Chief Executive Officer of Anthemis – an investment and advisory firm focused on digital financial services, Nadeem Shaikh, has said banks have to get comfortable with the fact that they are good at some things and bad at others. Shaikh stated this during a panel discussion at the Mastercard Foundation’s 2017 symposium on financial inclusion in Accra last weekend.
Africa remains home to the largest proportion of unbanked people (estimated to be over 60per cent in sub-Saharan Africa at last count). As a result, the region has seen the emergence of many entrepreneurs and companies that are using technology to better address the needs of underserved groups.
The most cited (and praised) example is the mobile money platform M-Pesa in Kenya but there are many other success stories. MicroEnsure, which is in five African countries, provides various insurance products to the mass market by partnering with mobile operators and allowing cover to be bought via airtime.
Also, consumer finance company, M-Kopa, has managed to sell solar energy systems to hundreds of thousands of low-income customers by introducing its own credit and repayment operation. Similarly, Zoona, in Zambia and Malawi, allows unbanked consumers to digitally send cash crosscountry via mobile phone. With some of the highest interest rates in the world found in Africa, bank loans are often unaffordable for many individuals and small businesses.
One reason why the cost of financing is so high is because banks struggle to adequately assess the credit risk of consumers who do not have traditional forms of collateral, or have never used formal financial services before.
But in recent years there have been a growing number of fintech companies that are proposing alternative ways to determining this risk. The method is also being utilised by a microfinance company, Musoni Kenya, in an environment where the country’s recent interest rate caps on bank loans has meant traditional lenders are imposing even more rigid guidelines for granting loans.
Jumia, a network of ecommerce marketplaces spanning 23 African markets, is now also using its data to analyse risk profiles. To ensure availability of stock for the merchants that sell on its platform, the company is analysing years of data collected on its vendors (such as turnover and sales history) to connect them to credit providers. FarmDrive in Kenya is analysing know-your-customer (KYC) databases (such as those belonging to mobile network operators and government entities) – as well as M-Pesa accounts, geographic locations and mobile phone usage – to determine the creditworthiness of smallholder farmers.
Commenting on whether African banks are likely to adopt these alternative strategies in order to address a greater consumer base, the director of financial inclusion at Mastercard Foundation, Ann Miles, said: “Yes, we know there are a lot of issues related to this in terms of data privacy, security, and whether these algorithms always get things right. I think the whole industry, with all the different players, will have to work harder on some of these things – but I think it is inevitable.
“Just looking at the rate of change and the pace of innovation and opportunity that we are seeing… If you had asked me five years ago if we would be where we are now with digital financial services, I couldn’t have imagined it.” She added that banks are also encumbered by huge regulatory constraints – a leading reason why they have been so slow to adopt innovative models.
“Even just in our work with helping some micro-finance institutions build and extend agent networks – in some countries this is a very slow process. In some cases there are regulators who want to be engaged in approving every single agent. That is hugely constraining,” noted Miles. She said, “Madagascar is a case in point… where we have seen [regulators] constrain the growth of agent networks.
” There are some examples of banks embracing technology to remain relevant in an environment of rising fintech competition – one being Equity Bank in Kenya, according to Miles. “They see the competitive threat from M-Pesa in their own country. They have developed their own mobile virtual network operator to try and bring down the [mobile banking transaction] costs – so they are trying to launch some alternatives.
” However, both Miles and Shaikh warn that if more African banks do not start partnering with fintechs, they could potentially become redundant. “They have to rethink their business model from the ground up… Between 2010-2014, we had a lot of young people coming in and disrupting businesses… Now [they] are a part of financial services,” said Shaikh, adding that banks have an opportunity to work with fintechs to create a new paradigm that addresses the mass market. “It is not a sprint – it’s a 10- to 20-year play. But if they don’t start thinking about it now, it’s the end.”
Palm oil ban: Need to plug deficit
Recently, the Senate urged the Federal Government to ban importation of palm oil in a bid to conserve foreign exchange, as well as protect and encourage local farmers. But ironically, there is a huge gap. TAIWO HASSAN writes
Nigeria’s palm oil era
Indeed, Nigeria’s agriculture have suffered from decades of mismanagement, inconsistency, poorly conceived policies and lack of basic infrastructure. Sadly, a sector once known to be contributing the largest per cent to the Gross Domestic Product (GDP) and employment, is no longer attractive following the discovery of crude oil.
With the oil exploration in place, Nigeria was no longer a major exporter of cocoa, groundnuts (peanuts), rubber, and palm oil production, mostly from obsolete varieties and overage trees. Besides, more dramatic decline in groundnut and palm oil production had also taken place. Use of the oil palm fruit to extract edible oil had been in practice across the continent for centuries, and it remains an essential ingredient in most of West African cuisine.
Farmers in the region, who inter-cropped oil palm trees with other food crops such as yam and maize, started the first export trade early in the 19th Century. Before its close, the industrial revolution in Britain had created a huge demand for palm oil, which by then had found its way to use in candle making and as an industrial lubricant.
The economic importance of palm oil grew steadily because of its high yield, leading European colonists to start plantations in Central Africa by 1900. As palm oil found wider use in food-processing and industry, global demand for the commodity surged. By 1982, worldwide palm oil exports had grown to a staggering 2,400,000 million tonnes per annum.
For most of this period, Nigeria held centre stage as one of the largest producers and exporters of palm oil, accounting for more than 40 per cent of global output in the 1950s. At the time of the country’s independence from British colonial rule in 1960, palm oil contributed 82 per cent of national export revenue.
Effects of palm oil importation
However, palm oil, which used to be one of the nation’s major sources of foreign exchange in the early 1960s, is massively imported from Malaysia and Indonesia. Statistically, Nigeria currently has a global share of 2.9 per cent, with Indonesia leading by 33 million metric tonnes, Malaysia – 19.8 million metric tonnes, Thailand – 2 million tonnes and Colombia -1.1 million metric tonnes.
With GDP estimated at 970,000 metric tonnes, Nigeria requires an annual 2.7 million tonnes to make up for a 1.73 million tonne deficit. Despite a high exchange rate and price, shipment of the produce was increased by 12 per cent as its global price hit $718 per metric tonne last year.
The price of the commodity was $616 per metric tonne last July but rose to $718 per metric tonne last November based on high demand by indigenous manufacturers.
According to information, Nigeria has reportedly imported up to 4,760,000 tonnes of palm oil worth about N11.5 trillion in the last 10 years. This occurred between 2007 and November, 2017.
In 2007, the country imported 451,000 metric tonnes of palm oil and 410,000 metric tonnes in 2008. 425,000 tonnes, 435,000 tonnes and 440,000 tonnes were imported in 2009, 2010 and 2011 respectively.
In 2012, 470,000 metric tonnes of the produce were brought into the country with about 518,000 tonnes imported in 2013. The country also imported 506,000 tonnes in 2014, 263,000 tonnes in 2015, 400,000 tonnes in 2016 and up to 450,000 tonnes last November.
A total import of 4.7 million metric tonnes at the rate of $663 per tonne implies that Nigeria had, within the 10 year period, spent about N11.5 trillion on importing palm oil, which could have been produced locally.
Investigations revealed that the problems facing Nigeria’s oil palm production include lack of adequate land space, inadequate storage facilities, which result in low production of oil palm and inadequate finance among others.
In addition, the fundamental flaw with the palm oil sector also lies in Nigeria’s colonial origins, when British trade necessities dictated economic policy. Because of its primary export orientation at that time, planned expansion of the industry was slow in coming through and its future competitiveness had been compromised. As a result, the bulk of Nigerian palm oil comes from dispersed and semi-wild groves, and through the use of highly outdated manual processing techniques.
Currently, 80 per cent of production comes from scattered smallholdings spread over an estimated 1.6 million hectares of land. In contrast, plantations occupy only about 300,000 hectares – most of it coming up in the last decade with private sector investment.
But the recent intervention by the Senate depicts that all is not yet well with the country’s palm oil industry, as incessant importation of the commodity into the country have shown that Nigeria is losing huge foreign exchange.
For the lawmakers, calling on the Federal Government to impose a ban on the importation of palm oil in a bid to protect local production and encourage farmers should have been a cheering news.
But for a country that has about 1.73 million tonnes deficit with gross domestic production of 970,000 metric tonnes and requiring an annual 2.7 million tonnes to meet up national demand, banning the product would be nonsensical at this period.
Last week, the upper chamber of the National Assembly, t adopted a motion on the “Urgent Need to Halt the Importation of Palm Oil and its Allied Products to Protect Palm Oil Industry in Nigeria.” The motion, which was sponsored by Senator Francis Alimikhena, had lamented the rate of palm oil imports into the country.
He decried the continued importation of palm kernel and allied palm products, lamenting that it was crippling local production and depleting foreign reserves. He described the situation as inimical to Federal Government’s economic diversification policy.
The senator revealed that Nigeria imported 450,000 tonnes of palm oil estimated at N116.3 billion last year.
“Government must reverse this trend with copious investments in the local palm industry and the protection of local producers from unnecessary imports,” Alimikhena told his colleagues at plenary, last week.
He stated that Nigeria had the land and human resources to boost local production and called for efforts to regain the country’s lost position in palm oil production to create jobs and boost foreign exchange earnings.
On his part, Senator Theodore Orji called for a special fund to boost local production of palm oil, which was a major income earner for the country, decrying the moribund state of many palm oil production plants.
In their separate submissions, Senators Jibrin Barau and Rabiu Kwankwaso called on the government to ban the importation of cash crops for which Nigeria has comparative advantage.
On his part, Deputy Senate President, Ike Ekweremadu, called on the government to revive the palm oil sub-sector of the economy to create jobs and generate income for farmers.
Realistically, the Senate’s motion call for a total ban on the importation of palm oil will have positive impact on the local market, but the huge deficit of the commodity could cause more severe impact on Nigerians.
N196.19bn insurance budget stirs mixed feelings
A brighter prospect appears to be in the offing for Nigerian insurance sector considering the amount budgeted by the Federal Government to meet the life assurance premium obligations of ministries, departments and agencies (MDAs) as well as that of pensions and gratuity payment to public servants.
The amount put at N196.19 billion, is expected to spur activities in the industry the moment it is released and disbursed.
The breakdown shows that while N181.19 billion has been allocated for the payment of pensions and gratuities of public servants, N15 billion has also been set aside to meet MDAs’ life assurance premium obligations.
President, Chartered Insurance Institute of Nigeria (CIIN), Mrs. Funmi Babinton-Ashaye, believes that based on the budget, the insurance sector should experience increased business momentum.
According to her, “on the whole, the insurance industry, in my view, has more to cheer from the budget. In other words, the business outlook for the insurance industry is mixed but very promising. As players and risk managers, we need to open our inner minds and take those business decisions that will help us reposition of industry in the unfolding 2018 business year.”
The prospect is, however, dependent on government’s willingness to release the premium considering the fact that it remains one of the biggest debtors to the industry.
Series of events in the past had revealed the unwillingness of the authorities to fund insurance cover for public servants, thereby denying them or their family members any form of compensation in the event of an incident.
New Telegraph recalled that last December it was revealed that the Federal Government only paid 62 per cent premium for 2016 cover, leaving a balance of 38 per cent while it was yet to pay any for 2017.
Lamenting government’s failure to urgently pay premium for its workers, an insurance broker, Tunde Oguntade, revealed in Lagos that apart from not paying the premium in full, it was also delayed for an upward of four months from August to December 2017 before 62 per cent of the sum was paid to the selected brokers.
The group life policy is in compliance with Section 4 (5) of the Pension Reform Act, 2014, which states, “every employer shall maintain a group life insurance policy in favour of each employee for a minimum of three times the annual total emolument of the employee and premium shall be paid not later than the date of commencement of the cover.
At the beginning of 2017, a sum of N22.4 billion was budgeted as premium for the Presidency, and MDAs.
Out of the amount, the Federal Government’s life insurance had a provision for N15 billion, being the highest figure for insurance premium.
A breakdown of the amount showed that while about N22.4 billion would be spent on insurance premium, Ministry of Agriculture and its parastatals would make do with N1.9 billion.
Although the Federal Government had been slow in paying premium for both life and general insurance, the Office of the Head of Service of the Federation had hinted of the need to review the benefit of group life cover herein the insured only benefits when he is dead.
A top official of OHCSF was quoted to have lamented that the current Group Life scheme was not in tune with global best practices and as such, failed to benefit civil servants across the federation as expected.
He said the only benefits civil servants received from group life scheme was death benefit, whereas it could be extended to accidents, disabilities, residual benefits and other ancillary services.
According to him, government will review the current Group Life Assurance Scheme from an annual policy to a long-term policy for effectiveness and efficiency in order to address these drawbacks, enhance the benefits derivable from the scheme and bring the Group Life Insurance Policy in line with global best practices.
He said: “It is usually N5.4 billion annually for civil servants Group life insurance. That’s the figure and that had been recurring for the last three or four years. For this current one, I think we shortlisted 21 insurance companies, but the BPP gave us certificate of no objection for 20 and 108 insurance brokers.
“We can only work with those approved by the BPP and that approval had been confirmed by Mr. President.”
Stock market advances on blue chip firms
The bulls maintained their grip on the market activities as stocks sustained rally following gains recorded majorly by banking and consumer goods stocks. The key market performance measures, the NSE All Share Index and market capitalisation, rose by 0.23 per cent as market sentiments extended gaining streaks following investors’ sustained optimism.
Consequently, the All-Share Index gained 100.46 basis points or 0.23 per cent to close at 42,258.78 as against 42,158.32 recorded the previous day while the market capitalisation of equities appreciated by N36 billion or 0.23 per cent to close at N15.165 trillion from N12.129 trillion.Meanwhile, a turnover of 342.1 million shares exchanged in 4,943 deals was recorded in the day’s trading.
B anking sub-sector of the financial services segment was the most active (measured by turnover volume) with 196.8 million shares exchanged by investors in 1,942 deals. Volume in the sub-sector was largely driven by activities in the shares of Fidelity Bank Plc and Skye Bank Plc. Premium sub-sector boosted by activities in the shares of Zenith Bank Plc and FBNH Plc trailed with a turnover of 50.1 million shares in 738 deals.
The number of gainers at the close of trading session was 24, while decliners closed at 17. Japaul Oil Nigeria Plc led the gainers’ table with a gain of 5.41 per cent to close at 39 kobo per share, while Wapic Insurance Plc tailed with a gain of 4.92 per cent to close at 64 kobo per share. Total Oil Nigeria Plc added 4.78 per cent to close at N228.00 per share.
On the other hand, Unic Insurance Plc led the price losers’ table, dropping 6.67 per cent to close at 28 kobo per share. Courtiville Nigeria Plc followed with 5.56 per cent to close at 34 kobo per share, while AG Leventis Nigeria Plc trailed with a loss of five per cent to close at 57 kobo per share.
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