Managing Director, Okuta Microfinance Bank Limited, Apostle Blessed Dike, in this interview explained why most Microfinance Banks, MfBs, are unable to access the N220 billion Micro Small and Medium Enterprises Development Fund, MSMEDF. Excerpt:
By Providence Emmanuel
What are the challenges facing the MfBs?
One of the major challenges in microfinance is access to funds. Though the people at the bottom of the pyramid have money to save, but they are little savers. So you have to go out to be able to gather enough money at the end of each month from numerous customers. Because they are little savers, you have to cover a lot of ground to be able to get a sizable amount of money, that is deposits from them, which would be mobilised for on-lending. You have to go to those surplus units to get the money to the bank and be able to lend to the deficit units. Like I said, they are small savers.
Why are there only 10 percent MfBs that have accessed the N220 billion MSMEDF
The stringent condition attached to the fund is one of the reason. For instance, they tell you to bring 50 percent collateral in liquid form, perhaps we are talking about fix deposit or treasury bills to access a fund which you are going to lend at nine percent and this is very unprofitable. An average MfB lends at about 40 to 48 percent, if you mobilise funds and peg interest on savings at four percent and you lend at 40 to 48 percent, then you have a good margin to make profit and take care of the overhead cost.
But to access the N220 billion from CBN, you are required to deposit in a mega bank, your correspondent bank collateral worth about 50 percent of the amount you want to borrow. So if I want to take N2 million from that fund through our correspondent bank, then I must deposit 50 percent of that amount which is treasury bill worth N1million. If I lend N1million at 48 percent, I know what I will get. So it is waste of energy to deposit collateral worth N1million and then borrow and lend at nine percent. That nine percent cannot even pay the salary of one staff at the end of the year.
What then is the essence of intervention funds when it cannot be accessed?
That is why we have always told CBN in all the fora, that the conditions are too stringent and if the funds are meant for the people at the bottom of the pyramid, then they should relax the conditions to enable more MfBs access the fund. But they have done little or nothing about that. They are also thinking about their own side, that some banks have gone down, so they have to put some stringent measures so that banks that would access, would eventually pay back and that is why many banks are not accessing the funds.
How far can venture capital fund go in ameliorating the funding issues in the MfB sub sector?
It will help. I studied with Chartered Institute of Banking, London, the venture capital has always been a part of financing the customers or any economy or the nation. In Europe, it is not Public Private Partnership, PPP, it is purely private partnership. Some persons introduce some capital and then they look at investible companies or banks and then they partner with them and the arrangement is such that the capitalist would take equity of the bank for five years; a particular amount for that period and so join in the management of your bank for five years and after five years they would pull out their resources. Within that period, if the company is doing well, they would be paying dividend.
By that time the company would have been able to stabilise and be able to fend for itself and gradually they would withdraw their capital and go away. That is what that fund is all about. I agree that if we introduce venture capital it will help. When you are financing a company by way of equity, you can only pay dividend, you will not pay interest. But if it were loan capital, then you would pay interest. But because the persons introducing the funds are part of that business as it were, so there would be no interest payment but it would be based on how well the company is doing.