micro level customers and businessmen, the micro level entrepreneurs, and all those classes of people that will keep their money in their pots, under their pillows and people that would prefer to do trade by barter rather than go to the banks. So, that is the group of people that we are talking about as regards microfinance banking. And then you have these organisations, the microfinance banks that give that kind of financial services and financial intermediation to these classes of people.
Now when you talk about micro-insurance, you are talking about insurance services that pertain to the financial services that these banks, which give guarantees to them in return for whatever credits or loans they give. Secondly, to the class of people to guarantee them return on their investments. For instance, you have a situation where small farmers will want to have insurance of their farms, or small business people may want to have insurance in case of the eventuality. But the concept of micro-insurance is not very popular with insurance companies in Nigeria yet.
One of the times, as an association, we made moves on some of the insurance companies, I did send some of my staff but they were totally at a loss. They were not prepared to do micro-insurance for this level of people. So, the concept of micro-insurance is still very new. I think recently, because of the present economic situation, people are beginning to talk about it that there is a need for micro-insurance for farmers to guarantee their yields. But micro-insurance with regard to customers of microfinance banks is not yet a popularised concept. But as situations and economic imperatives now demand, we cannot run away from that because we want to give confidence to small business entrepreneurs, who are starting off and they need some level of peace to build their businesses. And the microfinance companies also need some level of comfort in dealing with that class of people in case of eventuality.
From investigations, microfinance banks take upfront deductions of a certain percentage from loans granted to small entrepreneurs. Do the microfinance banks actually insure the loans and remit the necessary premiums?
Well, I will not be able to answer generically, but I’m in a position to answer for my bank. We don’t charge our customers for micro-insurance and we do not as at today have that programme for our customers. We are planning in future to have it. But for microfinance banks that do, obviously if they deducted money for insurance, it will be fraudulent for them not to remit it because microfinance banks are not licensed for frauds but licensed to do legitimate business.
So, micro-insurance is expected to facilitate the doing of that business and not to serve as a pipe to commit fraud. So, any company or microfinance bank that does that, obviously it is safer for me to assume that definitely there would have been a micro-insurance covers for their customers.
It is no longer news that the nation is passing through recession. What roles should microfinance banks be playing as part of their contributions to get the country out of the present economic challenges?
I think that is an important issue. Government licensed microfinance banks to deal with situations that the conventional big banks do not deal with. And therefore, in times like these, the microfinance banks are expected to be more involved in the activities towards economic recovery. You find situations where microfinance banks ought to be part of the various government’s intervention programmes and financial intermediation with the grassroots, but somehow had been kept off. The Association had made efforts to try to get government to think in our direction because we are veritable tool for rebuilding the economy right from the grassroots. This is because part of the recovery strategy during recession, let money be available to the people, let people do legitimate business, let them have access to credits and let them have access to building their own businesses.
Now, microfinance banks being the grassroots’ banks, it is the people’s bank which ought to be in the forefront of the government’s intervention towards economic recovery. We need a lot of funds for onward lending to small businesses and microfinance banks are surely and certainly the instrument that the government ought to rely on to get the nation out of economic recession.
Government and microfinance banks must at all times collaborate. And government must take the strong will to collaborate with the microfinance banks. Every month we render our accounts. So, the Central Bank of Nigeria (CBN) knows that we are very stable, reliable and strong and that we have a crop of young people running the banks now, who can bring that kind of results that the government is looking forward to. Patronising microfinance banks by the government is not an option but a necessity if we have to get to the grassroots and get the economy to flourish again.
But despite the roles microfinance banks play in economic development, how do you explain their going into bankruptcy and the collapse of some?
I will say that when a microfinance bank runs into a bumpy situation, it is a combination of many factors. One of such is the fact that the citizenry are yet to develop very strong confidence in microfinance banks. They look at the microfinance banks as a place to only patronise when they need loans. They look at microfinance banks as place to come and take money while running on excuses when it comes to repayment. And no business thrives when you take money and do not paid back.
In other climes, microfinance banks do excellently well, you have everyone captured on data and everyone can be easily traced. In Nigerian clime, you give someone money today, who lives in Mararaba in Nasarawa State, then by tomorrow, he relocates to Gwagwalada in Abuja, and there is no definite address where you can easily trace such a person.
You know, we have serial borrowers. They come to bank “A” to take money at the time they live in Mararaba, when in actual fact they are planning to relocate to Bwari, Abuja. Then, by the time you want to get your money back and you go to the place where you did “Know Your Customer” on them, you will discover that they are no longer there. They will locate another microfinance bank to take another loan and so, you see them going round taking loans. That is why today, CBN has directed that every microfinance bank should interface with credit bureau companies to do credit search on each borrower.
Another aspect is that we don’t have stability of residency locations, stability of addresses and data in Nigeria, to link up with the borrowers. Some of them even change their telephone numbers after they have taken loans. The second reason I will say is the government’s inability to also develop strong confidence in the institutions it licensed, that is the microfinance banks.
You know, all the banks thrive because they have money beyond their capital to trade with. So if government, for instance in all these monetary interventions to the poorest of the poor had channelled the funds through microfinance banks, we would have had more money to trade with like the big banks. The intervention funds ought to pass through microfinance banks, but they are not passing through us. By this action alone, they are diminishing the importance of the microfinance banks. And so, the funds that would have been available to trade with are not there at all.
No bank trades with the capital of its shareholders. Money must flow to be able to do this business. A lot of funds that ought to come from the CBN and government for onward lending activities are denied microfinance banks because it does appear that the government has not developed strong confidence in them.
With inflation at 18.33 per cent by the National Bureau of Statistics, do you think that it has wiped off microfinance banks’ capital base value and thus, the need for recapitalisation directive by the CBN?
No, I don’t think that there is need to increase the capital base of microfinance banks. I don’t think that the statistics from the National Bureau of Statistics should be related directly to the microfinance banks. It is a national malaise. The way it affects a microfinance bank, is also the way it affects even you as an individual and other banks. But the most important thing in all of these is that whatever goes up must come down. I do know and do have faith in this government that the policies that are currently running to bring down the recession and get the economy to flourish again are good enough and they will work.
But on a personal note, each microfinance banks is at liberty to increase its share capital. So, increase in capital base of the microfinance banks is not a necessity to address the recession.