The Managing Director, Supreme Microfinance Bank, Mr. Jide Aremo, in this interview, said that the cost of operating a microfinance bank is higher than that of a commercial bank, and one of the factors for the high interest rate in the subsector. Except:
By Providence Emmanuel
WHY is loan recovery a big challenge in the MfB sub-sector?
Loan recovery is a very major challenge in the Microfinance Bank, MfB, sub-sector. It is not just microfinance, but in the entire banking industry. The stress and distress in the economy have made so many things to be abnormal and thereby made people to be unable to pay back loan.
The Nigerian police are not helping the situation, this is because, when you report a case of default, they will collect money from you and your debtor and they will say the matter is finished, leaving the two of you to fight to the finish. So the corruption of the police has even made things worse, that is the situation. Mind you, there is no financial institution that does not have a heavy burden on them.
What is the way forward?
The new Credit Bureau policy will help going forward. We have just started it, may be by next year, we will begin to see the effect. An instance is somebody that came to my office yesterday and made so much noise that we reported him to the Central Bank of Nigeria, CBN, that he owed. I tried to explain to the fellow that we did not report him; that maybe it is the credit bureau that did.
From the look of things, this credit bureau will have a positive effect because when people know that they cannot owe a bank and run to another bank, due to the report that would be available as a check on individual activities in terms of loan. There is also a need to sensitize our staff, and the truth is that no matter how you train them, sometimes they take what a customer tells them hook, line and sinker. In the process, they do not give a true judgment or evaluation of the customer.
Some of them could be because they were not well trained, but a few, not all of them; it is because they refuse to put themselves in the position of the lender which is the bank. It is what they recommend to management that management would follow. Another solution which we do a lot, is to preach to them to continue to do the proper monitoring and to raise alarm on time. Some of the time, they will see a sign of imminent default but when they do not raise alarm, we will not know until the whole thing gets bad.
Why is interest rate still high in the sub sector?
Interest rate in the sub sector is high but it will not be high for ever. There was a time when we were charging ten to fifteen percent, but hardly will you see anybody charging ten percent now. They are charging six, five or four percent. Although there are some MfBs who have a good source of funding who are charging about 3.5 or 2.5percent.
It is a question of the cost of funding and then the cost of running a microfinance bank. It is much more expensive to run than the commercial bank because they want you to go to the grassroot where people will demand for transport money every day. Spending such money on a daily basis is huge and who will bear such cost. So it is all those cost that build into the interest.
What is your bank doing differently from others?
We unveiled Supreme Flex, not more than one year ago. This product allows us to seat with our customer and agree on when it would be convenient to pay. It is out of the traditional monthly or weekly repayment plan. The payment is done in terms; you pay in the first term and in the second term.
We also have our Esusu version which we call “Quick Win.” In Quick Win, we give you money because you are capable of repaying accordingly, unlike the normal Esusu where you contribute the money first before you are given the amount you contribute. We have Quick Fix, in which, when a customer needs a loan, they do not need to undergo all the processes, they just meet the loan officer and their loan would be approved immediately.