Exclusive Interview: Microfinance Bank As Catalyst for MSME Development in Nigeria

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Yusuf Gyallesu, the President, National Association of Microfinance Banks (NAMB)
Yusuf Gyallesu, the President, National Association of Microfinance Banks (NAMB)
  • The National President of National Association of Microfinance Banks (NAMB), Alhaji Yusuf Ahmed Gyallesu, a Chartered Accountant and Economist, has expended about 38 years working in commercial, merchants and mortgage banking sectors.

The growth of microfinance banks in Nigeria is phenomenal with over 800 licensed institutions mostly operating in urban and rural areas. Though some microfinance banks have come and gone, there are still some vibrant ones providing services to their clients. Where is the strength of this industry in Nigeria?

Olushola Okunlade in an exclusive interview with Yusuf Gyallesu, the President, National Association of Microfinance Banks (NAMB), highlighted the challenges, opportunities and government’s role in this industry. In this interview with Olushola Okunlade, he spoke on reticent approach by Central Bank of Nigeria (CBN) failing to assist microfinance banks with loans to boost the economy despite the Federal Government loan intervention of COVID-19 pandemic, Excerpts:

How would you rate the Microfinance industry performance, in terms of its financial interventions in the Micro, Small and Medium Enterprises (MSMEs) sub-sector of the economy?

Well, thank you very much for this question. Microfinance Banking has fared well in the last few years despite the challenges that stared its face.

You know prior to this time most banks were not digitalized, but with the advent of technology, which brought in BVN and other technologies, most banks have measured up.  They are effectively rendering services to customers even at the grassroots. Therefore, I think there is great development, and great achievement for us. Lets not forget that technology evolves every times, so, we keep to the times.

What are the challenges?

The major challenge in this Microfinance Banking sub-sector, naturally, is funding. Liquidity is not always there, and you know we service the MSMEs, which is the engine room of any economy in the world. Therefore, we feel we don’t have the required funds and liquidity to service them effectively, which could help these MSMEs to contribute effectively to the economy.

Meanwhile, sourcing deposits and raising funds into Microfinance industry is very expensive, this is why our interest rate is usually high when we give out loans.

Similarly, we are different from the Commercial banks where everyone who has surplus money goes there to deposit.

There is this misconception about our industry; many people think that Microfinance Banks are just there to give out loans. This is a layman’s belief. We don’t just give out loans like that. You must attract the savings anddeposits first, so from there you can now start to give out loans.

Actually, we found out that some of our customers take loan from us and deposit it with Commercial banks i.e the Deposit Money Banks (DMBs). These people put it (the fund)either in savings or fixed deposits with the Commercial banks, but when they are looking for loan they don’t go there, they come to microfinance banks. The question is where are we going to get the funds to give them?

But the ideal thing is that they should bring their deposits to us too, so that we can give othersloans from that deposit.  

What is CBN doing concerning this?

CBN cannot do anything about this because it is a free market. This issue is affecting the entire microfinance banks in the country. What we want is that people with excess funds without immediate need for use should bring it to us for saving in whatever form; either as fixed deposits or ordinary savings. Then people having businesses requiring funding can come to us to take loans from the money deposited by these people. That is what banking is all about.

Furthermore, CBN expects that if we float our private businesses as banks we should be able to source for deposits from the public and at the same time find channels to give out loans to people.

So, CBN cannot intervene in this. However, there was a time when N220billion was set aside to fund MSMEs in the country. This fund was meant to be accessed by Commercial banks, Microfinance banks and even state governments.State governments could access up to N2billion from this MSME Fund.

However, for us to access this money and lend to our customers, the terms and conditions set by Central Bank of Nigeria (CBN) were so stringent that we were unable to access it.

As I am talking to you now, less than 5% of the N220billion has been accessed by the Microfinance sub-sector because of the strict conditions that were set. We have been talking and advocating for CBN to relax these conditions so that we can access the money and lend to our customersthat the money is meant for.

There have been consistent clamor by the NAMB for a level playing ground for operatorsCould you shed light on what you really mean by this?

You see, sometimes in 2018 or thereabout, CBN came out with an idea of establishing a National Microfinance Bank, while already we had nine (9) licensed National Microfinance Banks.

So, we said if government is floating a bank, then frankly speaking, there won’t be that fair level –playing ground.

By our understanding, government has no business in doing business. The government’s responsibility is to provide an enabling environment for all stakeholders and players to do their businesses.

However, when we learnt of their intentions we wrote a letter to CBN to express our fears. But we later gathered that they have succeeded in floating the Microfinance bank.

But how can a regulator become an operator? Who will regulate that regulator? We complained, hoping that they will reason with us in what we were talking about. Rather, we were told that it was the Bankers’ Committee that floated the bank.

But who are members of the Bankers’ Committee?

These are the Managing Directors of the Deposit Money banks with the CBN Governor as the chairman.The Microfinance banks are not represented on that Committee at all.No wonder, most of the key staff of the new bank were seconded from CBN.

How do you reconcile that?

The newly floatednationalMicrofinance bankis partnering with NIPOST and is expectedto have branches in all the 774 Local Government Areasof the country.

We saw the whole idea as an emergence of a government bank to compete with privately owned banks. Like I said before, government has no business in doing business.If it were a private body floating that national bank we wouldn’t have any fears at all.

Now they call it NIRSAL Microfinance Bank which is also a member of our association. With this, we now have 10 licensed National Microfinance banks.

Our fear was proven, when the government brought out palliative of N50b. The whole amount was given to that one bank leaving out the other 873 licensed Microfinance Banks. That confirmed our earlier fears because this is government’s money, it is a post Covid-19 intervention meant to support every person and business in the country that was affected by the pandemic.

They know that they own a bank, so the whole amount was given to their ownmicrofinance bank.

Don’t forget that this bank was established barely three years ago.  Furthermore, the experience, professional training and certification most of us have their staff don’t have. The Managing Director and other top Management team were from CBN. So westill see it as a government owned bank.

Do they have the reach and branch network to disburse N50billion across the country?

They don’t have. They are new and lack the required microfinance banking experience to effectively disburse and efficiently manage such funds.

We feel that they are overwhelmed by this huge amount to manage. There is no way they can effectively and efficiently handle this intervention money. So, what weafearis that there could be a serious problem in the implementation of the government support to the people.

Also, in reference is the Anchor-borrowers’ fund where the same government brought out money to assist the rice farmers.  The Microfinance banks that are there dealing with farmers at the rural communities were not involved in the scheme at all. They channeled the funds through the Deposit Money Banks and that is the story now. There is a very high percentage of default in this scheme.

Obviously, the idea is that any time the government has anyintervention money for the poor people; they prefer to give it out directly throughother channels without involving the microfinance banks who are closest to these people at the local community levels. For instance, if this N50billion intervention had been given to some of the sound Microfinance banks scattered across the country, the effect would have been excellent. Also, the money would have been relatively safe as the microfinance banks would take it as loans for on-lending under some terms and conditions.

So the government would not be worried because they are dealing directly with licensed banks that would ensure full recovery of the funds.The microfinance banks will disburse and ensure they follow due diligence and apply strict credit risk management on whoever they are disbursing the money to. But the way they are disbursing through NIRSAL Microfinance bank who the people see as a government bank, will not yield the desired result. Most beneficiaries will see it as a grant and or national cake that do not need to be repaid. We fear that they cannot effectively monitor the beneficiaries to ensure that they are putting the money to use and to ensure recovery.I am not a prophet of doom, but I can assure you that at the end of the day the level of default would be high.

So,what we are advocating to Central Bank of Nigeria is that, since this N50b has not been completely exhausted, other sound microfinance banks should be involved with the disbursement of this palliative.

We are partners in progress and also stakeholders in the financial system and would want the government to succeed in its policies that affect the poor population at the grassroots levels,

What are the initiatives you intend to set up to pilot NAMB forward during your tenure?

Am sure you are aware that I was part of the last regime in the capacity of the First National Vice President.I worked hand in hand with the then President todevelop sound programs for the association.

Therefore, for continuity, wehave to implement uncompleted programs of the last regime and then introduce new onesfor development and progress of the association and its members. I hope that whoever is succeeding me after my tenure next year will equally continue with my uncompleted programs like that..

Ours is a professional association and we ensure that at any given time the leadership will always have programs that will protect the interest of the members and uplift the statusof the body and sector as a whole.

But to answer you, one major campaign promise we made was a commitment toensure that we have sound, functional and compliant Microfinance banks in the country.

We are also conducting membership verification across the country to establish and determine the actual numbers of our members that are functionally active and those that are not. This will assist us in planning for effective membership services and budgeting. We discovered that payment of annual dues and other financial obligations by members are not adequate compared to the number of 874 licensed banks.Also, attendance to any official function of the association is always very poor. You will find that the attendance to functions and payment of annual dues usually hovers around 400 out of the 874 registered banks. So, what is happening to the other 400 members?

We know for sure that most of these remaining 400 members are just members on paper as they only have the license from Central Bank Nigeria to render services to the public but are not doing due to one reason or the other. Some may be facing someserious challenges affecting their operations while some  have willingly closed shop and refused to surrender their licenses back to Central Bank of Nigeria. These banks are still being regarded as active members. So we are trying to reach out to all our members to ensure that we have the correct figures so that CBN will know that out of the 874 only 500 or soare actively doing the business.But each time we interact with CBNit keeps making reference to 874 as our membership strength. This figure actually distorts our compliance levels with the regulators.

We are therefore, conducting an online membership census which will later be validated by on sight physical visits.

There are 4 functional administrative levels in the NAMB structure, comprising of the Board of Trustees, the National Working Committee, the Zonal and State Chapters. These levels are necessary to ensure effective and efficient administration and delivery of services to the members.

We ensure that every state and zonal chapter holds regular meetings,as dictated by the constitution, where they discuss issues affecting the association and the sector in general. The chapters periodically update the national secretariat with their actual membership strengths.

It is from these chapters that the payments of dues are being coordinated.

How is NAMB’s collaboration with the Nigerian Exchange Limited (“NGX” or “The Exchange”). How will this impact on MFBs?

Actually, in 2019 I was part of a team that went to the Stock Exchange for a collaborative engagement. We had a very fruitful discussion where we saw the need for the association to collaborate with them. We saw this as an avenue where our members could raise the required funds to meet up with the new minimum capital requirement.

Most of our members will not be able to raise funds from the private sources, So we saw the need to approach the Stock Exchange.

We also went round the geopolitical zones of the country on sensitization and creating awareness to all the stakeholders on the various investments and funding options available for us. This is a continuous exercise until funding and liquidity is stable in our sector.

NAMB plans to float a Microfinance Development Company to serve as a Special Purpose Vehicle (SPV) for funding the microfinance sub-sector. Have you been able to achieve this?

Yes, this company is a child of necessity. Like I told you from the beginning of this interview the major challenge we have in this sub-sector is funding. We saw that we are not actually being able to generate enough deposits to enable us offer our normal banking services, and getting funds straight from the government with all these stringent conditions is not forthcoming.

Also, individual microfinance banks will not be able to meet the requirements set by these government agencies. Therefore, we resolved that as an association we should float a company that will be responsible for accessing funds either locally or internationally, for on-lending to our members. That company has been floated and it commenced operations since October last year and is wholly owned by Microfinance banks.

We have clear and simple modalities and requirements on how to invest and access funds on that platform.  A lot of our members have seen the wisdom in floating this company because, if nobody wants to give us funds, why can’t we raise it ourselves?That was why we as an association formed that company.

As NAMB President, what were your experiences during COVID-19 pandemic?

COVID-19 Pandemichas come and is still very much around. It is being experienced by everyone as it has affected all spheres of life, not only here, but all over the world.

All our members have been affected negatively as movements were restricted forcing businesses to completely shut down. We could not render services to our customers and at the same time could not recover our loans that fell due for repayment. –

But for us as the umbrella body of all the Microfinance banks what we are doing is advocating with Central Bank of Nigeria to allow our banks to reschedule and extend the loans tenors for most of our customers who were unable to repay as and when due.Because during this Covid-19 period most our customers couldn’t do anything, they were struggling to survive and stay alive not to talk of doing business torepay their loans.. So we are appealing to our members to be soft on their customersby  givingthem some moratorium and extend the re-payment periods. Let them give the customers time to come back to their businesses.

So this is what the association is advocating to our members.

How would you rate the performance of your Microfinance Bank in terms of deposit base, core banking services and expansion trajectory?

Well, with regardsto the microfinance bank where I am the Board chairman, even though we have just taken over the bank, we are still trying to re-engineer the bank so that, being the President’s bank, whatever requirement is expected of a Microfinance bank we should be able to have. We are hoping  tomeet  the new minimum capital requirement before the dateline.

The bank is already on the NAMBUIT platform that CBN is mandating all microfinance banks to key into, even though the association is advocating that it should not be by compulsion. Banks should be allowed tomake a business decision in selecting their preferred IT platforms.

We are doing everything possible as an association to see that this IT platform works, so that our members who do not have robust banking software can key in and do their banking business.

Therefore, we are trying as a bank to measure up and ensure that with the available resources we are able to meet up with all the requirements expected of any microfinance bank.

What roles do you think this bank will play in leveraging your members’ operations and by implication, stabilizing the MBF sub-sector?

JOSAD MFB is just one of the 874 licensed microfinance banks operating in the country. We are located in Karu, Nassarawa state. I believe there are lots of commercial activities there.it is a virgin  market and we will do our best to take advantage of the potentials that abound and may be in about 2 or 3 years’ time it will be a success story.

What is your reaction on CBN’s new 60% Loan Deposit Ratio (LDR) policy for banks?

Yusuf Gyallesu, the President, National Association of Microfinance Banks (NAMB)

To me, what they mean is whatever amount of deposits you have, at least 60% of it must go out for loan disbursements. If you understand what that means, for me it is okay.

However, getting the deposits is the problem. Like I told you earlier, in banking whatever deposits you are able to mobilize, youmust channel such fundst to loans. It is your working capital which you have sourced at a cost. If you mobilize deposits at a cost and you don’t use it to give out loans,then you are failing as a bank. You must give out loans in order to generate enough income to recover your costs and make some profits.

So the 60% ratio they are putting is reasonable and okay.

Central Bank of Nigeria (CBN) is responsible for formulating policies and guidelines to regulate and control the banking system. It is their duty to continuously be changing the policies so that they suit the economic agenda of the government at any particular time.

How is NAMB members handling clients and what are the guidelines NAMB has put in place to ease clients’ loan facility during pandemic?

It is Central Bank of Nigeria (CBN) that comes up with policies to guide the banking activities in the country; while our duty as an association is to ensure that our members adhere and comply with the policies and regulations.

Where do you see NAMB in five years?

In five years’ time, I see NAMB as a self-regulating association with little or no interference from CBN except on policy matters. I see a very close collaboration with all relevant stakeholders to ensure vibrant and sustainable banks in the sector

In fact, self-regulation is one of the 5 cardinal pillars of our association. To actualize this, we embarked on a study tour to Ghana where their rural banking is being self-regulated. We have also been on study tour to Germany and Luxembourg to understudy the international best practices in microfinance banking. Microfinance banking is being practiced in Germany in the form of Cooperatives and Savings Societies for over 200 years.

To achieve this self-regulation, we have to embark on serious sensitization and capacity development of our sector to regain the lost confidence of the general public and our regulators.  We must clean and put our house in order to restore our good reputation. 

If we are able to achieve this, we can then honestly do our business with very minimal regulation from the authorities. It is only then that you will see real development in microfinance banking sector.

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