Alitheia Goodwell Microfinance Bank, a subsidiary of Alitheia Capital, a venture capitalist specializes in financing micro-finance banks. In this interview conducted by Amaka Agwuegbo, the Vice President of Alitheia Capital, Andre Wenger, blames the problem of MFBs in Nigeria to poor understanding of micro-financing. Excerpts
Alitheia has its hands in many pies, why go into microfinancing?
Microfinancing is very wide in dimension and we were approached by Goodwell, a Dutch organisation with microfinance investing experience in India. Also, it was the opportune time as the microfinance market is coming to fruition in Nigeria. We also have a very experienced partner and Alitheia is at the stage where we can diversify from real estate to start new and innovative financial products in the country.
What we do at Alitheia is financing other microfinance banks, not lend money to people. There is non other like us in Nigeria but there are some international microfinance fund that do what we do, but are not based here and are not open to seeing new startups.
All they do is buy stakes in some viable microfinance institutions (MFIs) and leave. But Alitheia is here for good and we are investing a lot more than anybody else. Specifically, we are expecting $34 million to invest into the Nigerian market, and because we are putting more into the Nigerian market, we are interested in shaping the market. We want to help the market flourish and become a real microfinance market. With my Indian experience, where the market is much developed, I know what it will take to develop the market because we want to help the market get there.
How would the $34m be utilised?
Like any venture capital fund, we are looking out for MFIs that have potentials and we would be looking in three areas. First is support MFIs by providing start-up, which may include young MFIs. So we are looking for people who would bring something new to the market, something that has not been done before. Probably an MFI with a lower international MFI experience and has a rapid scale-up approach. Presently in Nigeria, there are about 2 or 3 microfinance bank, MFBs, with such qualities and it would be something new to achieve that.
The second area is the transforming non-governmental organisations (NGOs). A lot of NGOs transformed after the policy was implemented. To some NGOs that are in the process of transforming but donâ€™t have any best practices and operational structures in place, Alitheia would not only help provide capital but understanding of the microfinance market as well as support them and the market. So we would not only help them finance their transitions, but operational management transitions. The third is the grown MFI. These are those you see in the market that have shown the ability to pull through.
In all three areas, one thing we are looking out for is management. People that are really committed to microfinancing and have the history of performing well and are able to bring such qualities to the industry.
In India and Bangladesh, the microfinance market is growing because it is well received, but seems to be unattractive in Nigeria. What is Alitheia doing to change that?
There is a limit to the much Alitheia can do to improve the appeal of microfinance. But we can help MFBs become more efficient so that they can grow faster and reach more people with their products and presence.
Another thing is to assist on a structural level by helping to change the existing regulations that limit the MFIs. We want to play a role in giving the industry the structure it needs to grow faster – whether through Central Bank Nigeria or microfinance associations – by helping to give real value to the market. We are in constant communication with the Central Bank and we give our opinion on where the market is and where it is going.
On a more detailed level, I think our role tend to be more of financing and supporting the growth of MFIs. This is possible because the demand is there, just that enough products have not been developed properly, the MFBs are efficient enough to reach out faster and they are limited by regulations.
Considering the attractions of microfinancing, it has been described as the future of the economy. What part would Alitheia play in that future?
Microfinancing plays a very important role now and would play a more important role tomorrow.Â Because of our experiences through its Indian partners, what Alitheia can do is bring a global understanding of microfinancing to the Nigerian market.
In India, the industry developed differently from what is obtainable here. Also, we know that it can be a tool for social and economic progress. Though the two may not happen at the same time or may take different dimensions, we think that the Nigerian market is very confused about what microfinancing can do. We have on the one hand several MFIs that are making loans of N1m-N10m; a few make loans of N1.5m and a small number of MFIs that make very little amount of cash.
The average minimum balance is very telling and they are kind of showing us this is the appeal they have for the market and the type of clients they are looking for. We should ask if we really are looking for somebody who is at the base of the economic pyramid, is quite poor and could benefit from the financing to create a stable means of livelihood, or is it someone with a stable life and just wants to grow his business.
Apart from growing the industry, what we can do is help clarify the understanding of what a microfinance bank is and support them in their clarity of purpose.
The Central Bank of Nigeria (CBN) listed poor corporate governance and weak internal control as some of the challenges impeding the performance and subsequent impact of MFIs in Nigeria. As an investment management advisor, what can be done to remedy this situation?
I completely agree with that because in international comparison, Nigerian MFIs are very much under-performing. According to our emerging reports on microfinance banks in West Africa, we found out that some MFBs have a portfolio average of 7.2 per cent compared to 1.7 per cent in Asia. We are talking about nearly 8 per cent of loans being at risk in the hands of people and that is huge for only a section of MFIs.
What can be done to remedy such is by importing technical capacity into the country and we have quite a lot to learn from the Indian experience. is closer to our experiences and our benchmark is the performance we have in Latin America because microfinancing developed from urban setting and individual loan basis. This is what we have in the Nigerian scene where the MFBs are predominantly into this and are playing a very big role in financing individuals and not groups like is obtainable in Asia.
We can improve performance by bringing in more capacity to help finance them through additional grants because in international comparison, we have seen very little donor attention in the Nigerian market, when compared to other countries. Ford Foundation and the World Bank have spotted some MFIs, but generally, MFBs that are really looking to bring capacity have very little leeway in financing.
The quality of technical assistance that is available to Nigerian MFIs is not vibrant. I would like to see more support for the industry and Nigeria. Currently, it is very much commercially mainstream consultancy. Microfinancing is a specialised industry that needs specialised focus.
What qualities does one need to possess to run a microfinance institution?
Firstly, you have to have an understanding of what microfinance is all about. Far too many of the managers of MFIs lack this understanding, especially the directors. A few people are trying to remedy this situation and that is a step in the right direction.
Technical experience in microfinance would also be useful. We are talking about bringing people who have previously set up banks elsewhere. Apart from that, we are talking about anyone who has got the experience in rural and urban retail banking and managing a large number of staff. Iâ€™m not sure someone with corporate banking experience is the best to manage microfinancing, and we see a lot of these people around.