Banks are collapsing because owners lack banking experience – Henry Nwawuba (Nigeria)
By Bankole Makinde, Tribune –
Mr. Henry Nwawuba is the Executive Director (Business Development) of Fortis Micro-Finance Bank Limited. In this interview with Bankole Makinde, he declared that thrift, savings and cooperative societies are not licensed by the Central Bank of Nigeria (CBN) unlike the microfinance banks, just as he disclosed that banks in Nigeria are collapsing because the owners do not have requisite banking experience. Exerpts:
What are the differences between community banks, microfinance banks and multi-purpose cooperative societies?
First of all, you know that there are no more community banks in the country but, specifically, the main difference is that we are licensed by the Central Bank of Nigeria (CBN) and the process of getting the license involves some very rigorous conditions that must be met. We are also supervised by regulatory bodies such as the Nigeria Deposit Insurance Company (NDIC), the Economic and Financial Crimes Commission (EFCC) and the CBN itself which regularly comes to conduct examinations. Indeed, in March, the CBN came around for a spot–check. So, the main differences are that we are licensed, supervised and insured so that depositors’ funds are safeguarded and insured by the NDIC.
What do you think will be the effect of the financial crises in the banking industry on microfinance institutions as most of the banks that are representing them as parent banks are having liquidity and administrative problems?
We need to clarify that the universal banks or the commercial banks are operating on another level from the micro-finance banks and we also know that it is not likely that any of these banks will fail at least in furtherance to what the CBN has been doing in the sector right now. We know that whatever is going on in the sector is first of all to sanitise the industry and ultimately to make us all stronger.
Microfinance banks, generally, is expected to operate at the grassroots but competing with strong and well-equipped commercial banks in the metropolis. Don’t you think this will be capital-intensive?
You are right. There are two types of licenses. There is the unit license and the universal license that allows you to operate everywhere in Nigeria. What we have found out is that, of the over 800 licensed microfinance banks in Nigeria, there seems to be a tilt towards urban centres. It is a business, and you do your business plan and look into the areas where you can deliver maximum returns to your stakeholders in the quickest time possible and upon that, you make an application to the CBN. You get the license and you operate within the geographical restrictions within which your application was granted. For the rural areas, community banks have continued to serve those places but you know that in the urban areas, take Abuja for example, there are quite a lot of under-served communities even within the Federal Capital Territory (FCT).
For instance, Fortis has a business office in a place called Kabusa; there is no bank in Kabusa and its environs. Microfinance banks are supposed to cater for the unbanked sector, people that have been excluded from financial services and the figures that we have put that is 65 per cent of Nigerians. There are still people that fall into that category that microfinance banks are supposed to help. We call these people Micro Medium and Small Enterprises (MMFE) and so, even within the urban centres like Abuja, Lagos and other big towns, you still have people whose businesses fall in that category.
How do you guarantee the safety of depositors’ funds as most of your staff are untrained new university leavers who are not bonded by the microfinance banks?
The issue of capacity is a major one that we need to contend with in the Nigeria market place and for us in the sector of microfinance, the problem is two fold. The first is the problem of staff but in Fortis we have Fortis Academy. What we do there is capacity building. We train our staff. We take them through our existing partnership with, for instance, the National Directorate of Employment (NDE) and the National Youth Service Corps (NYSC) where we are mandated to take a certain amount of graduates. Some of them that make it through our system, we retain and more than 500 people have gone through this process in Fortis. Then, the second aspect comes to the actual Small and Medium Scale Enterprise (SME) operators themselves. We don’t joke with capacity building and we are constantly training and re-training our people.
What checks and balances have you put in place to guard against fraudulent practices so as to restore confidence in the system?
Actually, that problem is really not the one besetting only microfinance bank; all deposit-taking institutions sometimes fall prey to the activities of unscrupulous individuals. What we do is that we take basic security checks like getting us guarantors, but the point must be made here that not one kobo that comes through a microfinance bank will be lost because the banks themselves are insured and the deposits are covered by insurance from the NDIC, also even where perhaps such an unfortunate case occurs, the depositors will not lose their money because they are insured.
What are the problems confronting microfinance banks in serving as engine room for grassroots economic growth and development?
We thank God that recently, the regulatory authorities have been trying to finalise the Association of Micro Finance Banks (AMFB) so that we can have a unified body with one voice and make our case known. The normal operational challenges of running a business in Nigeria are also applicable to microfinance banks. Certainly, the activities of quacks, fake microfinance banks and then the failed cooperative societies that have been parading themselves as microfinance banks have dented the reputation of microfinance banks.
What do you think is the way out of banks collapse in Nigeria?
The CBN, I can tell you, places a lot of premium on management because that is what will make or mar a bank and that is what makes the difference. So, it is not just about being a money bag. You need to have professionals who can manage the banks.
But you also know that microfinance banking is different from commercial banking and so, if you apply exactly the same techniques in running them, then, you will probably fail because they are two different things entirely. Microfinance banking is a game of numbers. You have to have a lot of small clients to break even while universal banking deals on volumes and so these are the things that the regulatory authorities are constantly looking at.
The complaints of most of the customers of microfinance banks is that when they ask for loan, you ask for collaterals which they will never be able to provide. Also, they allege that the pay-back period of loan is usually too short for them. What do you see to these?
If somebody is of a questionable character, definitely, responsible lending stipulates that you need to back it up with collateral. Then, in terms of tenure, the short nature of the loan is a function of the nature of the funds that are coming in into microfinance banks right now. There are no brands or any long funding coming in and it will be a mismatch to take a short term fund and place it out for a long-term loan and so we need to keep a balance treasury because there are strict prudential guidelines that we need to adhere to. The CBN states that at any time, 20 per cent of your funds must be liquid and so, at any time they call you, you need to have that money. So, if you go out and mobilise N100, 000, you cannot, by law, loan out all the money and if you mobilise it for 30 days, you cannot give it out for 60 days, and so, these are some of the challenges that we are looking at.
What is the selling point of Fortis that has really made it unique among its peers?
Fortis is the best business support bank in Nigeria. In Nigeria, if you are doing a business and you are not banking with Fortis, you are doing your business a disservice because when it comes to other things even apart from the issue of loans, business support and business advisory, we pride ourselves in building and growing the business together and we are not keen on public sector or big ticket transactions but once there is business and commerce, we beat our chest to say that we will show up and we will be with that business from its infancy till it matures.