The Managing Director/Chief Executive, Trustfund Microfinance Bank, MfB, Limited, Mr. Victor Ohuoba, in this interview said that the idea of pledging treasury bill to access intervention funds should be revisited while highlighting other issues that affect the sub sector.
Excerpt:

By Providence Emmanuel

How do we achieve financial inclusion when only 10 percent MfBs have accessed the MSMEs intervention fund?

I think it is a policy issue, government should take position on what they want to do. If they want to intervene on the MSMEs, then, there must be some social face to it. They make funds available for MfBs to access and put very stringent requirements and ask me to give my treasury bill worth same amount to access the fund. First, I have invested my money in treasury bills, so why should I pledge my treasury bill to access the same amount of money, it doesn’t make sense to me. The shareholders fund of most MfBs are very small. The Unit MfBs are set up with N20million but it is not adequate, most of them operate between N40 and N60 million, state MfBs are set up with N100 million but to operate a state MfB, you need between N100 and N200 million. So how much of it do you pledge to access these funds? Government must remember we are operating in the unstructured sector of the market, the kind of people that we bank are vulnerable to mishaps. For instance, you give out a loan and before you know, the beneficiary is dead, as a result of improper medical care. Also, they operate in make shift locations, government policies can destroy their shops and seize their goods in one day, we have given them loan. Most of them are in the market places, in Benin, where I operate, it is like an annual ritual, shops must burn. The PAR of most MfBs are higher than that of commercial banks because they deal with structured customers that have good financial and accounting standard. The likelihood of default is lower in commercial banks than in MfBs. A lot of people that go into cassava farming are doing it because their friends are doing it without proper visibility study. The kind of people that we bank do not have collateral, the Central Bank of Nigeria, CBN, even recognizes that and said we should not insist on collateral for the micro loans. We do equity participation and form them into clusters of group. The par of a MfBs by nature of their business and clientele is normally higher. Government must come down and decide, if they really want to intervene, they must lower the requirement for accessing the funds.

Victor Ohuoba

Would you say it is political for states to be accessing the intervention funds for the MfBs?

I must correct an impression here,  States access the funds but CBN does not release the money to states. For the N2billion accessed by Edo State, Trust fund being the biggest MfB in the state outside Lapo that is National, a quantum of it was disbursed through our bank, over N1billion of it. The CBN releases these funds to the MfBs nominated by the states, it goes straight from CBN to the account of the MfB. Unfortunately, in our own state, it coincided with when the election was coming. So a lot of them saw it as a largesse for the election that should not be paid back. So far, we have had a good outing with the intervention funds, we have paid the micro element of it which is one year. We recorded close to 93 percent recovery, the seven percent that have not paid had issues with mishap from Fulani Herdsmen who took their cow to eat up and destroy a cassava farm, killing the security man as well. So you can see, and BoI or CBN wants me to use my treasury bill to replace such kind of money, I will not do that. Banks are not ready to stake their treasury bills one on one for intervention funds. Government must lower the requirement even though the banks as responsible institutions must ensure every money given out comes back, a lot goes into it especially when you are dealing with these class of people.

Are MfBs charging high interest rate as a result of the issues you just raised?

It is simple. When people want to save, they go to commercial banks but when they need urgent money for business, they come to MfBs. MfBs get deposit as a premium, even those that give us money would tell us we are not a commercial banks that our risk is high. The interest rate they are ready to accept from a regular commercial bank, they will not accept from a MfB, they would request for a premium. They have forgotten that the same NDIC that insures commercial banks and the CBN that regulate the commercial bank are the ones that insure and regulate our system. In fact, in Nigeria, I think that the MfB are more regulated than the commercial banks. The interest rates are high because the cost of funds are high. The cost of managing microfinance customers are higher and even CBN has recognised that, they allow us to officially lend up to five percent per month. If you analyze it, that is 60 percent per annum. It is not too high for those doing business. The alternative is that these micro traders are taking interest at 10, 20 percent flat from loan sharks. They pay as much as 10 to 15 percent flat per month. So if they have alternative to do up to five percent in a month, they would jump at it. Though in my bank, we do two or three percent, that is the maximum we do compared to a commercial banks that does 28 or 32. In return the loan beneficiaries get speed, personal touch.

Do you intend going for another round of the intervention fund?

We have applied, we approached DBN, due diligence has been done. We have had a good outing with the first intervention fund and we had the template right, all we need is to keep improving but there are lots of work and investment that goes into it. Training of the beneficiaries and staff capacity building, we had to invest in buying of hiluxes so as to get to hinter lands and strengthen our control processes, have credit control in all of the hubs and investment in equipment and infrastructure and even training the beneficiaries and doing follow ups after disbursement, these are quite a lot. That is the only way to include more people talking about financial inclusion.

Why are the MfBs following the commercial bank’s operational model?

Most operators of MfBs do not really understand the dual mandate or dual mission of MfBs. Apart from the sustainability which is profitability mission, which commercial banks have, we in the MfBs have a second mission, a social mission, which is assisting the economically poor and the under banked to get access to banking services, savings, insurance, micro loans, among others. CBN has made provision for that in the regulation, it states that 80 percent of your loan portfolio should be micro loans which is for the micro businesses while only 20 percent could be used for SMEs. But some MfBs pursue solely the sustainability mandate of wanting to make profit and at the end they tweak it. You find them doing it the other way round.

Microfinancing is banking those at the bottom of the pyramid, so all those high flying things like buying jeep, shouldn’t be so. If you look at the Bangladesh model, some have it in kiosk and shopping malls. For instance, in Trustfund MfB, we have 14 branches, about eight or nine are in the market places. There is no market in Benin that you would not find us, a few are outside the state. If you are citing an MfB in VI or Ikoyi, who do you want to serve? It does not make sense. Microfinancing should be to the down trodden and your products must be designed to suit and meet their needs. Saving towards holiday abroad or children education in Canada is not microfinance. That is where most of us are getting it wrong.