Fintech Association of Nigeria (FinTechNGR) recently gathered experts in the Microfinance Bank sub-sector to discuss issues around impact of Coronavirus (COVID-19) and the ongoing process of recapitalization.
Participants expressed believe that every sector of the economies of the world is faced with unprecedented business and economic impacts of COVID-19 pandemic.
Although the impacts are diverse ranging from negative to positive, the experts identified that whereas there has been quantum jump in profits and net worth of some businesses operating in tech, medical, pharmaceutical, telecoms, logistics space while the sectors that serve the informal population and requires much physical presence such as financial institutions, entertainment industries, education and extraction based economy is the hardest hit.
Various measures are put in place by the regulators to salvage the economy. The Central bank has released several measures including the deferment of the deadline for re-capitalization by microfinance banks.
Experts in the microfinance industry such as the CEO, Page Financials, Segun Akintemi; MD/CEO, Edfin Microfinance Bank, Bunmi Lawson; CEO, Accion Microfinance, Taiwo Joda and the Chairman, National Association of Microfinance Bank, Lagos Chapter, Mojisola Garber, were brought together to look at the impacts of re-capitalization and the deferment of the deadline by the Central Bank of Nigeria.
Survival Strategies for MFBs in the face of COVID-19 Pandemic and Re-Capitalization
The discussants agree that:
COVID-19 & Microfinance Banks – The COVID-19 presents the microfinance Banks and businesses with an opportunity to re-align, recreate, and rebuild business models and operations.
Is Re-Capitalization Necessary – Yes, very necessary as it will help MFBs to absorb the COVID-19 induced risk and form a strong base for re-aligning, recreating and rebuilding business models and operations.
Effect of COVID-19 on Re-Capitalization – It raises investors’ requirements as an investment protective approach would be adopted by the Investors. This forces MFBs to look to explore traditional methods of raising capital such as equity and debt financing. Re-capitalization also helps balance the debt-equity ratio.
Impact of COVID-19 – It has caused macro-economic instability in the country coupled with a slower economic growth rate on an economy that is largely dominated by an informal sector.
This incapacitates the level of intervention or stimulus funds the government can inject into the economy.
It also comes with increased non-performing loans, customer repayment default, cyber risk and fraud, consumer protection, and regulatory compliance risks, health risk amongst others.
Mr. Joda said that Microfinance Banks must leverage technology/digital solutions with the approach of consumer-centricity that focuses on what the consumer wants; convenience, speed, accessibility, affordability, and security. Knowledge of customers is necessary to avoid over-digitization.
According to him, the millennial nature of the largest percentage of the population must also come to play in creating a digital platform.
Mr. Akintemi is also of the view that collaboration – must foster an industry approach to technology and solutions such that they are not owned but are shared for all players including MBFs, credit bureaus, regulators, etc.
“The collaboration needs to also entrench stronger ethical and corporate governance”, he said.
Lawson spoke passionately about specialization.
According to her, MFBs offering specific sector-focused services such as education – Edfin MFB, agriculture, power, etc. would provide a great mileage.
Garber pledged the Associations continued consumer education and awareness which are essential to encourage usage of the digital platform as most consumers still don’t trust digital, “they believe the platforms are not secured and reliable enough”.