CHALLENGES OF MARKETING CHALLENGES OF MARKETING AND FUNDS MOBILIZATION AND FUNDS MOBILIZATION IN MICROFINANCE BANKING IN MICROFINANCE BANKING

BUSINESSBUSINESSPresented to Participants at the

Workshop on Fund Sourcing and ManagementIn Microfinance Bank in Nigeria

ByIFEOMA C ANA(FCIB, ACA,ACIP)

(MD/CEO Elim Microfinance Bank)

Program objectiveProgram objective

At the end of this program, participants should At the end of this program, participants should be able to:be able to:

► Underscore the main sources of funding for Underscore the main sources of funding for microfinance banking in Nigeriamicrofinance banking in Nigeria

► Appreciate why they have Appreciate why they have problems/challenges in obtaining problems/challenges in obtaining appropriate funding for their institutionsappropriate funding for their institutions

►Decipher ways of overcoming the challenges Decipher ways of overcoming the challenges and become effectively and adequately and become effectively and adequately funded for their banksfunded for their banks

DEFINITION OF KEY DEFINITION OF KEY WORDSWORDS

►Marketing for FundsMarketing for FundsThis may be defined as all those efforts to reach This may be defined as all those efforts to reach

the targeted audience for different types of the targeted audience for different types of funding for microfinance banking operationsfunding for microfinance banking operations

► FundsFundsfunds, funds, money immediately available for money immediately available for

business and expected funds due but not business and expected funds due but not immediately available;immediately available;

► ChallengesChallengessomething that by its nature or character serves something that by its nature or character serves

as a call to battle, contest, special effort as a call to battle, contest, special effort

PREAMBLESPREAMBLES

From the program sub-themes, you have From the program sub-themes, you have already discussed the veritable sources of already discussed the veritable sources of funds for microfinance banking. I therefore funds for microfinance banking. I therefore believe that you have covered these key believe that you have covered these key sourcessources

► Equity fundsEquity funds►Quasi equity – convertible loans or equityQuasi equity – convertible loans or equity► Loan funds-Long and short termLoan funds-Long and short term►Microfinance development funds – local and Microfinance development funds – local and

internationalinternational►Deposit liabilities Deposit liabilities ►Other liabilities/assets fundsOther liabilities/assets funds

BRIEF HISTOLOGYBRIEF HISTOLOGY(Discussory)(Discussory)

►Microfinance banking policy in Nigeria Microfinance banking policy in Nigeria (the minimum capital issue)(the minimum capital issue)

►Promoters expectationsPromoters expectations►Federal government pronouncementsFederal government pronouncements►CBN moderating rolesCBN moderating roles►State governments interventionState governments intervention►The Smieies fundsThe Smieies funds

NIGERIAN PERCULIARITY NIGERIAN PERCULIARITY

► Inability to match action with wordsInability to match action with words► The bureaucratic slow downs in policy The bureaucratic slow downs in policy

implementationsimplementations► Personal interests over shadow national goalsPersonal interests over shadow national goals► Insincerity of the leadersInsincerity of the leaders► Corruption at every levelCorruption at every level► Mediocrity that undermines professionalismMediocrity that undermines professionalism► Lack of will to legislate conceived good Lack of will to legislate conceived good

policiespolicies

THE CHALLENGESTHE CHALLENGES

To enable us understand the To enable us understand the challenges, it was important for us to challenges, it was important for us to be refreshed with the foregone slides be refreshed with the foregone slides which are indeed our backgrounds. In which are indeed our backgrounds. In the following slides, we shall be the following slides, we shall be looking at the challenges in obtaining looking at the challenges in obtaining adequate funding for MFB operations adequate funding for MFB operations from the main sources of fundingfrom the main sources of funding

Five main categories of Funds Five main categories of Funds mobilization challengesmobilization challenges

►Equity and Quasi Equity mobilization Equity and Quasi Equity mobilization challengeschallenges

►Development funds mobilization Development funds mobilization challengeschallenges

►Deposit mobilization challengesDeposit mobilization challenges►Personnel challenges for funds Personnel challenges for funds

mobilizationmobilization►Assets conversion-the profitability and Assets conversion-the profitability and

profit retention angleprofit retention angle

EQUITY AND QUASI EQUITY EQUITY AND QUASI EQUITY CHALLENGESCHALLENGES

► Nigerians are too short sighted in investment Nigerians are too short sighted in investment decisions. They would not invest except they can decisions. They would not invest except they can turn around their investment in a very short period.turn around their investment in a very short period.

► The Elitist attitude of most Nigerians;- Hardly would The Elitist attitude of most Nigerians;- Hardly would any investor think about empowering the poor – any investor think about empowering the poor – even the poor themselves would rather invest in even the poor themselves would rather invest in mega banks than in micro banks.mega banks than in micro banks.

► Level of illiteracy even among the educated Level of illiteracy even among the educated regarding poverty alleviation and the social effects regarding poverty alleviation and the social effects in the country.in the country.

Equity and quasi equity Equity and quasi equity challenges contdchallenges contd

► The “master-beggar” perpetuating mentality The “master-beggar” perpetuating mentality that leads to pursuance for charity among that leads to pursuance for charity among the citizenry rather than empowerment. the citizenry rather than empowerment.

►Deposits into microfinance banks when they Deposits into microfinance banks when they come are so meager they are hardly enough come are so meager they are hardly enough to take care of the huge challenges of to take care of the huge challenges of poverty alleviation/small-medium scale poverty alleviation/small-medium scale entrepreneurship lending quests in Nigeria.entrepreneurship lending quests in Nigeria.

► Regulatory actions such as; investors may Regulatory actions such as; investors may not borrow to invest in microfinance banksnot borrow to invest in microfinance banks

DEVELOPMENT FUNDS DEVELOPMENT FUNDS CHALLENGESCHALLENGES

► Poor buy-in to poverty alleviation by the leaders Poor buy-in to poverty alleviation by the leaders at Federal, State and local governments as well at Federal, State and local governments as well as industry leaders in Nigeriaas industry leaders in Nigeria

► Lack of and inability to mobilize development Lack of and inability to mobilize development funds for micro financing and grass root funds for micro financing and grass root development by the government and regulatorsdevelopment by the government and regulators

► Greed that leads to cornering International Greed that leads to cornering International development agencies funds by various development agencies funds by various governments, mega banks and HNI’s who governments, mega banks and HNI’s who operate as NGO’s with no intention of deploying operate as NGO’s with no intention of deploying such funds for poverty alleviation and grass such funds for poverty alleviation and grass root developmentsroot developments

Development funding Development funding challenges contd.challenges contd.

► Corruption ridden society that results in Corruption ridden society that results in 1000s of NGO’s evolving without any form of 1000s of NGO’s evolving without any form of regulation to fraudulently obtain regulation to fraudulently obtain international and even local development international and even local development funds which end up in private pocketsfunds which end up in private pockets

► Lack of accountability leading to non repeat Lack of accountability leading to non repeat feat by international development agencies feat by international development agencies and societiesand societies

► Very poor infrastructure frustrates any real Very poor infrastructure frustrates any real move in development funds deployment as move in development funds deployment as projects genuinely fail from poor projects genuinely fail from poor performances due to poor facilities and performances due to poor facilities and infrastructureinfrastructure

DEPOSIT MOBILIZATION DEPOSIT MOBILIZATION CHALLENGESCHALLENGES

►Undue competitive play field from mega Undue competitive play field from mega banks created by the CBNbanks created by the CBN

►De-marketing effects of pronouncements De-marketing effects of pronouncements by the press and even the regulatorsby the press and even the regulators

►Past history of Nigerian banking Past history of Nigerian banking particularly the magic banks and particularly the magic banks and community bankscommunity banks

►Unprofessional and unethical practices of Unprofessional and unethical practices of microfinance banks opearatorsmicrofinance banks opearators

Deposit mobilization challenges Deposit mobilization challenges contd.contd.

► Elitists attitudes of Nigerians make them shun Elitists attitudes of Nigerians make them shun deposits/relationships with microfinance banksdeposits/relationships with microfinance banks

► Even the poor would rather deposit with mega Even the poor would rather deposit with mega banks rather than MFBs unless where mega banks rather than MFBs unless where mega banks do not existsbanks do not exists

► The borrowers from MFB’s make deposits with The borrowers from MFB’s make deposits with mega banksmega banks

► Where deposits are made, only insignificant Where deposits are made, only insignificant amounts go to MFBsamounts go to MFBs

► Fraudulent activities of operators-funds Fraudulent activities of operators-funds diversionary that MFB’s are compelled to pay diversionary that MFB’s are compelled to pay backback

PERSONNEL AND COST PERSONNEL AND COST CHALLENGESCHALLENGES

► The board are in the main unschooled and not The board are in the main unschooled and not people who have the clout to command equity or people who have the clout to command equity or development funds.development funds.

► Management normally do not have much influence Management normally do not have much influence on major investible funds owners and principally on major investible funds owners and principally intimidated when competing with equity and intimidated when competing with equity and liability funds with commercial bankers.liability funds with commercial bankers.

► Staff generally are highly inexperienced and they Staff generally are highly inexperienced and they are no competition for the confident and well are no competition for the confident and well trained commercial banks’ staff in deposit drives.trained commercial banks’ staff in deposit drives.

Personnel and Cost challenges Personnel and Cost challenges contdcontd

► The quest for capital may turn out quite The quest for capital may turn out quite expensive e.g. private placement costs (legal, expensive e.g. private placement costs (legal, CAC and Accounting cost) as well as cost of CAC and Accounting cost) as well as cost of term depositsterm deposits

► Bureaucracy costs and kick backs by Bureaucracy costs and kick backs by government may not be within the reach of government may not be within the reach of microfinance banks for government and microfinance banks for government and development funding.development funding.

► Publicity costs and training costs may be quite Publicity costs and training costs may be quite high for most microfinance banks to high for most microfinance banks to accommodate.accommodate.

ASSETS CONVERSION ASSETS CONVERSION CHALLENGESCHALLENGES

► High bad loans crystallize working capitalHigh bad loans crystallize working capital►Outright fraudulent loans internally or Outright fraudulent loans internally or

externally instigated externally instigated ► Insider abusesInsider abuses►Mfbs are unable to recycle loans and earn Mfbs are unable to recycle loans and earn

more incomes. This has great negative impact more incomes. This has great negative impact on funds availability in the bankson funds availability in the banks

► Non retention of profits erodes working capitalNon retention of profits erodes working capital► Bad loans lead to failures with the ripple Bad loans lead to failures with the ripple

effects of effects of Depositors shunning the mfbsDepositors shunning the mfbs Investors not feeling safe to investInvestors not feeling safe to invest A run created on the banks by massive A run created on the banks by massive

withdrawal of depositswithdrawal of deposits

Ways to Overcoming Ways to Overcoming challengeschallenges

Indeed overcoming challenges in Indeed overcoming challenges in adequate microfinance banks funding adequate microfinance banks funding are both intrinsic and extrinsicare both intrinsic and extrinsic

Lets us look at the intrinsic ones as the Lets us look at the intrinsic ones as the external challenges may not be within external challenges may not be within the immediate influence of the the immediate influence of the operators and owners to overcomeoperators and owners to overcome

Overcoming challenges-the Overcoming challenges-the internal solutions to inadequate internal solutions to inadequate

fundingfunding► Begin with the end in mind. What type of Begin with the end in mind. What type of

MFB do we want to be, at what level do we MFB do we want to be, at what level do we want to play irrespective of what want to play irrespective of what competition is doing and what the competition is doing and what the regulators expect. Beginning with the end in regulators expect. Beginning with the end in mind enables the promoters to determine:mind enables the promoters to determine:

o Infrastructural requirementsInfrastructural requirementso Level, profile and number of staffLevel, profile and number of staffo Location of businessLocation of businesso Clientele base of the MFBClientele base of the MFBo Types, volumes of assets and liabilities to be Types, volumes of assets and liabilities to be

involved ininvolved in

Overcoming internal challenges Overcoming internal challenges contd.contd.

►Having begun with the end in mind, ensure Having begun with the end in mind, ensure adequate capitalization from inception adequate capitalization from inception without hopes for any external funding without hopes for any external funding except for prudent plans for deposits except for prudent plans for deposits liabilitiesliabilities

► Ensure that board members are people of Ensure that board members are people of integrity and commitment who have passion integrity and commitment who have passion to ensure the bank succeeds and would take to ensure the bank succeeds and would take step to back the bank to successstep to back the bank to success

► Structure activities and operations to fit into Structure activities and operations to fit into assured fundingassured funding

► Ensure liquidity of loans and advancesEnsure liquidity of loans and advances

Overcoming internal challenges Overcoming internal challenges contd.contd.

► Decide to be financially frugal about expensesDecide to be financially frugal about expenses► Seek every opportunity of external funding Seek every opportunity of external funding

without planning on itwithout planning on it► Be very flexible in operationsBe very flexible in operations► Have a good market share in area of Have a good market share in area of

operationoperation► Ensure good training of staff and staff Ensure good training of staff and staff

motivation so as to avoid fraudsmotivation so as to avoid frauds► Have a good internal control in place to avoid Have a good internal control in place to avoid

lakageslakages

WAYS TO OVERCOME EXTERNAL WAYS TO OVERCOME EXTERNAL FUNDING SOURCESFUNDING SOURCES

►Developed products that appeal to the Developed products that appeal to the target funding bodiestarget funding bodies

►Develop attractive and distinctive liability Develop attractive and distinctive liability generation productsgeneration products

► Be visible in your area of influenceBe visible in your area of influence►Network effectivelyNetwork effectively► Sharpen your marketing skillsSharpen your marketing skills►Walk your talkWalk your talk► Avoid failuresAvoid failures► Use Nigeria tool (God fatherism) for as much Use Nigeria tool (God fatherism) for as much

as you canas you can

conclusionconclusion

The summary is that Nigeria micro The summary is that Nigeria micro financing, like many other activities in financing, like many other activities in Nigeria present with peculiarities far Nigeria present with peculiarities far more difficult than other similar more difficult than other similar institutions else where in the world.institutions else where in the world.

But if we must continue in business, But if we must continue in business, there is need for dexterity and focus to there is need for dexterity and focus to make a success of our operationsmake a success of our operations

Thank you for your attention Thank you for your attention and participationand participation