“The Central Bank of Nigeria (CBN)’s recapitalisation requirement is a necessary evil in the Microfinance Bank (MFB) sector that will enhance corporate governance in MfBs,” according to Gaëtan Debuchy, Managing Director, Advans La Fayette MFB. Among other sundry issues, he added that any MFB that complies with the new minimum capital requirement would ultimately benefit the customers.
Debuchy made this known in an interview with BizWatch Nigeria at the launch of Advans Boost, an educational loan product comprising Advans School Boost, Advans Eduloan, and Advans Kiddies held recently in Lagos.
See excerpts of the interview below:
The Central Bank of Nigeria had in March 2019 reviewed the recapitalisation requirement for Microfinance Banks in Nigeria. How compliant is Advans La Fayette to the recapitalisation mandate?
Yes, we are in line with the new minimum capital requirements. We did a capital increase two months ago. We are fully compliant with the national license requirements. Of course, we are waiting for the CBN approval, but we have complied.
The National Association of Microfinance Banks asked CBN to extend the recapitalisation deadline and or reconsider its minimum capital requirement for the banks. If the CBN does not extend the period or revise the capital requirement, what impact would this have on the sector?
If the CBN does not extend the deadline, there are two possibilities for operators. The first option is that some MFBs will have to scale down. If you cannot meet up as tier 1, which is N200m, you drop to Tier 2, which is N50m and as State MFB, if you cannot meet up with the new recapitalisation of N1bn; you drop to N200m as Tier 1. The same applies to national MFBs. The other option for operators who are not able to meet up with the recapitalisation exercise is merger and acquisition. However, I think the National Association of Microfinance Banks is in the best position to answer that question.
If some of the Microfinance Banks, as you said, move to the lower cadre, what impact would it have on the economy and on businesses, especially businesses that depend on the MFBs?
I think it’s a key priority to have a very strong and powerful Microfinance Industry in Nigeria. It’s a bitter pill that we need to swallow but is fundamental for the industry’s growth. Microfinance banks have an important role to play in fostering sustainable financial improvement in Nigeria for rural transformation and the empowerment of rural dwellers, as well as alleviating poverty and aiding financial inclusion among the economically active poor. Microfinance is also necessary and useful to support the growth and development of MSMEs. For this to happen, MFB’s need to be financially solid to deliver quality customer service.
In the spirit of financial inclusion, what measures has Advans La Fayette Microfinance Bank taken to reach the unbanked in Nigeria?
This is an important topic for us at Advans La Fayette Microfinance Bank. Recently, we conducted a client survey and found out that 45 per cent of our new clients are from the unbanked.
As part of our strategy to reach out to the unbanked more effectively, we introduced a product called Advans 48 – a quick loan of up to N750,000 in less than 48 hours to address the pain point for many people in the middle and lower economic class, particularly the underserved to grow their businesses.
In addition, we also reached out to the unbanked in Nigeria through our mobile banking app – ADSPIRE by ADVANS; Agent banking and continuous branch network expansion. We are working towards providing an offering for the agricultural sector in the rural settlements as well as developing new products for the rural sector, where we have more of the unbanked.
It seems easier and faster to get loans from digital lenders because they have drastically reduced the bottlenecks and requirements for taking loans. How is your bank handling the competition from them?
In every industry, competition should be healthy, and we strive to be competitive in our offerings. Although we do not precisely serve similar clients as the digital lenders, they push us to do more in digital product development and processes.
Advans La Fayette MFB is more focused on growing businesses. We focus on people who run businesses; for this type of loan, there is a need for physical inspection. Hence, I think we are not totally in competition with the digital lenders, but as mentioned earlier, the fintech companies/digital lenders push us to do more.
For instance, last year we launched a digital product for our clients to be able to renew automatically when they visit any of our branches. Even if the loan amount increases, they do not need to add some collateral to access this new loan.
Speaking of loan recovery, what systems and measures do you have in place to ensure that your clients pay back their loans?
Today, the risk cost at Advans La Fayette is about 3 per cent, meaning the percentage of clients on default is 3 per cent. This is a positive indicator that we are good at what we do. We are professionals and experts in microfinance banking globally. Like most MFBs, we do a lot of loan recovery, but our recovery team is very efficient and effective. Our Recovery starts after 30 days of tenure expiration with various teams for, after 30 days, 90 days and 180 days, respectively. We prioritise respect for our clients and show this in our recovery processes.
MFBs appear to charge high-interest rates on loans, compared to commercial banks. Don’t you think it is discouraging for borrowers?
We have to compare what is comparable. The comparison of MFB rates with the rates charged by commercial banks is inappropriate. The two main points to explain our interest rate: Firstly, our cost of funding is totally different and more expensive compared to a commercial bank. Secondly, our cost of risk is higher because our mission is to provide financial services to people more fragile.
We may be higher on the interest rate, but we are better on the collateral requirement because we are more flexible and also faster. This is why at Advans La Fayette, our rates are fair and competitive. We have no hidden fees or charges. We are transparent, and our clients know this.
What African countries have you been to? Is Nigeria your first?
No, Nigeria is not the first African country have visited. I was in Senegal before I came to Nigeria. I spent seven years in Senegal. I come from the commercial banking industry. And before Senegal, I was in France. Nigeria is my second African country but my first Anglophone country.
You have been in Nigeria for three years. How would you describe the experience?
Yes, three years. It has been an amazing experience so far. I really like it here. I like my work here, and I really like to work with Nigerians. And it’s not just the work, the Nigerian mindset is impressive and motivating. I appreciate a lot of work being done in this country with the Nigerian team, and I learn a lot from my staff. It’s something that I appreciate a lot. Like the other countries in the world, Nigeria has its challenges, but we are committed and are here to help our customers.
What are your customer and financial projections for the next two to five years?
That’s a big question. This year we planned to open several new branches and are working towards finishing the year with an N18 billion loan portfolio and N6 billion savings deposit portfolio. We also expect to have 800 workers at the end of this year.
On network expansion, our plan, since 2021 is to open about 7 to 12 branches annually. This year we will open 3 branches in the South-east i.e. Onitsha and Aba very soon and will continue to consolidate Lagos and the South-west region. I can tell you that we have a strong expansion plan, a strong group, and a strong workforce. We will keep expanding in a sustainable manner. We must keep growing and at the same time, continue to maintain strong KPIs.