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No Unit MFB can operate profitably with N20m capital base — MD Pennywise MfB

By Providence Emmanuel

HOW would you assess the impact of economic challenges on the businesses of MfBs?

The business of microfinance banks is largely focused on supporting the active poor in the economy. When I say the active poor, I mean those engaged in economic activities but lack enough capacity to borrow. The current economic situation has negatively affected the MfBs purely because of this reason, apart from Lagos State where the government is able to pay workers salaries, almost all the other states in the country are hardly able to pay salaries.

•Abiodun Oladipupo
•Abiodun Oladipupo

Even those that are able to pay still owe a minimum of one month. So what that means is that, if our business is in supporting those at the lower rung of the economic ladder, once government is unable to pay salaries, the salary earners would not be able to buy certain commodities and this affects the sales of traders that we focus on. Even the salary earner would not be able to repay the salary advance that they take from us; this may lead to increase in bad loan in our sector. The summary of it is that the current situation where state governments are unable to pay salaries of workers has negatively affected the performance of a lot of MfBs.

Can MfBs make significant contribution towards achievement of the 80 per cent financial inclusions goal?

I strongly believe that this is achievable, because if the telecommunications people can come into this country and generate over 120 million telephone lines connectivity within a short period, I think if we focus on this financial inclusion thing, a lot of MfBs bring banking closer to the people, especially those in the rural area, not in the cities where people like us operate. I think there is also the need for CBN to encourage a lot of investors to open MfBs in the rural  areas because it is in the rural areas where you have the larger number of people that are not included in the financial system.

How far have you gone in meeting the CBN’s target of 2,500 new accounts by year end?

I think the target given, which I am aware of and which was formally written to us was that we must open 1,000 new savings accounts in one year and 500 new loan accounts. When we did our half year review a few weeks back, I know we have done more than six hundred new savings accounts. The only target we have not done more than about 30 percent is that of new loans. The reason is not farfetched, we couldn’t just start disbursing money to people that are not being paid salaries, we can’t just be giving money to pepper sellers if their sales are not improving, so we are being very cautious on how we give out loans to our core focus market because of the current economic situation.

What is your view on the proposed increase in capital requirements of MfBs ?

My candid opinion is that CBN should never have allowed Unit MfBs to be established with a mere N20 million capital base and my reason is simple. If you look at the guidelines, all the required personnel that you are supposed to put in place as a Unit MfB, all expenses that you are supposed to incur even no matter how much you try to minimize your cost, from my experience and a survey I have carried out, the least expenses any viable MfB can incur per month is about N2.5 million or N3 million.

So if that is the case, that means that a Unit MfB must have a balance sheet or a loan book that would be able to carry that minimum N2.5million cost. What that tells you is that even if they are able to charge five percent per month on all their loans, the minimum loan that would cover that cost should be about N70 million multiplied by five percent per month.

That is what would give them N3.5 revenue which would be able to cover the minimum cost. So if you are going to have a minimum loan portfolio of N70 million, it is better to start with a minimum capital of N100 million. I am in support of CBN increasing the minimum capital to a minimum of N100 million so that we can have viable entities. It is better for me to have my own N20 million and merge with other four and become an N100 million bank and be viable rather than a N20 million bank that is not viable. There is no way a Unit MfB with N20 million working capital can survive, you cannot be profitable.

Do you agree that insecurity in some parts of the country is killing MfBs business?

Well, I am not a security personnel, but from a layman point of view, no business can thrive where there is no peace so definitely there would be no business in such places where you have insecurity. So it is obvious that businesses there would either die or become non existence. Nobody can do business if they do not have peace of mind.

What I would say is that the National Assembly and the ruling party would need to do a lot more to ensure that peace reigns. The first responsibility of any government anywhere in the world is the safety and security of its citizens. As a government, you cannot govern over dead bodies, they too are aware and it is something that I am sure the central government is working on and I hope we would begin to see positive changes in the shortest time.


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