Using commercial bank orientation to analyze microfinance is wrong – Mainstreet Boss

By Olayinka Ajayi

* Says: “The challenge of Africa is pushing people who are never prepared for leadership”

Adegoke Adegbami
Adegoke Adegbami

Adegoke Adegbami is an alumnus of the School of African Microfinance Mombasa, Kenya who specializes in Strategic Planning using Microfinance Tools and Financial Analysis for Microfinance Institutions. Also the CEO of Mainstreet Micro-finance Bank. In this interview he says examiners with commercial bank orientation should stop using their orientation as a yardstick in measuring Micro-finance Banks. Excerpt:

How will you rate Microfinance in Nigeria?

Microfinance means providing financial services to the small and low income earners. But when you look at the Microfinance, there are some that are in the SME group, there are some that are very micro, i.e. those trading in petty markets and so on; so it depends on what you want to focus. For a microfinance bank you can’t attend to all of them. For instance, if you want to tackle the issue of poverty, are you going to get everybody on the street to come and do business with you? Some of them will come but they cannot really save their money, some of them are actually involved with one small business or the other. These are the ones we call the active ones because they are actively involved with something so these are the ones we target; the ones we believe if it’s effectively done they will bring their money to save in the bank and they will also be requiring small loans and also employ someone else. They also get their businesses better structured, better planned and maybe need to expand when it gets better with time into a limited liability company.

With regards to closure of many Microfinance Banks by the Central Bank of Nigeria (CBN) during the ‘economic recession in 2009/10, what is your view on this?

The economic meltdown drew lot of issues and challenges. There was the challenge of people losing their jobs and then looking for something to do.Microfinance provided an opportunity where they could get some money, those people that lost their jobs for example could start some small scale businesses. Each of them can also provide jobs for two or three other people. There were also people that lost their jobs in the commercial banks and saw microfinance as the natural alternative. Shortly before the meltdown, there was the banking consolidation in Nigeria. Consolidation reduced the number of commercial banks in Nigeria from 82 to about 25. Many people in the money deposit banking space lost their jobs in 2006 and 2007 due to reorganization, rightsizing and downsizing following the banking consolidation. The next thing was for those people to get jobs in the emerging microfinance space. In a typical Nigerian way, many of these people believed that microfinance means the smaller version of commercial bank. They believed the commercial banking knowledge they had was enough to run microfinance business. They were wrong. At the regulators level, many of the examiners were using their commercial bank orientation to examine microfinance banks. The microfinance market operates on a different ideology and methodology. It is very dangerous to use the strict commercial bank knowledge and methodology to run a microfinance bank. The market is different. The people we are dealing with; their lifestyle and their needs are different from that of an average commercial bank customer. For instance there was this belief that you can use the microfinance bank license to mobilize cheap deposit to either fund the micro credit program or other businesses. The truth is that Microfinance Bank cannot even become self-funding in the first two to three years. You are dealing with a net deficit section of the market and so you must get money to bring into that section of the market. Therefore, the knowledge gap was largely responsible for the failure of a number of Microfinance Banks. People from commercial bank background also had this problem of wanting to keep their expensive lifestyle. So they put on Microfinance Bank the kind of expenses that are unsustainable.Things have changed today. The operators and regulators know better now. Even our customers now know better. They know that microfinance loan is not a share of national cake. CBN has organized and sponsored certification training for operators. For you to be in a management role a microfinance bank in Nigeria now, you must be certified. There are also training programs for the non executive directors of Microfinance Banks. We must also remember that a number of Microfinance Banks have done well over time, particularly those that took the issue of capacity building very seriously. Mainstreet Bank Microfinance is one of those that have done well. Here, we don’t joke with the issues of training and planning.

What is the customer base of Mainstreet Microfinance Bank like as at today?

We have over 80,000. Some of them are on loans while some merely save their money with us. Our customers are broadly divided into two categories. We have those in the rural areas and those in the semi-urban areas. In Lagos, for example, the places where we operate are what you can call semi-urban. If you look at the outskirts of the Island, you look at the mainland and also the rural areas these are the places that are densely populated so we are targeting them. Even most of our customers who are doing business in the major markets on the Island are people who reside in the outskirt of Lagos, like many parts of Ikorodu, Abule Egba, Ikotun, Ejigbo and so on.

How will you describe the challenges of Micro-finance Banks across Africa presently?

There are the issues of capacity building which is being addressed by the day. There are the issues of funding. Microfinance needs stable funding both from private commercial and development sources. Poor credit culture in our society is also a major problem. I strongly believe Microfinance in Nigeria particularly is strictly regulated compared with what obtains in many East African, South African and Asian countries. We know that the regulators, objective is in response to the nature of our own society. But we should get to a point were some small scale microfinance can operate just like the modern forms of our typical Alajo or Esusu system. Those people will not need twenty million naira to start their businesses, particularly in our remote villages. Their activities would be guided by other business related parts of our laws, pending when they will grow to the level of strict regulation. At that point, they will be compelled to list for regulation. Also, lack of public infrastructure makes the business of microfinance to be very expensive. Microfinance is naturally expensive because of it small loan sizes and the labour intensive nature. But Nigerian environment is more challenging because of the absence of public utilities.

How will you describe the need for Microfinance engagement in corporate social responsibility (CSR)?

We at mainstreet engage are doing corporate social responsibility because Microfinance itself has a social aim, so that is why Mainstreet Bank MFB is doing Microfinance. But basically what we do by way of what you call corporate social responsibility are things like providing capacity building opportunities for customers, especially the group loans customers. Before we give them, we educate the people, we teach them basic skills like book keeping. Lets assume that you did a business of N50,000 and you got N55,000. N5,000 is your profit. Profit means you have to meet up all other expenses like transportation and the likes. But we have also been involved with some social activities too in form of training our staff and also organize some get together party for members of staff to interact and have fun and also network. We give them training that are not necessarily needed for the job but for their personal development. Our leadership disposition fuel our passion for success and the setting up of people and also training them on wealth creation, entrepreneurship mentoring and on capacity building whilst, creating awareness for young entrepreneurs to start their own business. We do some health awareness campaign in our organization.We have also organized retirement training for some of our consumer loan customers.

If you were not in the banking sector, what other sector would you have been?

I am a leader in the church and I believe one of these days I will go fully into evangelical work. I am also reading law, now in 500 level. I love being a teacher and a coach and I do both of these as my passion today. I have been into motivational speaking since 2006. I have published a number of books since 2007. In 2017, I did published two books and I plan to do four in 2018. I also have interest in agriculture and intend to pursue it further.

What advice do you have for young people aspiring to attain this height of yours professionally?

Young people must have value for knowledge. Readers are leaders; they must be ready to read extensively and intensively. The challenge of Africa is that we push people who are never prepared for leadership. Young people must prepare for leadership. Leadership is more than talent or gift. It can be learnt, it can be cultivated. youth must value human lives above money and ego. More so, young people should develop interest in entrepreneurship. It holds the solution to the major part of our economic problems. Also, in this dispensation young people must learn to think business, entrepreneurship, innovation and value creation.


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