Mr Tiko Okoye is the Managing Director/Chief Executive Officer of Fortis Microfinance Bank Plc. In this interview with NSE ANTHONY-UKO, he shared insight on the economic recession and how Microfinance Banks can help the situation. Excerpts
It’s been a year you became Managing Director of Fortis, how has it been since you took over in the bank?
Well I came into Fortis as the MD/CEO on the first of February, 2016. Sometimes I forget that it’s already a year, it feels like I’ve been here for several years because of the rapidity of the occurrence of the transformative events. Last year was one of the worst years the country saw due to economic recession, the loss of jobs, the exchange rate of the naira, inflation and so on; it was a troubled year and to have to see to it that the bank survived and moved forward, made the year very busy. I came and took the bank from where my predecessor left it and hopefully, took it to a positive growth rate in all the major indices of performance. That’s the nutshell.
The recession made last year very challenging for many businesses, what are your projections for this year, do you see the condition improving?
I am too much of an optimist, six months ago when I was a guest on a TV financial programme, I told the host that I will give a time frame of 18-24 months, that Nigeria will pull out of this and now, we have just done six months, we still have about 12 months by my projection, which could either be proven right or wrong.
But right now, we are already on the path of economic recovery and when you have reached the bottom, there is nowhere else to go. The government tried to take its time but people felt that they were very slow, but either way, we can see that whatever they are doing is yielding results. For example now, rice production is on the increase and the price of a bag of rice fell last December. Also, blocking all the wastages and leakages that used to occur in the budget implementation is a good sign; so the signs are already there and I believe that economic activities will take off this year to the advantage of both banking and individual businesses.
Talking about the government and its policies, do you think the 2017 Budget estimates are appropriate to drive policies that will take the economy out of recession?
What is happening is that so many things are as if they are contrary to themselves. In the previous regime, you will find out that the recurrent was always about 74-75 per cent but at the end of the day when you take out debt repayment and so on, what was left for capital and infrastructural development was about 10 to 15 per cent. A nation like Nigeria that wants to be a leader in the global scene cannot afford to be spending a meagre 15 per cent on capital expenditure because it’s the capital expenditure that actually adds value to whatever you are doing as the recurrent is just consumption. When the government came up with this, I was surprised and I expected a lot of people to express concern, what they have in 2017 is a capital expenditure of 30 per cent, it is better than before but they should go higher than that but again, reality is reality, if government should now say that they want to downsize, i.e. to reduce the cost of labour, people would still complain and so on.
So I think that what the government is doing is very delicate, they want to keep the recurrent budget at a certain level that will not adversely affect the capital expenditure but we are going to do it gradually. I don’t know what the numbers are right now but this government must see that over the next four-five years, there is going to be an increasing growth on capital expenditure so we must give it to them. Last year people said some assumptions were too ambitious, but we all knew what happened with the exchange rate where it fell far more than what they had anticipated but this year, an exchange rate of N305/$1 and the oil benchmark of $42.5 per barrel would be very modest because the insurgency of the Niger/Delta have been reduced considerably and Nigeria have been able to sell more barrels of oil in the international market. All these are in Nigeria’s favour; so without spending, there is no way you can come out of recession.
The economy is still in recession and you are projecting 18 months to be out of the wood. How can Microfinance Banks help to bring the economy out of this recession?
First you look at the customers and potential customers of the Micro Finance banks. They are usually people the bottom of economic pyramid. You can’t build some something from nothing, previous economic policies have tended to emphasise that middle class are the apex of this economic pyramid with little or no thought for the bottom and so when you build from the middle, it comes crashing and that is why there have been much motion without movement. The government is getting it right now having to realise that it is the foundation and the commercial banks cannot do it because they are not cut out for grass root banking.
Microfinance Banks are close to the people and so understand the people. The banking and other financial institution policy as it is, restricts commercial banks from lending anything above N50,000 without collateral and these are people who do not have collateral but the commercial banks cannot do it because they are backed by law because once a commercial bank loans N50,000 plus N1, you must see collateral and these are people who do not have collateral at all and so the Microfinance banks have come in to organise them into groups, adopting what is called cross guarantee or peer pressure social collateral, that is how they now securitise these loans by ensuring that everybody in the group cooperates as what affects one affects all. These are the things that are of micro level and if it is properly built, anything built on top of it will stand. Research said about 65 per cent of Nigerians is financially excluded and you cannot be talking about economic development without this percentage included. It is the duty of the Microfinance banks to ensure this financial inclusion, broaden them and mainstream them into the financial sector so they can become powerful contributors to the GDP. That is where Fortis Microfinance Bank is playing a role right now. We are the second Microfinance bank to be quoted at the Nigeria Stock Exchange and it tells you how dearly we hold the concept of corporate governance. We are set and we will continue to play our role.
Talking about access to micro credits for small businesses, the disbursement of the CBN N220bn MSME development fund has been very slow. As a major disbursement agent, why is this so and how can it be improved?
Well the policy is a good one but like you rightly said, the disbursement has been very slow for a number of factors.
One is that the MFB are supposed to provide some form of guarantee to access these facilities and if you remember, the customers of most Microfinance banks, don’t have collateral. They use the social collateral and they are wondering where they are going to get the collateral from to back the credit.
Again, because of the nature of the environment in which we operate, I was at the Bank of Industry where three of us where given multi-million naira cheques for this type of financial inclusion and then some people were saying, how are you sure that the money you are giving to these Microfinance banks are not part of their share of the National cake, that will they pay you back?
That is the mentality of some people and because of that the CBN and the Bank of Industry want to ensure that they get enough guarantees before they release these monies to you but then most of these Microfinance banks are not in position to provide some of these guarantees and that is why the disbursement has been so slow.
But recently, the Building Rural Infrastructure in Nigeria Rural Finance Institution Building Programme (RUFIN), an NGO formed by IFAD, and some state governments in Nigeria are collaborating to take responsibility for the about 80 to 90 per cent of the collaterals and guarantees off the Microfinance banks. This is excellent. When this finally comes to fruition and they sign on the dotted lines, the Microfinance Banks will be required to provide about 10 to 20 per cent of the collateral/guarantees needed to access these funds for on-lending, you will see many more Microfinance Banks going forward to take this facility and the disbursement rate would improve.
In 2015 Fortis got approval to operate as a National MFB but up till now, we are yet to see branches beyond Abuja?
You are wrong. Right now there is a branch in Ikeja, Allen Avenue. The CBN had actually approved six branches but due to the recession, we only opened one to see how things stabilise but this year, before the first quarter elapses, we will open the rest and apply for more; even as much as 20-30 more branches in other parts of the country.
How are you leveraging on technology to extend financial inclusion services to a wider range of people?
We take technological leverage heavily for one; it standardizes the process and reduces the effective cost thereby reducing the cost for customers.
Fortis is at the forefront of IT deployment among Microfinance banks because most of our processes are fully automated, when you look at agency banking, branchless banking, it is IT. IT is the bedrock of any MFB so it’s better to start now than later.
Talking about arbitrary interest rates that MFB charge and there is a possibility of having a uniform interest rate charged across all Microfinance banks. Do you see the possibility of this and the effect it may hold on the sector?
Even in the commercial banks, you still see a multiplicity of interest rates; their lending rates vary. Different banks charge different rates. What drives rates is cost of funding.
So if you are a big bank and you have access to cheap deposits, your interest rate will be lower. Some banks have deposits that are forgotten in their reserves and don’t have to struggle to get funds such banks will have very low interest rate but you will not compare them with some banks that have to borrow from CBN or other bigger financial institutions and interbank window, their rates will be higher because they need to cover their costs.
When you come to the MFB, you will see that relative to commercial banks our rates are higher and we don’t source deposits/funds from the same place. They have all numerous depositors. Most MFB have to buy funds because we don’t attract much deposits and even the CBN MSMEs Fund is not accessible to most MFBs because of the requirements for disbursement. So you buy, you go to high-net worth individuals and to get them is war because how will a high net-worth individual give you fund instead of the commercial bank as the perception is that you are not strong enough; you are risky. The second uphill task is the rates, you cannot go and pay same rate as commercial bank because already, you have to pay a risk premium in the capacity of a depositor, you are riskier which means you pay that risk premium which means your overall rate you take the same deposit that if you compare to a commercial bank will be much higher. This is why CBN in her wisdom, realised that MFBs faces peculiar situations so there is no peg, no rates, and no regulations as to what they can charge. The only thing is moral suasion that at least let your lending rate not be too high. What the MFBs are trying to do is to have a very effective savings mobilisation drive so that they can also get some form of savings and create some form of cheap funds.
Still on the bank, the bank got CPP certified. What is the implication of this for your customers?
CPP means Customer Protection Principle which means you undergo a very rigorous evaluation for example, when you are certified, it means your lending rate is regulated and some aspect of it should not be more than 2.5 per cent a month. If you take your time to go through this CPP it means that you cannot charge your customers more than 2.5 per cent per month in some areas of lending.
So in essence, what you are saying is that your customers are enjoying 2.5 per cent per month?
Yes in the banking side. In lending in the banking side, they do enjoy 2.5 per cent. Every two years, they come back to look at it and if they find out that you are not doing it, they will yank the certificate from you so it’s something that we want to guard jealously because to our foreign partners and investors, it shows that we are very serious to having gone through the system. We are the only one in Nigeria and the first in West Africa, second in the whole of Africa and 16th in the whole world. That’s to show you that it’s not something we take very lightly. It’s a form of guarantee and contract with our customers that spells transparency that what you see is what you get, no other hidden charges.
What do you mean by on the banking side?
Yes we also have what we call the co-operative. It’s like an NGO/MFI. What we do there is to use group lending, we put the people mostly women in groups and lend to them so the CPP is outside of that. CPP is applicable when you are lending to individuals and SMEs.
Let’s take a look at the industry with so many competitions. How do you operate to stay afloat and remain relevant?
The thing is to have a vision, the vision drives the strategy. There must be a clear cut vision of what you want to do, matters you want to address and so on. Also, being strategically focused has kept us right there in the forefront. Like you said, there are many players in this field. We know the real competition because there could be a 1000 micro finance banks but most of them are unit micro finance bank where the capital is just N20 million which will go almost to running cost. When you buy a car, buy computer sets and pay rent for the building what will be left of the N20 million is not enough to do much empowerment.
So you have to be really capitalised to be a big player in this market and there are very few of them. Anyway, with the oversight of the board and competent staff, you can always keep up with the competition.
As a publicly quoted company, what should investors look forward to from the financial year that just ended in view of your previous year’s achievements?
Investors like to see a constituted growth pattern whether its profit or revenue and other basic indicators and that is exactly what they will see. We have been growing consistently every year. The fiscal year that ended December 31, 2016 will be no different despite that we all agreed that 2016 was a very bad year for businesses; still we were able to reflect a marginal increase across the board.
Should they expect dividends for last year?
Well, that is a board and shareholders decision. I cannot speak for them.
How would you assess the capacity and technical skill of micro financing in Nigeria right now?
It has been the bane of the growth of the industry that the skills required for it are lacking whether at management and supervisory level. Microfinance banking is a specialised field of banking and until people realise that and acquire the relevant skills in that sector, they will continue to make mistakes. They are looking at it like a mini commercial banking and running it as one but that can only lead to failure. You are dealing with people some of whom have never opened account with any bank for the first time, mostly financially illiterates and educationally backward. These are some of the things that confront MFBs and if you do not know how to solve some of them then it will distract you.
Do you have any form of empowerment like skill acquisition?
Yes the CBN has helped to bring us in by subsidising what is called the Microfinance certification programme (MCP) where all the top management staff must go and take an exam which comes at two levels to become a micro finance certified practitioner. CBN was paying the money for the certification but stopped last year when they felt that they’ve trained enough. On their own, MFBs have been organising trainings for their staff to enhance their capacity. We also go for foreign trainings and sometimes invite our foreign partners over for training.