Microfinance banks (MfBs) have the capacity to reduce poverty because of their reach, says an operator, Dr. Godwin Nwabunka. But they can only do so with banks’ support, argues Nwabunka, Managing Director of Grooming Centre, a microfinance bank. Women too, he notes, in this interview with Seyi Odewale, should be financially empowered “to change the face of poverty”.
What is your assessment of the microfinance sub-sector of the financial services industry?
Microfinance by definition and according to Prof. Muhammad Yunus, the pioneer of modern day microfinance, is banking for the poor; making financial products accessible to the poorest of the poor within the society. That is the essence of microfinance. And if you are doing that, you have to look at the methodology that fits the group of people we call the poor. And by international standard, the poor are those, who live below the poverty line. And when we talk about the poorest of the poor, we are talking about those who live below one dollar a day. We equally have those who live below two dollars a day.
And if you look at the standard figure of Nigeria, about 70 per cent live below poverty line, 90 per cent live below $2 a day. And when you want to look at the methodology that works, you have to look at the one that fits this category of people and that is the one that is lacking. Worldwide, microfinance is being looked at as the solution to poverty. It is not the only one, but it is one of the ways through which we can reduce poverty, if it is integrated with all other interventions.
But we need to look at what fits our environment. How do we ensure that the poor is lifted away from poverty? We are not saying lifting into affluence, it could happen, but the poor should be able to provide the basic amenities for himself and his immediate family. That is the essence of microfinance. It is to help economically active poor to be able to rise above poverty. It is a sin for somebody to wish to work and not be able to feed. A person that works should be able to feed his or her family.
So, methodology differs and approaches are not the same. The problem with Nigeria is very clear. Microfinance did not start as microfinance. The Central Bank of Nigeria (CBN) more or less arm-twisted the community banks into becoming microfinance banks. In the past, we have had a lot of interventions from the financial sector as related to poverty. We had the rural banks, we had the People’s Bank, we had the Community Banks, now we have Microfinance Banks. Microfinance Bank is attracting attention because of the discovery by the United Nations (UN) that microfinance banks are veritable tools to poverty alleviation. So, we had micro-credit summit in 2005 supporting and encouraging nations to imbibe the culture of using microfinance to provide for the poor.
The problem in Nigeria is: Are we really practicing microfinance the way it should be done? Microfinance is the total opposite of commercial banking. It is not retail banking. It is actually taking banking services to the poor wherever they may be. If we look at the content of what you get from the poor, you will see that they are little. The poor are disenfranchised; they are unhappy because of the burden nature has placed on them. They are hard working and they are struggling every day. And when you look at all these, you just have to think of how to approach them in the positive manner.
What is happening to the sub-sector?
We are making a lot of efforts in Nigeria, but it is just because our approach and processes are not actually what they should be. We need to learn from best practices from other climes, including successful unsuccessful ones. We should know what made them successful or otherwise and now transfer the knowledge to how we run. In Grooming Centre, our methodology is not new; it is called ASA methodology. We borrowed it from Bangladesh and that is the fastest growing microfinance bank in the world today. They have over 3,600 branches, so we borrowed their methodology. We did not adopt it hook, line and sinker; we domesticated it to suit our cultural background.
The methodology is simple: it is accounting for non accountant; keeping records in the simplest format; running microfinance at the least cost both to the organisation and the clients and ensuring that you get the money to them in bits and pieces based on their capacity. You then ask them to pay back in bits and pieces, not them leaving their wares or shops to pay back. But we go to them to collect it in a holistic manner, ensuring that they have the group methodology (form groups), which is very important to Africans.
So, microfinance is not new to us. What is new is the modern way of doing it; the concept has been part of us. So, people of like minds come together, when they come they decide how they will operate. In other parts of the world, when they come together, they get the loan in bulk and decide how they are going to share it. But that one is laden with a lot of problems, because a powerful member can decide to take it all. That is not what we do in Grooming Centre, we deal directly with every member, but they enjoy group dynamics. It is a non-collateralised loan, because the poor has nothing to present as collateral. All we just need to know is that the person is economically active. Our collateral is based on social aspect of life. Others believe that Nigerians are bad people, but we know that we are good people; hardworking people. So, when you have people that are hard working, they will like to protect their family name and will not want to do anything that would tarnish that name.
Your loans are not tied to any collateral. How do you ensure repayment?
Even in commercial banks where they tie everything to collateral, people still bolt away with their money. A commercial bank would celebrate if it can recover about 70 per cent of the loans it gives out. For us in Grooming, we are always operating on 99.5 per cent.
And what if it happens?
As we speak, we are going through international rating and such rating is comparing our organisation with international microfinance institutions in the world by looking at our performance and our social responsibility. Social is what you have just asked. We have actually gone beyond performance and social, and we are looking at certification. It means, how well do our clients perceive us? Our integrity and perception of the clients are important to our operation. There are standards for these; we call them smart principle, some call them clients’ protection principle. Every microfinance institution must follow clients’ protection principle and these are: put product that fits the needs of your clients; treat clients fairly in such a way that they would be happy to be with you and you will be happy to be with them. The fact that they are poor does not mean that they are bad. You should ensure that your workers treat your clients with integrity and finally, there must be transparency in costs, that is no hidden costs in the course of transaction. These are the things we do in Grooming that made us to go for certification. As we speak, that is why we have one of the four international rating bodies from the United States (U.S) coming around to rate us.
But how would they do their assessment since they are not resident in the country?
They are there on the field talking to our clients, looking at their books and asking for their opinions. And that is what we do here too. We have a toll free line for our clients to call us to lodge whatever complaints they have. If you look at our organogram, you will see that the assembly (the customers) is stronger than the board. They are the ones we are serving.
Women appear to constitute the bulk of your clients. Why is it so?
The simple reason is the background that we are coming from. We have the UNs’ background. I had a very broad background at the United Nations’ Development Programme (UNDP) where we dealt with issues of poverty, private sector development, offering informal support to all those life sustainable issues. Then we moved over to United Nations Children Education Fund (UNICEF), where the emphasis changed to children rights, women rights, right to good development and right to participate. So, we are looking at two broad areas. One is purely economic in terms of focus. Then the focus on child development. Like I said, there were issues such as why is a child, who is ripe for school, not in school? Why would people want to live in an environment that is not clean? These bother on water, sanitation and other issues up to political empowerment. Why would people want to sell their votes?
So, if you want to move development forward, you must balance both the economic and social factors. And if you want to deal with those social factors such as the rights of children and women, you must empower families so that they can put their children in schools, pay hospital bills and provide the right environment for them to grow. So, we decided to pursue that because while at the UN, I was the team leader for the small, medium enterprises (SMEs) sector and sustainable livelihood.
So, if you look at the issue of women, you would see that the face of poverty is that of a woman. That is why we have women as majority of our clients. And there is this saying that when you feed a woman, you feed the nation. If you look at the statistics of poverty, women are largely affected than men. And then, we discover that it is difficult for a man to manage small credit. If you are seriously looking at the issue of poverty, you have to seriously support women so that household poverty would be reduced. That is why we focus more on women.
When you go to banks, how many women do commercial banks give loans to? When you give a loan to a woman, you will see it reflected in the children. In Africa, we know that when the children are educated, the possibility of the family moving out of poverty is very high. So, when you empower a woman, you are likely to see the children develop appropriately, go to school and gradually fit into the larger society.
What is the interest rate regime like in microfinance?
Initially, people thought microfinance should be done to fund those we should pity, because they are poor; that we should give them pittance and not helping them to get out of poverty. That is not how to help the poor out of poverty. We should actually work to attract commercial funding, but in a situation whereby we have 70 per cent of 170 million of Nigerians living below poverty, how much grants will reach the 170 millions in a way that will make them to be out of poverty? The only way you can help them get out of poverty is to ensure that commercial funds come in. Microfinance has erased poverty. One rich person can constructively support 600 people and bring them out of poverty, if done appropriately.
So, all of us here came from the UN background and we know what grant is all about. Grant can never be enough to solve the problem of poverty. Grant is a catalytic approach. It is unfortunate that most of our microfinance banks are looking for grants and soft loans. Since we started in 2006, we have not received one single grant and we will not receive grants. We would rather opt for commercial funds. That is to tell Nigerians that we can run with commercial funds and improve the livelihood of people more, because we have a pool of funds to work with.
How do you source funds?
That is one area our people in this country have not latched upon. Mr Alex Nnamidi Enyimah represents us at the African Microfinance Transparency. But the problem with other microfinance organisations in the country is that they don’t network. Microfinance is a big industry globally and we have various networks. What they require from you are transparency and accountability, and the fact that you are serving the niche that you claim to be serving. Then, keep your record appropriately and do it in an open manner. That is what the international world wants and we source our funds from international market. We are praying and hoping that, although this may be another discussion for another time, our commercial banks would see that funds draining from microfinance institutions will be kept within Nigeria and give jobs to the jobless.
There is a group called Microfinance Vehicles; they are all over the world. They understand microfinance than we do. We have them in Switzerland, Holland, Luxemburg, Germany and America. They actually support microfinance anywhere even if you have just been in existence for three years and you have transparent records, good management system and they are comfortable with you. They give non collateralised loans, but what you need to do is to be internationally rated. This is our third international rating in almost 10 years of operation. They will come in to rate you, do their due diligence, and it will interest you that when they come for due diligence, they usually come with young men of about 24 years of age, who will just come and check through your books.
We have knocked on the doors of banks in this country, the only thing we hear is that ‘come and lodge your deposits with us before we start talking’. They are not seeing the advantage and the value they can add to microfinance. They rather prefer to do business with oil and gas companies and give loans to the same cycle of people and this is not benefitting humanity. And what is it that a Nigerian bank is looking for that we cannot provide when the World Bank and International Finance Corporation (IFC) are lending money to Grooming, yet a commercial bank in this country has not seen us qualified enough for a loan? We have loans with IFC, Blue Orchard, even Norwegian Microfinance institutions. All of them give us loans.
Would you say banking is being done the way it should?
We are developing and that is why a lot of interventions from the Central Bank are going to bring positive result. In the sense that when the commercial banks do not see free funds that they used to feed on any longer, then it will be easy for them to support SMEs to grow. And as those ones are growing, they will be making returns and that will help the growth of the bank. Oil and gas, though is a blessing, but they have brought their negative impact.
Are the banks also not finding things easy?
Yes, if it continues like that then it will benefit the masses. You will see a lot of commercial banks trying to change their methodology, processes and approaches.
Talking about SMEs, how far have you been able to support them?
The financial pyramid is triangular in nature. We have the few very rich at the top; talking about the Dangotes, Otedolas, Otundekos and the others. Then you have the middle class, which include the working class, while the third angle is the broad base, which is the masses, who constitute the poorest of the poor. It is now left to you as a microfinance institution to determine which of these categories you want to relate with more. For us, we like to pick where people don’t go to and to whom much is given, much is expected. Our team has worked with the UN and I, as the chief executive officer, has worked both with UNDP and UNICEF for upward of 20 years, while the executive director was with the UNICEF for upward of 14 years. The programme director has always worked with the UNICEF for upward of nine years. So, all of us have seen best practices worldwide and we know what works.
When you know what works, then it is easy to be in Grooming, leaving ones comfort zones to sacrifice for ones country. It will be interesting to know where we started. We started from one small enclave down the road. We started with four credit staff and one branch manager; that was December 2006. Today, we are in 400 places, we have over 2000 members of staff and we are in 23 states of the federation. In Lagos alone, we are in over 40 places. We have our presence in the southwest, southeast and the middle-belt; that is what microfinance can do. It creates jobs for young school leavers; it creates jobs for the poor. For SMEs, that is not our niche, our niche is to create opportunities for the poor to move away from poverty and graduate into SMEs. But that does not mean that we are not supporting SMEs.
