Benjamin Muketha is Chief Executive Officer, Letshego MFB, Nigeria. In this interview with TONY CHUKWUNYEM, the Kenyan speaks on topical issues in the Nigerian MFB sub-sector and the economy Excerpts:
Can you give us an overview of your activities since Letshego MFB commenced operations in Nigeria, about two years now?
Actually, it is just going to two years now because we purchased the microfinance from First Bank with effect from January 2016. So, we have been operating in the Nigerian economy for close to two years now.
In that period we have basically been trying to reorganize the business here to realign with our group strategy, which basically is addressing ourselves to the financially excluded communities in the areas of microfinance, education, health and agri-business.
Internally, we have concluded our strategy review, we have completed reorganising our technical and IT platforms. We have totally a new management team and basically our processes and procedures are by and large in place and therefore we are now in a position where we can go to the market as Letshego MFB, not as former Firstbank.
The microfinance subsector In Nigeria has been and continues to face challenges. What difference do you think Letshego MFB would make?
I think you have to look at our values as an organsiation. What does Letshego stand for? What is our mission? Everything we do really is about improving lives. We do believe that our business will only grow if we can positively impact various segments in our society. It is very easy to say we address people on the lower part of the pyramid but that is not true, it is everybody.
And basically, ours’ is to look at niches in education in health, in the business community, in the farming community and say how do we add value to these communities, how do we add value to these people.
And the moment, you add value to a people and make a difference to the lives of those people, then we as business people will benefit. So our model frankly is based on positively changing peoples’ lives. And that is it; that is the bottomline about Letshego.
You are a national MFB and currently in three states. What are your plans for expansion to other parts of the country?
It was a deliberate effort to acquire a national license. The Nigerian market is large, it is big, each state is divergent, its strong, has its own strengths and weaknesses, so a national license is important for our business model. It is true that at the moment we are only in Lagos, Oyo and the Federal Capital Territory, Abuja.
It is very easy to talk about our plans for brick and mortar in what state but our model really is based on reaching our target communities. At the moment, we have 26 branches spread in these three states. The kind of volume we have in terms of the number of customers, in terms of the of transactions, you can see that they are underutilized.
Our first objective is to make sure we maximize the use of these locations. Second and at the same time is to reach out to many people as we can through digital platforms because that is the future. You can rely so much on brick and mortar.
Brick and mortar would help; it would come; while we go to some states where we are not present, we will have some brick and mortar, but the driving force for us is technology, it is digital platforms.
The view is widespread that one of the reasons why MFBs in Nigeria have not done so well is that they are trying to compete with commercial banks or that competition from the latter is stifling them. Is that your perception?
Yes and no, but yes in a positive way. First of all – let me say that the cake is big enough for everybody and fortunately we cannot satisfy the needs of these communities. Even collectively, the entire financial sector, all the MFBs, everybody, we are still serving a very conservatively small number of Nigerians.
I think the best effort is that maybe 20 per cent of the community has access to banking services of any form. Mobile phones have done a better penetration in terms of financial inclusion. Frankly I’m not so sure. Everybody has a space to play. So yes, we are in competition to capture the remaining segment of the society.
The banks take the bigger part, the juicy part of the business, while MFBs by nature of their licenses, by nature of their business models, they target the lower end, the microfinance end, that is the low income to middle income.
So on one hand, we don’t really compete, on the other hand, the cake is big enough for everybody. In the foreseeable future, we cannot satisfy the financing needs of this community; it is impossible.
Why do you think the acclaimed Bangladesh MFB model has not been successfully replicated in a country such as Nigeria for instance?
First of all, every community is different. The one in Bangladesh, if you know the origin, it started more like a community bank, people not really banking, just trying to organize themselves with a little money under the table and it transformed itself to a bank. Now that model can work everywhere but the truth is that do we have people who are motivated for that model? Do we have people who are convinced that starting at that level and scaling it over time, you can make money?
Personally, I believe it can work; it is just that we are maybe missing people with that kind of a business model. There is a similar model like that in Egypt; based on rice basically. It works extremely well.
I have also read about such a bank in Indonesia, another one in the Philippines. So they are there and they are growing. If you look at the story of, for example, Equity Bank in Kenya, it is not exactly the same model but it changed the banking industry in Kenya.
Before Equity Bank came, there were minimal balances, very high interest rates and very few banking customers. But Equity came, opened the doors and let everyone play in the market. Yes, they are a commercial bank but they sort of broke the ceiling and allowed everybody to open a bank account.
So it is possible, it is possible, you just need people who are patient, who are ready to go to that market and believe there is money to be made at the bottom of the pyramid.
Lack of a national data base, infrastructural deficit are frequently mentioned as major challenges of MFBs, but what would you say are the most formidable challenges facing the sub sector in Nigeria?
Nigeria is a big market. Speaking for MFBs, I think currently what is slowing down the growth will be the Biometric Verification Number (BVN). BVN is a positive development in that the drive is to be enable to know who you are dealing with, who your customer is and the Know Your Customer (KYC). It is a good initiative.
But if you look at financial inclusion of the Central Bank of Nigeria (CBN), the people out there in the villages, people who don’t have access to any form of banking, they don’t have BVN. So the challenge is that how do you reach those people in the villages who don’t still have BVN but they have a mobile number? So, somehow if we can reach those people with the mobile number registered in their name even though they don’t have a BVN, if we can bridge that gap using some form of technology and sharing the information that is available to get these people to access some sort of banking solution, whether it is to save, even if its N50 to N100 a day or even if it is to borrow.
So for me, I think that is one of the challenges. The other one affects our customers. For example, in the education sector, our customers don’t have certificates of ownership for the schools that they run. They own the land, they live on the land, but they have no certificates of ownership; that limits the amount of money they can borrow.
Every lender wants some level of collateral, so these guys cannot invest in long term projects because they don’t have certificates of ownership , they can’t borrow large amounts of money. The other issue that I think is significant for us is the whole area around financial literacy. We give money for people to pay back.
Now if people are not financially responsible, either because they don’t know, or there is no training, it becomes very expensive. This is because any loan that is not repaid is a cost to the lender and it goes to become a charge to the others who pay.
So, we need to capture more and more of clients who are financially literate, who understand the obligations of borrowing and who know that this is not free money. If we give you money, it is for you to help yourself, to help your family, but also to pay the lender. If we can overcome this challenge, I think interest rates will come down and more and more people will benefit from the banking industry in general.
A key issue people have with MFBs is that they are accused of charging high interest rates. Why can’t MFBs reduce their interest rates?
The very concept of interest rates is quite complex and it is influenced by a number of factors. For example, whoever is investing in microfinance has an opportunity cost for that investment. And as long as those other opportunity costs are there, they will remain the benchmark for the expected return.
For example, the benchmark of investing in treasury bills. There is also the cost of running a business. If you look at the entire development of Nigeria, electricity is a huge cost and the whole maintenance of branch network is expensive. And for you to get a decent return, cost of electricity, cost of running premises has to come down.
And like I have just mentioned, default rate is another factor, which goes into rates. So when you take all these factors together, the default rate, the cost of running a business and of course an expected return, you realise that it is not easy to get interest rates below 10 or 15 per cent. It is very difficult and I’m not talking about inflation factor here. So I would think on a straight line application of cost, somewhere around 15 to 20 per cent and that is why the interest rates are that high.
What is your take on the general perception that women are better MFB customers than men?
You want to get me into trouble! I think it is generally accepted, yes. Women are more responsible when it comes to managing any form of borrowing. They repay more, they spread the benefit more, basically spread it to their families. But at Letshego, what we look for is not just a woman or man but somebody who is in a business and support them.
We try to look for somebody with a good character, somebody who is running a business, it does not matter how small the business is as long as everyday, you open the door, you sell to whoever comes, you give them whatever they want, and at the end of the day, you manage your cash flow, you know how much came in, how much left your pocket.
It does not matter what business you are in, what matters is that you control the business, little things and everything that you run the business everyday, that is what we are looking for. If you are a man, you are a woman, frankly that does not matter. We just want somebody who is of good character. But to answer your question? Probably women are better payers than men; men probably have bigger businesses!
What is your stance on the debate about the impact of Fintechs on banks and gMFBs? Do they pose a threat or they are complementary?
It is complementary. Where I stand? I think technology is going to make it easy for everybody to grow their business. It is not only in banking; I mean Fintechs have taken over supermarkets; we have online malls. Fintechs are basically driving every sector of the society. Banks, traditionally, they are brick and mortar, they feel threatened.
But we need the technologies that make it easy for us to do business, to lower our unit cost, to increase our market, understand our customers more, and this can build efficiencies. If you look at the business model for the finance sector- brick and mortar, too many soldiers on the ground, the costs just become too much.
But if you are to adapt a lean, digital-based solution, you will be able to do more, reach out to more people, within Nigeria, even across the borders. You can tap into transaction flows between countries in West Africa, between Nigeria and the Diaspora community and Nigeria and China.
There is so much you can do with technology. So I won’t say it is a threat. For me, it is a big, big opportunity but people are generally resistant to change. It is difficult to accept that you are resistant to change, but the truth is that everyone is resistant.
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