The Chairman, Aguda Titun Microfinance Bank, MfB, Prince Ndoma Odey Ndoma, in this interview outlined numerous challenges that has bedeviled the microfinance subsector.
By Providence Emmanuel
WHY is loan default on the increase in the MfB sub sector?
Loan repayment in Nigeria is an institutional problem. The way people come to take loan is different from when you are asking them for the repayment. We understand that economic recession has made things more difficult but our attitudes are bad towards repayment.
Most people have the capacity to repay but they do not want to pay, they want to recycle the money. Our marketers too do not go to collect the daily, weekly and monthly contribution as at when due, this also make the beneficiaries to recycle the money.
Another thing is that they have marked some banks as a violent bank so they always reserve money for them and take others who use persuasiveness for granted. The issue of general bad market also necessitates the challenge in the repayment. Operating environment for businesses in Nigeria is very turbulent and because of that turbulent nature, you discover that when you buy, it is difficult to sell as required and to do a repayment.
The issue of interest rate is also a factor to some MfB because it is not uniform rate. Sometimes when you collect N100, 000 and the interest rate is N5, 000, plus the principal, within every month that you have to pay, sometimes you discover that you are paying almost N25, 000. The enabling environment is not also conducive, for instance, somebody is selling pure water and bottle water and there is no light, the cost of going extra mile to buy ice block erodes almost the profit of the person.
All of these is an issue for the operators, but most importantly, is the attitude of the people; some are not willing even when they have the capacity. The management of the banks sometime allows only the marketers to do the monitoring and so sometimes the marketers forget until when you are doing review to discover that there is an outstanding. If we can work on all these things, I can tell you that though it cannot eradicate the issue of loan default but default will be reduced to a low level.
Why is interest rate still high in the sub sector?
The problem is that we use social consent in granting loans, there is no collateral, it is collateral substitution. Generally, the higher the cost of our fund, the higher the cost transferred to the loan beneficiaries. A customer gets N200, 000 cheque as loan without collateral and when there is a default, you have nothing to fall back except to call the guarantors or using the bill of sales.
Sometimes when we follow that pattern of interest, before it gets to a certain level, the bank would have gotten the capital only to pursue the interest to make it up. However, if government can give us the N220 billion micro, small and medium enterprises (MSME) development fund facility by making it available to MfBs at a lesser rate say single digit, it will further help the operators.
But the N220 billion is available for MfBs?
Yes, it is available, but there are stringent conditions attached. The fund is there but the conditions attached are stringent, even the Bank of Industry, BoI, that said they want to give us fund, we have not seen the impact yet. We have been seeing adverts that BoI is saying they want to step in to fund the small and medium enterprises, SMEs, we want to see their advert translate to reality.
What do you want the CBN to do on the fund?
They should relax some of the stringent measures, so as to allow MfBs access the fund. For instance, for you to access that fund, you must have 15 percent lien in one correspondent bank. You don’t even know when to get the fund but you already have your 15percent of the amount you are processing lien in one mega bank that you cannot withdraw. If that money is available, it can be used to turn a business around. The issue of BVN of these market people is also a challenge, because some of these people, even when they try to operate, they do not run the account.
How is your bank blazing the trail in the sub sector?
We try to set up a good monitoring system and ensure a proper control mechanism from the audit to the risk department. We keep reminding the staff to get in touch with the beneficiaries before it gets to the due date. We also put alert system in place which keeps reminding customers to repay.
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