In this interview, the Managing Director NPF Microfinance Bank Plc, Mr. Akinwunmi Lawal, advised financial institutions not to take advantage of competition to lose guard by giving reckless loan to customers.
Excerpt:
What are your assessments of digital banks who are strong competitors to the MfBs?
Take it from me, Information Technology; IT, has further enhanced financial inclusion. Through these, a number of people are now financially included, with this they can effect financial transactions on their phones, open an account without visiting the banking hall.
These are strong value addition and financial literacy has actually improved around us when it comes to credit creation or trying to give loans and advances to these customers. A lot of due diligence is required to ensure that there is the capacity to repay. As a financial institution, we should also not create a situation where because of competitiveness, you drop your guards and give out credit facility aimlessly without doing due diligence of the person capacity and capability to service the loan and make that loan good.
We should not be reckless, but do things conservatively by ensuring that customers are well profiled to ascertain that they have the capability to deploy the money profitably and to service the loan and make it good. What goes round comes round, by the time you create an atmosphere of what we can call serial borrower, where you borrow from every institution in the ecosystem, the loans would in no time turn to bad loan and when it turns to bad loan it will kill the institution and eventually it will rub off on members of the public because funds in the banks are owned by people and by the time the institution goes into extinction, they will lose their money.
IT and fintech has strengthened and improved financial inclusion, a number of people are now financial literates. When it comes to advancing facility I think we need to be extremely careful so we do not create a situation where we have allowed some people to be getting to a point where they cannot meet their obligation. Some people just borrow for consumption; you must have an expectation and a means where you would be willing to put that money into productive capacity. How to pay back must be a factor that each institution must put in a strong credit appraisal system to ensure that if we have that in house facility that we are granting to customer they should have that capacity to pay.
What is the impact of the economic crisis on customers deposit in recent times?
Basically, we all know that purchasing power is weak generally in the economy. I have always been an advocacy that everybody needs money but not everybody can manage it, I won’t just give money simply because you say you need money, it must be your ability to engage the money into productive system. These are the things we evaluate, we do an evaluation to ensure that you have the capacity to translate this money to economic value, that is, you have the capacity to invest the money profitably and make income out of it and the payback the money.
These are evaluated to ensure that you have that capacity. Because of high cost of living, inflation has weakened the purchasing power and then people take home pay can no longer take them far, so you have to prioritize and see what is most essential to you in determining, the value of money as is fast depreciating by the day, so it’s just for you to prioritize your spending and then cut off all form of exclusive things that might affect your disposable income badly. Even organization like ours, have been trying to see how possible we can manage our cost. People are thinking we are adopting alternative energy in terms of solar such that it’s cheaper in the long run but in the short run it involves a lot of capital outlay but when you evaluate it over a particular period of time, you see that it may be much more cost effective, it also makes the environment more friendly and as against burning diesel which entails carbon monoxide in the environment. Organization have to look at things that will be cost effective in the in the long run.
How do you assess borrowing capacity and repayment capacity presently?
In the first instance you don’t give somebody money that is too small to do his business and don’t give him too much. A proper profiling, proper looking at your sales capacity, ability to market the product and translate it into revenue is key in determining your survival in the ecosystem.
What is the level of investment in IT to ensure effective service delivery?
There is no two ways about it, today it is information technology and fintech that can drive your business and you have to grow the number when you grow the numbers the profit will definitely come because it is through the number that you are growing that those fee income no matter how small it is, it is the number that can make you recover your costs. With information technology with the social media platform we’re actually growing the number induced by the day and a number of people have embraced the various platforms, the USSD platform the mobile app platform in opening accounts and then in running creative activities. Banking is about service, so in as much as you can provide that service delivery effectively and efficiently, definitely the income would trickle in and cover your cost effectively and some reasonable margin for your stakeholders.
What about the A- and BBB+ rating your bank bagged recently?
For any institutions that is worth it soil, will want to know its value and perception. And then professionally, for stakeholders generally to understand the bank standing in the eyes of the public, you have institution specifically designed to cut out or to look at institutions and grade them and this is a general application to all stakeholders and investors all over the world. So when you score A- which is what we had from Augusto, Triple B+ from GCR and these are investment grade and for Microfinance Bank to have attained that level it shows that the MfB is solid, well managed and has capacity to honor its obligation at anytime.
Invariably what it means is that having subjected ourselves to these ratings that means investors all over the world will have confidence and believe that that this is an institution they can entrust their money with and go back to sleep. All parameters, all economic indices that makes an organization to stand the taste of time this institution had passed it, so investors can put their money. In the financial industry you can’t have enough money because the raw materials for production is the amount of money, so our source of finance and funding will improve because we can raise funds in the capital market and the money market and institutions will be willing because institutions that have the competency to rate, have certified our standing in the ecosystem.
The primary purpose is for us to present ourselves to the investment world to the investing public to all stakeholders that this is the position of this organization in the ecosystem in spite of all the challenges. We will not stop at that because there are other higher ratings which we are striving to attain and this will come about by the quality of people that we attract in terms of investment into the organization.
What is the bank doing to sustain the achievement while aiming higher?
Truth is that you have to choose your risk, that means you have to ensure that the quality of your asset get stronger, you have to ensure that you grow your asset base, liability based and your capital base, these are things that will enhance the value. If you have a low risk asset, your loans and advances that you have given to customer is of no risk. High risk means that the tendency of people to repay is low. But low risk means that the repayment of people apt and optimal. So our Non Performing Loan NPL is been brought down, by industry standard it’s five percent, by the threshold in the bank itself, the bank standard is three percent. Our strive is not is not by industry standard but by the bank threshold to go below three percent in terms of our NPL asset. If you have attained that, it means your quality of assets is great. Then the attraction that depositors coming in, our deposit liability will increase, by the time we translate that to profitability our return on asset or dividend payout to our shareholders will go high and our retained earnings will also go up. All these are factors that the stronger it is the more we improve on that the better the rating which means we would be able to grade from this A- to AA and from triple B we can move to A as official investment rating. So we aim to do much better in our next rating.
How do you assess the judgment that NPF is basically a Police bank?
NPF Microfinance Bank Plc as the name implies is a Public Liability Company in the Stock market and her shares are open to the public and not to the officers and men of Nigeria Police Force alone. It’s a complete business enterprise that is out to give unique financial services to the Nigerian public. Our opening of branches is not confined to police environment, we are in market places. We are on Facebook and Instagram, we have expanded our reach-out on the social media platforms for people to know. Most importantly, our account opening model is also very apt through our USSD. We are open to the general public as well as our primary constituency which we are also guiding jealously the police institution, so is a mass thing of telling the whole world what we represent.
What informed the decision to raise fund through public offer from the capital market?
We concluded that way back February and it was successful, it was actually 105 percent over subscribed. For the over subscription the money were returned to those ones we were unable to allot as a result of over subscription. The money was returned to the subscribers. We have adopted that in our book, we’ve been able to grow our capital base from N5.8 billion to about N10.8 billion as a result. We are able to rake in as much as N5 billion from the capitalization, it was actually a success and by all standards we are adequately capitalized more than. For a National MfB the capitalization level is N5 billion but we are over N10 billion, about N10.8 billion. We are over capitalized for the sub sector we have been. We have a dream and that dream is that in the next three years by 2024 we want to transform to a deposit money bank DMB. It is part of the growth mission towards raising a N25 billion capitalization for a DMB. But the threshold of a MfB we are well capitalized. Why we want to recapitalize is to achieve three major things: to improve on our information technology; increase our branch network and increase our working capital.
Despite insecurity in some part of the north, the bank recently expanded by opening branches in such areas?
The Bank, in her quest to serve the public has opened branches in many States with about 32 branches and still planning to open more. The recent branch was open in Borno State where the Governor was so excited and encourage people to come out and patronize NPF Microfinance Bank Plc. Banking service would give the people a sense of belonging and I think much is being done to ensure that peace return to all those area. Whichever way you look at it they are Nigerians, they are human being and they also need financial services. To encourage people to come and serve, the governor of the state made a pronouncement of N100 million, N50 million to be deposited in the bank, N30 million to give loan to deceased police officers; N25 million as scholarship or award to children of deceased officers.
