Demand for microfinance services is higher in Nigeria

AB Microfinance Bank Nigeria,  one of the notable microfinance , celebrated its one year anniversary of business in Nigeria. Its shareholders include, Access Microfinance Holding AG, Impulse Microfinance Investment Fund, International Financial Corporation (IFC), KfW Entwicklungsbank (German Development Bank) and African Development Bank (AfDB).

In this interview with Amaka Agwuegbo, Chairman, Supervisory Boards  of the bank AB Microfinance Bank Nigeria and AccèsBanque Madagascar, Dr. Bernd Zattler, a German,  discusses the advantages and challenges of doing microfinance business in Nigeria and the  role of  in achieving MDGs among other issues. Dr Zattler holds a Ph.D. in Economics, and speaks German, English, French and Spanish.

How conducive is the Nigerian environment  for doing microfinance business?
I think that Nigeria is a great place for doing business, it is one of the largest, if not the largest country in Africa and Lagos is a very large city with many businesses going on which is one of the main reasons we decided to come here. With respect to microfinance, it is much the same and with many micro enterprises, and on the other hand, few competition. There are many banks in Lagos, but they are not working in the market segment where we work. There are also a lot of microfinance institutions, MFIs, but they work with completely different products and concepts. Many of them ask for voluntary savings and are very hesitant to grant loans. But we grant loans based on the analysis of the cash flow of the small company and we do not require hard collateral which gives us a very strong competitive advantage.

Regarding the general business conditions in Lagos, there are some underdevelopment of infrastructure that makes it difficult to do business, particularly with respect to transport and electricity.

How would you compare microfinance in Nigeria to that of other countries ?
There is a huge demand here, much higher than other countries because of the population and the size of the city, but the competition and what other MFIs offer is much more limited than in other African countries like Kenya, Tanzania, Madagascar and ‘the failed state’ Liberia, where we started 10 months ago. These MFIs work with different products, ask for voluntary savings and are very hesitant to disburse loans. Therefore, we see a lot of untapped demand that we try to satisfy.

What is AB-MFB doing that others are not doing?
Firstly, as opposed to many MFIs in other countries and Nigeria, we offer a full range of products that meet the clients’ needs, including deposit products and payment services. So we not only give out loans, but also offer other products.
Our concept is that of a house bank -a neighbourhood bank for our clients. You don’t offer them a single product but try to satisfy all their financial needs. Our clients don’t need sophisticated financial products because they are people of the lower income group. So we offer them products that they need.

Secondly, our loan products are completely different from other MFIs as these are cash flow-based loans and don’t require hard collateral.

Assuming someone comes to the bank and wants a loan, within a few days, our loan officer would visit him and look at the micro enterprise, analyze it and also look at where the family lives. If the client has the capacity (not collateral) to pay, we grant the loan.

Our target is to disburse the loan within three days. In the developed countries, the clients would have to wait for weeks or months. But when our clients, who are small scale traders, have business opportunities where they can buy products and sell off within a few days, they can’t wait for weeks or months. So what we have done is reduce the processing time to a few days. Also, we don’t ask for excessive documentation from our clients, which differentiate us from other MFIs.

What do you think is responsible for the recent collapse of some MFIs?

I think they lack sound credit products that allow them disburse loans to people who are not able to offer hard collateral like a car, real estate or a fixed salary. Our clients usually have none of these items because they have micro-enterprises and sometimes, the income is low and sometimes, it is high and we grant a loan based on these.
When you don’t have a good credit product to sell, it makes it difficult to grow a financial institution. On the other hand, the difference might be that you have very reliable and tolerant shareholders.

KFW (the development bank of Germany), World Bank, African Development Bank are triple A  institutions with the best ratings that not only have deep pockets, but are also very reliable as business partners. If you look at the current Nigerian financial system and the MFIs, beside of product and management problems, they are also affected by the global financial crisis because they depend on loans from outside. We don’t have refinancing problems because the Access Bank Group has a very good reputation and has solvent shareholders that are always willing to inject new capital if the institution needs it.

Africa is among the continents with the highest rate of poverty. Do you think microfinance can be instrumental to achieving the  Millennium Development Goals?

Off course, otherwise, I wouldn’t have gone into this business. I started working for large international corporations like Unilever, and then I decided to do something I believe will help lower income people in emerging markets and developing countries. I believe microfinance is an instrument that will help societies grow and benefit particularly lower income people.

On the other hand, we have to be honest and I believe that each society should be based on willingness to share, meaning that the state should have the capacity to levy taxes and to use such for social security systems and for other basic needs, particularly in favour of the people that have neither business nor income.

We serve people that have no access to collateral, but must have commercial capabilities, some training, ideas and the like. But there are also people that are handicapped, live in misery and are not able to repay a loan. For these people, an MFI is not the right partner because they need to be served by the state, public and charitable institutions by receiving the money from richer people. That is why every country should ensure that the people earning between 10-20 per cent in the income paring of the country receive social benefits that allow them to live decently and take care of their children and their education.

After 12 months of business in Nigeria, what is your performance ?
Our capital base is currently within the neighbourhood of 5 million euros (N1,104,150,000) from 3 million euros. This is money we got from the shareholders, which is far beyond what the CBN rules that an MFI must have, which is around 200,000 euros, so we have over 25 times more than required.

In AB-MFB, Nigeria, we will continue to grow at a rate above 100 per cent a year, and when the time comes, probably by the end of next year, the portfolio would be as high that we would need additional share capital and I have no doubt that the current shareholders and possibly new shareholders would bring in this money.

Initially, we didn’t need much money but our business concept is that we start a new MFI in a country from scratch and a few people from the home country come and recruit young professionals, usually the best from universities who are trained in-house. We don’t usually take people from any other company or financial institutions.

For MFIs in Nigeria to survive, don’t you think there is the need for government and private institutions to channel fund into some MFIs so as to boost their working capital?

Yes. There are programmes in the country, like the Federal Government and World Bank sponsored MSME programmes that support MFIs to grow. There are also international facilities that support MFIs to grow not only with share capital but with grants. If the government is able and willing to add funds to MFIs, it would certainly be helpful to the development of the sector.

But, I think that it makes no sense just to throw some money into this sector and the institutions working in the sector. So each donor and government must ensure that the money ends up in good, sound and well managed MFIs that ensure that products are rendered to the benefit of the populace.