MICRO-FINANCE: Environmental factors and operations of micro-finance banks
updated: Monday 14-07-2008
Shamsudeen Usman,
Minister of FinanceMicro-finance activity in the country is presently enjoying a boom. But Sulaimon Adesina in this report, says the operators have to contend with the challenge posed by their operating environment for them to meet future goals.
Microfinance
as an institution
is gradually becoming the main platform on which all round development of nations is built. Most importantly, the revitalisation of the micro sector of the economy, which is the most visible function of the micro-finance institutions has lifted the hope of the dominantly poor but active population.
The uniqueness of the micro sector brings along with it, however, many challenges for the operators, rubicon to be crossed to be able to sustain the moment and command a meaningful breakthrough in the future. One of such challenges is the operating environment. Evaluating the impact of the social, economic, legal and other component of the environment becomes crucial therefore, for operators who are eager to achieve the ultimate goal of poverty reduction. The situation becomes more important as the banks have the mandate to serve a sector that is widely dispersed in all ramifications.
Mary Obe, Managing Director, Solid Rock Micro-finance Bank Limted stated that the reationale upon which the micro-finance banks in Nigeria are granted licence in the first place is for them to serve their close environment. “The policy stipulates that the micro-finance banks are to serve their immediate environment. Because of our regional and cultural differences, it is unlikely that a feature encountered in a particular environment is the same in another environment,” she said. Thus, the challenge of the category of customers itself is enormous for the operators to contend with. Farmers, traders, artisans, business sole proprietors, all constitute different challenges which the micro-finance banks, unfortunately have to confront altogether.
To Obe, overcoming the challenges of the operating environment begins with an adequate knowledge of the workings of the particular circle. She said that “for a micro-finance bank to serve its community effectively, it is fundamental that it has adequate knowledge of the environment.” That move, she said, would significantly decide how a bank designs his method of operations, such as the kind of products designed for customer, the approach to solving customers’ problems and other related matters. It is then that the customers too would understand and appreciate the product and respoved to them in a positive way.
The Central Bank of Nigeria (CBN), the regulatory authority for micro-finance institutions in Nigeria, recognising that the environment plays a significant role in the success of operations of these institution, emphasises the need to study the environment. In its Micro-finance Policy, Regulatory and Supervisory Framework for Nigeria, the CBN stated inter alia “This policy recognises that the current financial landscape of Nigeria is skewed against Mircro, Small and Medium Enterprises (MSMEs) in terms of access to financial services. To address this imbalance, this policy framework shall promote an even spread of micro-finance banks, their branches and activities, to serve the unserved but economically active clients in the rural and peri-urban areas.”
In order to enforce this initiative, the apex bank instituted some measures which it tought would be the yardstick for measuring the performance of the micro-finance institutions. For instance, the bank would not give approval of business expansion to any institution which takes the issue with levity. It stated, “The level of spread and saturation of the financial market shall be taken into consideration before approval is granted to a micro-finance bank to establish branches across the local government areas and or states, in fulfillment of the objectives of this policy.
“Specifically, a micro-finance bank shall be expected to have a reasonable spread in a local government area or state before moving to another location, subject to meeting all necessary regulatory and supervisory requirements stipulated in the guidelines. This is to avoid concentration in already served areas and to ensure extension of services to the economically active poor, and to micro, small and medium enterprises.”
The CBN stated further that for the objectives of an organic growth to be reached, “a micro-finance bank licensed to operate as a unit bank shall be allowed to open new branches in the same state, subject to meeting the prescribed prudential requirements and availability of minimum free funds of N20 million for each new branch. The CBN framework added that “a bank licensed to operate in a state shall be allowed to open a branch in another state, subject to opening branches in at least two-thirds of the local governments of the state it is currently licensed to operate in the provision of N20 million free funds.” The authority is therefore emphasising that the institutions need to consolidate their immediate environment, a feat which Obe said would not materialise if adequate knowledge of the environment is not given priority.
The 2005 would Bank Report on Africa stated that, “The development of rural financial markets in Africa is hindered by several natural factors, including dispersed populations and poor transportation and communication facilities, which make unit delivery costs very high for small financial transactions; the high risk associated with the main economic activity-rainfed agriculture; and the difficulties in diversifying away this risk due to segmented markets caused by the above difficulties, the strong seasonality associated with this activity and the resulting high probability of covariant price and income shocks, and the absence of traditional physical collateral normally required by the banking system.”
The World Bank then stated that the above facts inflate the costs and risks associated with the delivery of lending services. But Obe said the banks have got to incorporate the situations as challenges of operation right from the outset. She stated that there is no community that are deprived of the challenges, though they may come in various forms. “If your community comprises mainly of illiterates, the first thing to do is to learn their language,” said Obe. As a practical illustration, she said her bank, Solid Rock, speaks different languages to farmers, civil servants, traders and other clients, depending on the way the customer understands and appreciate the effort, and most importantly gets his problem solved. But she contended that the situation did not put extra costs on the operation of the MFBs.
The operator, according to Obe, will also need to step up in its bid to cope with the challenges of the environment by knowing beyond the particular environment in which it operates. She said that it is necessary that the miro-finance bank has a solid plan for the overall development of the environment, comprising the .” Just as you have a vision for your bank, and plan for yourself, you can also have one for your environment,” she stated. The Solid Rock boss premised her argument on the fact that most of the clients of the micro-finance bank are just being integrated into the mainstream of development of their economic life. They had no such opportunity in the post.
“Many of the customers do not have elaborate plan for their business. They are mostly concerned with what they can get now.” The bottomline is that the challenge of the environment will be more taken care of when a comprehensive plan is drawn that will extend beyond just knowing the community. Not only this, Obe added that the target beneficiaries needed to be carried along in designing the vision for them. She stated that the move would endear the customer to the bank and boost their confidence.
Obe thumbed up for the micro-finance banks in the country since inauguration and called for a more visible collaboration of the authority. “When we look at the risk associated with this sector, we will appreciate that the government needs to lend more hands of support,” she stated. She especially noted that the local governments would be more helpful here and called on the banks to open channel of working relationship with the local authorities in their doman. She said her bank had already struck such agreements with the local governments is its junsdiction, a move, she added, had started yielding fruits.
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Intercontinental Bank: Success story of the financial sector reforms
Akin Adewakin, Lagos
Of late, there have been an avalanche of
encomiums, accolades and commendations,
directed at the Governor of the Central Bank of Nigeria, Professor Charles Soludo, over the successful ‘surgical’ operations carried out on the nation’s ailing financial sector a few years ago, July 6 2004 to December 3, 2005, to be precise. The reform, which saw a shrink in the number of banks plying their trade in the nation’s financial terrain from 89 to 25, has, according to them, not only brought sanity to the industry but at the same time succeeded in reinvigorating the sector and in consequence boosting the confidence of the public in the banking sector.
Undoubtedly, an obvious example of the success story of the reforms is Intercontinental Bank Nigeria Plc, a relatively hitherto unknown bank, in the pre-consolidation era, which has ever since the conclusion of the consolidation exercise, risen to command enormous respect in a sector it, today, bestrides like a colossus.
A product of a seamless fusion of Intercontinental, Global, Equity and Gateway Banks, the bank has risen from a relative obscurity to become a force to reckon with in the nation’s financial sector, with its greatest business weapon being a seamless integration of its customers, its people, processes, technology and risk.
Regarded as one of the nation’s strongest banks, its robust brand equity, acquired over 18 years, resonates with a reputation for excellent customer service, superb financial performance and track record of exceptionally high returns on investments since inception.
Financials
Ranked 355th in the world by the Financial Times of London, the only Nigerian Bank in the world’s top 500 banks and the second fastest growing in the world in 2007, its recently-released financial results for the year ended February 2008, show a deposit base of N1.05 trillion, up by 126 per cent from N468 billion in the previous year. The total assets plus contingents rose to N1.7 trillion, up by 108 per cent from N823 billion, thus making the bank the first to hit the trillion mark in deposit and also giving it number one position in total assets.
The bank also recorded a phenomenal growth in gross earnings, which stood at N173.5 billion, an increase of 99 per cent over the N87.4 billion recorded in the previous year. Profit before tax grew by a whopping 102 per cent to N45.6 billion, as against N22.6 billion in 2007, while profit after tax soared by 125 per cent to N34.8billion during the period under review. The capital base also rose to N200 billion from N157 billion.
The sterling performance is not unconnected with the effective delivery of its business model introduced in 2006 to drive its businesses across geographical and sectoral divergence of the banking public.
Intercontinental bank recently embarked upon a strategic repositioning drive to dominate retail markets across the country, leverage on its strong corporate finance business and massive market response to the bank’s consistent delivery on its brand promises to make customers happy with excellent banking services.
While the bank’s Group Chief Executive, Dr. Erastus Akingbola, described the good runs as representing a bold step in the bank’s global strategy of benchmarking the best financial institution in the international arena while positioning to become the number one bank in Nigeria among top five in Africa and top 100 in the world by 2010, the bank’s chairman attributed the record-breaking performance to the ability of the bank in taking full advantage of all the positive developments in the domestic economy.
Analysts said the bank’s track record of superlative performance over the years puts it in good stead to achieve this target.
Dr. Akingbola said the bank was poised to surpass this record. ‘‘We are encouraged by our drive, vision and capacity to double, year on year, all the performance indicators of the bank. We intend to beat our record and we shall,” he said.
The Group
The bank has evolved into one of the largest and most diversified financial services group in Nigeria with about ten subsidiaries in all sub-sectors of the financial sector. Intercontinental Group is made up of the following: Intercontinental Wapic Insurance Plc ( a leader in the insurance industry), Intercontinental Capital Markets Limited (a major player in the investment banking sub-sector), Intercontinental Homes & Savings Limited (a major player in mortgage finance sub-sector), and Intercontinental Properties Limited, which is into real estate. It also has EBN Securities Limited and Intercontinental Finance and Investment Limited, all involved in stock market business. Others are Intercontinental Trustees Limited, Intercontinental Registrars Limited and a majority stake in Associated Discount House Limited, a major operator in the top-tier money market.
Outside Nigeria, the group operates as Intercontinental Bank Ghana Limited. The Financial Services Authority (FSA) of the United Kingdom (UK) recently licensed Intercontinental Bank (UK) Plc, another subsidiary of the bank, as a full-fledged bank, offering wholesale banking services in the United Kingdom, with a seasoned international banker, Mr. Marcus Hopkins, being appointed chief executive, while another international banker, Mr. Richard Wailes, will serve as Chief Operating Officer.
FSA, the UK ’s apex financial services authority, is one of the strictest financial services regulatory authorities in the world.
Recently, Intercontinental Bank entered into a joint venture with Blue Financial Services Company, the number one micro-finance institution in Africa with 171 branches spread across ten African countries to float Blue-Intercontinental Micro-finance Bank.
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