Zwinkels: Recapitalisation Will Create Stronger Microfinance Banks

The Chairman, Baobab Microfinance Bank, Mr. Bernardus Zwinkels, has thrown his weight behind moves by the Central Bank of Nigeria to recapitalisation other finance institutions, particularly the microfinance banks in the country.
This, he believes will enthrone stronger microfinance banks. James Emejo presents the excerpts:

How long have you been in the microfinance business?

Since 1975, I have been very active in Africa and in the finance sector. I am now board member of AfrikInvest Group, a Pan – African Finance Sector group which is also investing in private equity and I am very active in operations in 25 countries. I also worked 30 years for FMO. I was much involved in creating banking institutions in Africa. I did at least 30 investments in Africa from Senegal to Madagascar. So in the period of all my career, I have learned how the financial sector operates and what can be done to improve the financial sector and for four years, I am also happy to be the chairman of Baobab Microfinance Bank in Nigeria.

What is your assessment of the growth of the microfinance sector in Nigeria?
It’s very encouraging. First of all, I love to be working in Nigeria in that respect. I really see the ambitions of the young generation of the people I serve. How ambitious and entrepreneurial they are and how respectful they are in doing business. You can have examples where some of the people have no respect for others but I think in general I feel very comfortable working in Nigeria with respect to how they cooperate and work and interact together. There is a lot of other countries I know in Africa but I really want to focus on Nigeria. I started by saying more than 30 years ago, I started by setting up private equity funds in Africa and also in Nigeria, to see how successful they were and how it impacted the economy. You see that what we tried to develop and what was successful was because of the human beings. The level of education and commitment really made it very interesting to work here in Nigeria.

Why is the microfinance so important to any economy?
Well, you know 30 years working for development finance institutions in the Netherlands. I think the financial sector in each country where you have a sound financial sector is really key to developing the country in general. Giving access to the poorest at the bottom of the pyramid but also financial support to companies small and bigger companies in order to really grow the economy.
Now, microfinance is specifically for the masses. For those living on small income per month, I don’t want to say one dollar per day, but at least that you can really grow this number of people who are living at that level that they can create revenues from the income. By focusing on these microfinance institutions, women and men and also in agric business and informal sector.

What are the greatest challenges to microfinance practice?
The biggest challenge how can we ensure that loans will be paid according to contract and agreements and also knowing the character and integrity of clients to meet loan obligations to guarantee sustainability.
If the client is not paying and we have big problems, then automatically you have to put so much effort to do recovery. And You must avoid recovery because it is time consuming and waste of time and our attention should really lie creating new products and new finance facilities for the clients.

Would you say the microfinance sector is over regulated?
Not at all. The fact is that when you are a deposit taking organisation, you use people’s money to lend and put it in a dynamic sector where you can really produce and develop businesses.
You need to do that in an orderly way, in a controlled way and also to take care that you take the right risks in order that the money can be repaid to the owners of the money. I see that in Nigeria, the Central Bank of Nigeria is very well organised, may be it is bureaucratic but I have totally no feeling that the CBN is not on top of the business.

They are really playing an important role in bringing sound financial institutions on a higher level. And you know it’s not easy running a financial institution, using the money of depositors but also using the money of international development finance institutions. You need to control yourself, you need to be very professional and efficient to run an organisation and to lend money to people who can comply with using the money in a correct way; bring business in the country, develop the business and also to create cash flow to repay the money in a correct way because of course that is integrity.

Integrity is the most important thing needed to sustain a business. Now, the central bank is stimulating it, controlling it and being very tough; but you know even in my organisation, I am demanding to be very tough in order to comply with our targets and our ambitions. The central bank must be very tough in order to ensure that the rules and regulations are implemented because that is the sustainability of the institution and if some of the institutions are not complying, and do wild things in order to enrich themselves, I think it’s not the right thing.

I have seen it, all the banks, what we have invested around the 1990s, if they respect of rules, respect the best performance in taking risks and also use the money in profitable and sustainable things then they are successful.
For example, I started this small banking in Ghana and I know the guy who helped us to bring the right technology, implement the right technology and now it’s one of the biggest banks. We have worked closely as FMO with Access Bank and Union Trust Bank and other banks in Nigeria and why the big banks here are successful is because of compliance.

Is this lax in corporate governance by microfinance operators a case which is peculiar to Nigeria alone?
It is widespread. You have in all countries, people who are short minded and they think of what is best for themselves: how they could give out loans to friends and family and in the long run the bank is collapsing. But you see it in Zimbabwe, you see it in Togo, you sometimes see it in Uganda and over excited banks in Kenya recently, because they are not taking control and implementing the rules very serious. In Baobab, we are emphasising the need to be very disciplined from top to down and also motivate the whole personnel. it is a wake-up call.

What is your reaction to the recent CBN directive for microfinance banks to recapitalise?
You know an economy can never accept a status quo, an economy has to grow and develop. When I started to live in Cameroon 1975, there was no internet and even no television and I was in control of 30 cooperative banks in a small bush which had no computer system. But nowadays, we have efficient computer system, we are growing in technology, we have mobile banking, internet banking. You know when mobile banking in Kenya is the only payment now and maybe no cash payment anymore. It’s part of the new world and we didn’t expect in this country that it will be growing so fast.

Look at Mpesa, which is the payment system in Kenya and now you also see that it’s coming up in Nigeria with international payment systems. You see that even in Francophone West Africa it’s now coming a little bit, they are behind but they are coming up. So you need to grow and if they asked for recapitalisation, it is also to safeguard the banking system and prevent microfinance banks from falling apart. It is really creating better buffers because we see and the central bank also sees that if we don’t do it, small banks can collapse because they make errors and it remains really a priority. It is to create strong buffers, increase capital especially in a year when the naira fell by more than 40 percent. I think it is very important to do that. Also, we have to show the investors who we requested to put money that we will take care of the money to make good returns because all the investors are only coming the monies kept and the returns are there.

How much have you given out as loans to your customers?
As at end of October this year, we had availed over 120,000 customers loans close to about N48 billion from inception. Presently, we have in our books over N7 billion outstanding loans and we have 22, 000 customers today who have loans with us. On the whole, we have close to 80,000 customers for both loans and those who have savings with us. But recently, we had introduced some applications that we think it’s going to drive this business and one of them is called Taka- it’s for small loans and we also have Alip, which is for automatic loan renewal.

When these come to full force, it means that we can do business elsewhere other than where we have mortar and brick. The company also introduced applications for transaction where you can make payments and you can receive money: it’s being tested now and it’s at the pilot stage. All these put together just means that we will be able to upscale the business and we will be able to render services to many more people even when we don’t have the branches. It’s a growing company and our intentions is to encourage financial inclusion and we believe that with technology and what we are doing we are going to get there. And I will also like to say that today likely see that Baobab will be the first digital microfinance bank in Nigeria. We are working very hard on the pilot that we are doing now and once it is confirmed and tested and okay, we will roll out I’m 2019 but not beyond 2019.

Compliance has always been a major issue in the microfinance business. What is the repayment rate in your bank?
Well, it is a difficult issue because the centre of our activities is opening of deposit and savings account and also a big part of microfinance and Baobab Group to give out loans to people to grow their lives, do the business, grow their revenues, to pay a little bit tax and for us, it is very important that we can judge, we call it compliance…testing the people in front of you by asking: are you able to borrow? Are you the person we can believe you have a good reputation, you come from good family and to lend you money? Are you punctually repaying? And that’s the question we really need to emphasis here.

The mentality in Holland is when you borrow, we will never fail to pay. Even you will not see that I have any financial debt here. We need also to train the people to say you want a good reputation and don’t want to be blacklisted, please repay and comply with your contract. And I think there is education, there’s training and it should also be in schools. A test should be set in training and gathering with clients and small borrowers and say listen, you can only survive or grow if you respect your engagement that when you borrow, you will also repay. And I think that’s what Baobab is doing, we want to expand and I think it’s key to success in the future.

On terms of rate of repayment for us you measure it in terms of portfolio at-risk and today as we speak, the central bank requires that your portfolio at-risk must not exceed five percent. For us, portfolio at risk for one day is. About four percent, for thirty days is less than two percent, for ninety days, it’s less than one percent. So, across board, we are operating in line with the central bank requirement and this means that most of our customers pay back as and when due.

What was the rationale for recently adopting another brand identity from Microcredit to Baobab?
Well, it is part of life that things remain changing. We belong to a group known as Baobab before it was Microcredit and I think it was a philosophy of saying we are not typically for micro credit businesses. We want to be in institutions for financial inclusion which is typically a new kind of judging and we can do businesses in the financial sector. But in trying to reach the masses, we have never been in the banking sector. And I think Microcredit was known for giving microcredit to poor people or unbanked people and I support it because we should not think about the poor at the bottom of the pyramid but we should think more about opportunities.

Nowadays, it is not about the poor, the young generation are well trained and educated and I think those younger generation we need to give them the right level. Baobab is a philosophy of growing in business and I think changing the name shows a way of saying we are not only for the micro finance but more for the masses, for the newly educated people to get bank accounts with a financial institution and see the opportunities. It’s part of the development of the human being.