By Babajide Komolafe
Finance Houses have been advised to concentrate on the underserved segment of the financial market so as to remain relevant and competitive.
Former Managing Director/Chief Executive, First Funds Limited, Mrs. Yemisi Tayo-Aboaba gave this advice at the CEO Business meeting and luncheon of Finance Houses Association of Nigeria (FHAN) held in Lagos.
Finance companies, she said, exist to bridge gaps between the big commercial banks and the microfinance banks. And for them to be relevant, they have to concentrate on underserved segments of the market and develop products to serve these segments efficiently.
“Arguably, the SME segment of the economy is a natural focus. The retail segment may also offer significant opportunities. Finance companies as a group, may be able to collaborate with government in providing funding and capacity-building that is critical for growing the SME segment,” she added.
She, however, identified inability to access long-term and cheap funds, as a major barrier to the effective operations of finance houses in the country, adding that until this challenge is tackled, finance houses will not be able to contribute effectively to the growth and development of the economy.
In a presentation titled, Finance Houses and funding challenges – Any silver Bullet? she said that “high cost of funds which leads to riskier investments makes finance companies less attractive to other institutional financiers. Furthermore, unlike banks, finance houses are not allowed to accept deposits from the public. As a result, in terms of funding, they are limited to funding from shareholders’ private equity companies, development finance institutions and other institutional investors.”
On his part, Mr. Patrick Mgbenwelu, Director and Head, Project and Structured Finance, FBN Capital Limited, advised finance houses on opportunities and challenges of participating in financing of infrastructure projects through Public-Private Partnership (PPP).
He said that due to the inadequacy of the pool of funds in the banking system, there is opportunity for finance houses to participate in such projects. “Pool of existing and projected local bank debt funding is insufficient to meet Nigerian infrastructure investment requirements of planned projects across all sectors as the size of domestic banking system is insufficient to finance existing pipeline of deals,” he said