Microfinance banks need more time to recapitalise due to COVID-19 impact – Adegbami

ADEGOKE AKINOLA ADEGBAMI, managing director and CEO of Mainstreet Microfinance Bank, in this interview with JOSEPHINE OKOJIE, speaks about the strategies adopted by the bank to survive the pandemic and the recapitalization requirement for microfinance banks.

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Mainstreet Microfinance Bank recently raised about $20million via one of its debt products. Can you shed more light on this?

First, we must remember the fact that the core of our business is financial intermediation. We get money from those that have a surplus and channel it to those that need it for productive purposes. And two things are important here. The more of it we can get and our ability to manage and deploy its profitability. The product in question was launched in 2018. We had just paid down a foreign debt of about N700million at that time. Our first option was to look for a similar foreign facility as a replacement. But the fact that Nigeria entered a recession in 2016 and the sharp devaluation of Naira made it impossible for us to get a foreign replacement. Besides, we were not ready to carry the foreign exchange risk, we believed that was not our area of strength. It was this dilemma that made us looked inwards and launched that product we called Main Treasure Note. It is typical of a commercial paper, except for the fact that we handled everything by ourselves, including the marketing of it. The tenors’ grange between 180days to 12months with a very attractive interest premium. The target was that with aggressive marketing, some people will be able to pull out their deposits from commercial banks and give parts or all of it to us. We marketed it to the middle class, high network individuals, and corporate entities. That gave us about 800million in 2018. We marketed mostly within the family and friends network in 2018. We had subscriptions ranging from N5million and above.

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All we did in late 2019 and 2020 was to leverage the confidence we got from the 2018 success story and rework our marketing strategy.

Today, we have agents that market this product for us on a commission basis. We got all our staff involved, including the back office and other support staff. We also continued to place adverts in the newspapers and online platforms. The people who have patronized us since 2018 are very happy with the attractive interest and our prompt, quality services. Our investment-grade credit rating by Agusto & Co also served to boost their confidence in our bank. With the very low-interest regime in 2020, many of them now found us as their investment destination. Even though this particular product is revolving in nature, we have a portfolio of over N8Billion on that product as we speak. If you use N400/$, that translates to $20million.

You spoke earlier about the ability to deploy the fund profitably. Are you able to deploy all this money?

That question can take us a whole day to answer. What I will say is that we can manage the funds very well. And by managing the fund we are not only talking about deploying the money to loans. We are also talking of the ability to pay back the money as and when due and that we have done creditably well. We considered this right from the design of the product. The debit note is not subject to premature termination. If you are doing 6months or 12months, it has to stay till the end of 6months or 12months. We have factored that into the interest premium that we are paying. By the way, we still have our regular fixed deposit where you can call for your money at will. The no pre-liquidation nature allows us to enjoy stability and plan the utilization well. It enables us to plan for replacement when necessary. We ensure that our loan tenors align with the tenor of the money we use to fund them. In reality, there will always be at least a little gap between fundraising and deployment but that is for us to manage. That is our job. We also make sure that we keep adequate liquidity far above the regulatory requirements.

The CBN revoked licenses of some MFB’s recently. What is responsible for this and how does it impact the industry?

The issue of revocation of license was an unfortunate thing. Very painful for investors, depositors, and staff of those banks. They are all our colleagues. But we must also note that the revocation of license was not a response to a current problem. All those MFBs whose licenses were revoked have closed shops long before the time of revocation. Some of them have been out of business for about 2years before their licenses were revoked. The CBN only needed to take that official decision to enable NDIC takeover. Of course, there is no way it will not have an impact on the industry. The only consolation is that the public is feeling more impacts of the good work that those of us that remain in the industry are doing. We are doing so much in an economy coming out of a recession. The good work we are doing is now the focus, not the impact of licenses revoked.

The Central Bank of Nigeria (CBN) in 2018 initiated the re-capitalisation of microfinance banks in the country. How are the operators fairing in this regard?

Like many of us, I believe capital is very important for the success of any business, but particularly a banking business. I also believe that the regulators mean well for the sector. However, there is a need for the regulators to consider the issue of timing very well. Even if the timing was right as at when the CBN initiated the current capital increase, COVID-19 has made the timing wrong. They gave an extension of 12months, but that was with the expectation that the world would be able to deal with COVID-19 in maximum of 12months. The reality today is different. Almost 2years down the line, the world is still grappling with COVID. The pandemic has now become COVID- 21, particularly with the current experiences of India, Turkey, and Brazil. Don’t forget we live in a global community and we also have our peculiar problems in Nigeria. My advice is that the regulators should give us more time. They can apply their new requirements to new entrants but they should give more time to existing institutions. I don’t think anybody will benefit from these businesses being closed down, at least not the regulators, employees, shareholders, government, and the Nigerian economy at large.

What strategy did you adopt to survive the pandemic?

Our strategy was first about health and safety. We did everything possible to protect staff and customers. We provided information and all protective items for our staff and on our premises. Even on the premises, we share with other businesses, we provided information and sanitizers for all the occupants of the building. We stopped about 75percent of our staff from coming to work about 2weeks before governments in Nigeria declared lockdown. Then we kept in touch with our customers, first to show concerns about their welfare and second about their business survival. We did loan restructuring for some of them. Luckily, the CBN later gave regulatory backing for that action. We continued to serve our customers using our technology through our and after the lockdown. All our customers had access to their money during the lockdown via our mobile and internet technologies, via ATMs across the country. We also took aggressive steps to ensure we had a high level of liquidity throughout. We knew cash was going to be king. And not long after the lockdown, we embarked on selective, careful but aggressive loan disbursement, monitoring, and recovery. With all these, we can say we came out better at the end of the day.

How do you think Nigeria can take advantage of the African Continental Free Trade (AfCFTA)?

Taking from the experience from other parts of the world like the eurozone, this is naturally supposed to lead to an increase in trade, market size, movement of goods and services, and ease of doing business. But every member nation has to take conscious steps to take advantage of those benefits. Businesses and individuals must also make a conscious effort to take the right advantage. Of course, the government must take the lead. But individuals and businesses also have roles to play. If we don’t do that, Nigeria may end up becoming a dumping ground. Other nations with smaller markets may benefit more than Nigeria. As an organization, we are reviewing the situation to be able to take maximum advantage.

What do you think about the Nigerian economy and the SME ecosystem and what is the long and short time effect on microfinance banks with a particular reference to Mainstreet Microfinance Bank (MMB)

The solution to the Nigerian economic problems lies with the SMEs. We must do everything to make SMEs thrive. Like I said in a recent interview, MFBs have done relatively well in supporting SMEs in Nigeria, considering the number of resources available to us. The government needs to support us. SME lending is still a very risky venture in Nigeria. Through our SME support loans, we help the government to get many people engaged. Without what we are doing, the level of criminality could have been worst.

Where can you place Mainstreet Microfinance Bank in the subsector now?

You must know that we have about 900 regulated MFBs in Nigeria today, even after the last revocation of licenses. And there are many parameters you can use to rate and place any MfB. So, placement is a function of the parameters you are using. All I can say is that by the size of business we are doing and other parameters, Mainstreet Microfinance Bank is among the top ten in the industry.