By Providence Emmanuel
WHAT is your expectation of the MfB subsector in 2019?
From the positive point of view, I don’t expect much to happen until after the elections. It is also very important that the policy makers at that level realize that the country is a going concern, elections would come and go but the business would continue.
It is important that we have a progressive policy that is consistent; it encourages people that are taking investment decisions to make adequate investment which would in turn create new businesses that would in turn create jobs. A lot of the professions that we have in the country are based on the skills of our people. Nigerians abroad remit about $25 billion annually; we are number three in terms of global money transfer and remittances. Our resource base is not the oil but our people, the core focus should be on how to enhance the quality of our people and their contribution.
How would you describe the proposed CBN’s National MfB
I think that the focus of Central Bank of Nigeria’s, CBN as a regulator is to make policies that would drive how the financial market develops. If CBN is saying that they want to set up a national MfB working with NIPOST, the challenge is that there is going to be a crowding out effect because if they want to dedicate such amount of financial capacity in setting up that infrastructure and the bank, then what is the role of the private sector and what is the incentive for private sector participants to continue to invest in that microfinance space? A lot of people would view it and say, CBN is coming as their competitor, so how do I compete with my regulator, when my regulator is directly/indirectly backing the setting up of an alternative institution that is going to compete with me. From that point of view, that crowding out effect means that less people would be interested in the space; the current people that are joining the space may not want to deploy additional expenses to expand their business; it may create credit arbitrary where some people would go to a national MfB, take loan and divert it to go and pay for the loan they have with other MfBs. So this is not creating an efficient system where capital is efficiently allocated.
For CBN to come in and play in that space where they should be regulating and driving policies is not going to achieve the desired effect of bringing about financial inclusion. I understand the CBN’s frustration in terms of getting more and more people to get access to credit because credit is important to poverty alleviation. Across the world, such as Latin America, South East Asia, the proven model is where private sector is actively involved in eradicating poverty by ensuring that capitals through loan is efficiently allocated and it is done in a sustainable manner. The issue with government agencies getting involved with these things is that, it is tied down with bureaucracy and decision would be made and they are not efficiently implemented. The sustainable model is a model that allows anybody that is playing in that space to react in real time to market condition, devoid of sentiments but focused on objectivity.
Is it true that the MfBs have not been able to disburse intervention funds as expected?
There are several issues surrounding access to on-lending facility and there are several funds with the CBN for on-lending. There is the one for Agriculture, SMEs, MSMEs, among others, each has its criteria. The issue here is from the micro point of view, we all know what the economy is going through, there was a recession last year. All these things indicate the hurdle you have to cross to access or give credit. If the federal government is actively playing in the fixed income market and determining what the risk free rate is, which is about 15 per cent.
Why would you give loan to somebody below that rate. If the federal government is borrowing money from the public at 15 percent, why would you give a loan below that rate, if you do that then you are subsidizing something and subsidy does not come into play if you are a private enterprise because it is not sustainable. If you put in place conditions that do not reflect micro reality, it would be difficult for people to access those funding.
How would recapitalisation drive efficiency in the MfB sub sector?
There are several ways to look at this, if you look at it historically, when N20 million was set as minimum capital base, what was the exchange rate of the naira? If you give a market woman N50,000, when exchange rate was N80 to a dollar, you know what she can buy with such a loan. Today, that N50,000 is worth N250,000 because with N50,000, how many bags of rice can a market woman buy and sell, the purchasing power of the currency over the last two decades has significantly depreciated. Over that same period, the cost of providing services has increased, the cost of infrastructure, both soft and hard infrastructure, that is light, internet connections, quality of manpower, among others, has increased over the last two decades.