The Regional Head, North, Transkredit Finance Company Limited, a subsidiary of Norrenberger Financial Group, Mr. Akeem Alao, in this interview speaks on consumer lending and other sundry economic issues. Goddy Egene presents the excerpts:
How will you assess the business operating environment in the first month of 2021 as it affects the consumer lending industry?
The general consumer is usually low on cash based on the yuletide celebrations/end of the year festivities from the closing month of 2020. The first quarter of the year is always a period of replenishment of one’s financial resources based on the aforementioned activities. There has been an uptake in loan requests based on planned projects, cash deficiency and need to meet urgent cash commitments- school fees, rent, replenishment of provisions et al. However, customers’ access to such financial support will be restricted by capacity and ability to repay, as post Covid-19 implications – rise in inflation and lull in the economy; has reduced customer’s earning power.
Generally, how will you rate consumer lending in Nigeria?
We believe it is evolving with fintech a prominent feature of the value propositions posited by various lending houses. The 18–45-year demographic especially are in tune with access to various financial options through mobile apps and USSD supported platforms, which is based on the premise of prompt turnaround time, reduction in documentation and ease of accessibility. There is also a growing support for SMES with business loans to support short term goals of these sector, as well as hybrid of investment and loan products which will aid a savings culture and give an avenue for a client to tap into a lending phase as the case arises.
Given the rising inflation that crossed 18 per cent in March 2021, how is this affecting demand for consumer lending?
The effect is twofold. While there is an increase in requests from both the MSME/retail entities based on need to supplement working commitments, there is a strain on their capacity to repay based on the uncertainty of how their futuristic cash flows will turn out during these uncertain economic times (COVID 19 a major factor) and reduction in regularity of demand from the lower income cadre. Salary earners’ purchasing power is also restricted leading to increased level of borrowing against the same level of remuneration which is being stretched. However, consumer lending houses are pushing strategic ways of managing their pricing to accommodate the market in order not to over burden clientele’s repayment expectations.
What are the major challenges operators in the sector are facing and what has been your personal experience?
The challenges include customer’s credit history, pricing regime to accommodate reduced earning power, stability of client’s employment status and cannibalisation of products. Due to the Covid 19 influenced economic lull, there was a sporadic increase in job loss and reduction in income, leading to loan defaults and restructure.
Operators have started coming up with stronger mitigants and processes which might be too stringent for the market. Based on our own experiences, we have come up with internal measures which will protect both the firm and the clientele such as insurance cover, flexibility of payment mode and availability of longer loan tenors to accommodate the client’s stretched cash flows Cybercrime is also on the rise and operators are investing a lot of capital in IT infrastructure to prevent fraud and loss and income.
It is believed that SME is the engine room of any economy that really wants to grow but one of the major challenges is funding. How can consumer lenders contribute to the growth of SMEs?
Access to finance is a key constraint to SME growth, it is one of the most cited obstacles facing SMEs to grow their businesses in emerging markets and developing countries. Accessible and cheap funding is required to increase business which will improve employment, enhance economic growth, and reduce poverty rates. Consumer lenders should ensure an availability of finance options that will be (a) accessible (b) negotiable (c) capacity building (d) offer a myriad of alternative options – purchase of a stake in a firm, finance of acquisition, loan administration etc.
How has the advent of Fintech affected the operations of consumer lenders and how do you think traditional lenders who used to render this service, responding to this development?
Fintech has pushed consumer lenders to evolve, as the retail/MSME/SME market are inundated with innovations daily tendered to improve access to services with minimum restrictions. Firms in the consumer lending space must employ FinTech, or they enter business regression, with the millennials and the tech savvy generation forming the bulk of potential clientele.
What has been the experience of your firm and what are you doing differently that sets you apart?
As a new entrant into the lending space, the experience of the firm has been illuminating as we have learned that interaction and receipt of customer feedback forms the bedrock of the value propositions, we wish to sell. Our niche is the availability of product mix, transparency of processes, social media interaction, visibility on various awareness platforms and a full-service offering to clients looking for financial support and/or investment growth.
Since when have you been in the business and what value have you added to your clients?
We have been in the business for close to a year. The key value proposition to our clientele is cross selling of services vis-à-vis loan creation, loan administration, advisory services (equity and direct investment in a client’s business) and a variety of investment options centred on maximising customer returns, which is aid by continuous technological improvements.
How do you hope to boost your operations going forward?
We are focusing on technology automation. That is to have applications that allow customers to make transactions or obtain information on a self-service basis without requiring employee efforts, to use technology to reduce the time employees spend on finding information; and to use automated business rules and decision models to move work more quickly and efficiently through processes. We are also focusing on process improvement which involves continual performance monitoring by having the right manpower that are professional at the various positions.
There will be increased interaction with existing and potential clients (social media, webinars, sponsored symposiums) and corporate social responsibility.
How has COVID-19 pandemic impacted consumer lending generally and what strategies should be in place to minimise the negative impact?
The coronavirus (Covid-19) outbreak is causing a widespread concern and economic hardship for consumers, businesses, and communities around the globe since job losses are on the increase and most cannot meet up to their financial obligations. Every business concern must place emphasis on maximising productivity while limiting cost and health risk e.g delivery services, web-based meetings, work flex schedules for workers etc. Basically, strategies to be put in place by consumer lending firms include: flexibility of products; accessibility to services – web and mobile ; automation of processes; hybrid of products- investing to obtain a loan; seeking cheaper sources of funds to facilitate cheaper pricing (bonds, equity, foreign direct investment); boutique banking- More IT interface, less physical staff and business partnership with SMEs – profit sharing against interest/loan payments. Also transparency and professional service delivery must be top notch.
In general terms, what should be done to deepening consumer lending as a way of contributing to the nation’s economy?
New products that are consumer friendly should be developed, transparency in our process/service delivery must be improved; Technology must be deepened as soon as possible which offers virtual service options. There should be improvement in turn-around time(TAT), it should be a matter of minutes and not days. There should be support funding/intervention fund access by finance houses from Central Bank of Nigeria (CBN), Bank of Industry (BoI) and other government development finance institutions.
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