Depositors do not trust Microfinance Banks
By Graham Orodje -
I wrote an article in 2010 entitled ‘State of Microfinance in Nigeria’. In it I highlighted some of the issues affecting Microfinance in the country, from the haphazard manner in which Microfinance was introduced into the country, to the grandiose ambitions of some MFB directors and embezzlement of depositors’ funds. At the time, friends and colleagues suggested I speak to some depositors and lenders that have had business with MFBs to get a better picture of the level of mistrust, disappointment and anger towards MFBs. They kindly provided me with some contact details. Unfortunately due to prior commitments at the time I was not able to follow up. I have now had discussions with some of these businesses and the findings are quite mixed.
I spoke with 20 business owners in different parts of the country, with businesses ranging from eateries, to hairdressers and mechanics. Of the 20 interviewed, a quarter got loans from MFBs that they are happy with because they have been able to expand their businesses, although they were slightly surprised by the rate of interest when it was calculated for them, but still expressed satisfaction because it had provided them with the opportunity to expand their businesses. The other 75% did not get loans from MFBs, although some of them have since secured loans from other sources. Approximately half 50% had bad experiences with MFBs.
The case is of a woman based in Asaba, Delta State. She runs a hairdressing salon, a business she has run for almost ten years. She wanted to expand her business because she believed there was an opportunity to provide additional services. Many of her customers bought hair extensions and other accessories from other retailers before coming to her salon. She decided it would be good for her business to expand and provide the hair extensions and accessories required by her customers. There was an empty retail outlet next to her salon so she approached the landlord and got a quote for rent. She also got quotes from others on fitting out the store and other associated costs to launch the outlet. After researching the market for loans and financial assistance, she went to a Microfinance Bank based in Asaba. She was told by the bank that in order to be eligible for a loan, she needed to open an account and deposit 20% of the loan she wanted. She did this and within 3 months the Banks ceased trading. Not discouraged, she went to two others and the same thing happened. She was not able to expand her business and the funds she lost almost lost her the original hair salon business.
There appears to be a widely held view among Micro businesses and SME’s that Microfinance Banks can not be trusted. Some of those interviewed said they will never approach Microfinance Banks again for loans, even though they are aware of the actions been taken by CBN (Central Bank of Nigeria). They are yet to be convinced these changes will reduce the level of fraud and embezzlement by Directors and senior managers of MFBs.
There was also a feeling that depositors have no one to listen to their concerns or assist them in recovering lost deposits. Some of the interviewees claim their have not been able to get their funds repaid. Those that are aware of NDIC’s (Nigerian Deposit Insurance Corporation) plan to repay depositors say they do not know where to get information.
The interviews represent the views of only a few people that have been exposed to MFBs, so is not enough to draw any meaningful conclusion. It does, however, suggest that many Microfinance Banks may struggle to attract depositors and borrowers. This is likely to affect smaller MFBs more than bigger ones that have the requisite tools to manage their services.
The sector as a whole will need to convince its target market that it can meet their needs. This is going to be tremendous challenge for the sector. The NAMB (National Association of Microfinance Banks) will need to take the lead and provide guidance to MFBs, especially the smaller MFBS who may not have the capacity to meet some of their business and regulatory obligations.