‘Information gap hampers microfinance’s growth’

The Managing Director of Mainstreet Microfinance Bank, Adegoke Adegbami, has said information gap is a major challenge mitigating the growth of microfinance banks in Nigeria.
 
Adegbami, who spoke to The Guardian in Lagos, said regulators and many examiners in the sector are still using commercial bank orientation in managing microfinance banks’ operations in the country, which hinders their potential.

According to him, there is a need to go back to the definition of microfinance, as to what it means to the public, and how to provide financial services to the small and low income earners.

He charged government to support microfinance banks, as it will go a long way to improve their performance and reach to Nigerians, by improving their capital base to enable them give more loans.

It will also make loans accessible to small scale businesses in Nigeria.
 
Adegbami said when the banking culture of Nigerians improve, it will have an effect on the performance of microfinance banks in the country, as small scale businesses is now very low and need a lot of improvement.

He added that a lot of Nigerians are not yet fully aware of the functions of microfinance banks, and how they can participate effectively in the sector in such a way that they make positive impact on their businesses.

He said small scale businesses in Nigeria need to be made aware of the loans offered by microfinance banks so that they can benefit from them.
 
“The more Nigerians are made aware of the benefits of microfinance banks, the more they tend to participate in this form of banking. Awareness can be created using the media. This will promote the outreach of these banks,” he said.

“There were also people that lost their jobs in the commercial banks and saw microfinance as the natural alternative. Shortly before the meltdown, there was the banking consolidation in Nigeria. Consolidation reduced the number of commercial banks in Nigeria from 82 to about 25.

“Many people in the money deposit banking space lost their jobs in 2006 and 2007, due to reorganisation, rightsizing and downsizing, following the banking consolidation. The next thing was for those people to get jobs in the emerging microfinance space.

“The microfinance market operates on a different ideology and methodology. It is very dangerous to use the strict commercial bank knowledge and methodology to run a microfinance bank. The market is different.

“The people we are dealing with; their lifestyle and their needs are different from that of an average commercial bank customer. For instance, there was this belief that you can use the microfinance bank license to mobilise cheap deposit to either fund the micro credit programme or other businesses.

“The truth is that microfinance bank cannot become self-funding in the first two to three years. You are dealing with a net deficit section of the market and so you must get money to bring into that section of the market. Therefore, the knowledge gap was largely responsible for the failure of a number of microfinance banks,” he said.