CBN Moratorium On Loans Does Not Apply To All Banks: There have been spates of complaints by customers who claimed that microfinance banks are harassing them to pay their loans despite the moratorium by the CBN on loan repayment. What is your take?
Well, I read some of those publications, in one of the national dailies where they wrote as if there is only one microfinance bank in this country. There was another one in an online news medium where they accused a particular MfB of forcing customers to repay their loans. Generally, that is not something I like to talk about. But if you want me to comment, I will say one or two things.
The one by the online news medium has since being debunked by the particular MfB they accused. But for the one in the national dailies reported May 15, 2020 which seemed to be accusing all of us, all I can see there is mischief and lack of professionalism. You are all journalists, and I think professionalism demands that you hear from all affected parties before rushing to the press. If you read that publication, the writer quoted two purported microfinance customers.
He also quoted an unnamed CBN source who referred to an earlier statement of the CBN governor as ‘moral situation’. The report even quoted some CEOs of commercial banks. But the writer never quoted any source from the microfinance subsector. What kind of shoddy and one-sided report is that? I will not be surprised if the reporter himself is a loan defaulter in one of the MfBs.
On the issue of loan extension or moratorium, it is the choice of the MfB to decide what to do. Don’t forget it’s a business relationship; the banks need the customers as much as the customers need the banks. It is in the interest of each party that the other party survives this crisis period. There will be life after this COVID-19. I have just told you what we have done in the interest of our bank and that of our customers. I am also aware a number of our peers are doing something similar or at least something close to that. We value our customers and we see their safety and survival as part of our success and survival.
I have also heard some people say that the CBN directed us to give loan extension to customers. That is not true. The governor made reference to extension or moratorium on the CBN loans. People should know that the CBN is not only a regulator but also a bank. That is why it is called Central Bank of Nigeria; because it is a bank. The CBN also gives loans to people and corporate organisations. Some of those loans they give directly to people while they pass others through other banks like commercial banks, development banks and microfinance banks.
The ones that are passed through other banks are called on-lending. CBN in a way is a development bank. CBN’s money is public money and CBN is not after profit. It is those CBN loans that the governor was referring to. Any bank that has loans under the CBN on-lending schemes must automatically apply the moratorium and pass the effects to the end beneficiaries. At present, we don’t have any on-lending from the CBN. Currently, we have on-lending from BOI and DBN.
For BOI, they have approved the moratorium and we have applied them to our customers accordingly. For DBN, we are working out that with them and we will apply to our customers accordingly. But it must be noted that on-lending from these sources constitute only a small portion of our loan portfolio.
For commercial banks, people must know we are not operating the same business model with commercial banks. Loan to customers is a very small portion of the commercial banks’ total businesses portfolio in Nigeria. They collect all the money from the public and give a little back as loans to customers. They collect so much from the public because that is where everybody goes. Even the people that collect loans from MfBs, when they have small deposit, they take it to the commercial bank. And they come back to complain that the microfinance banks’ loan is expensive.
What they give as loan compared to the total money they take from public is very small. And how much of their loans go to the SMEs and low income people? Even the little the commercial banks give to that segment are given under stringent conditions. Those conditions are not easy for SMEs and low net worth individuals to meet. That is the reason why CBN had to start compelling them to give more loans recently.
But some of them will rather pay penalties to the CBN than give loans to SMEs and the real sectors because they have many other ways of making money besides issuing loan. You don’t blame them also, because doing business is very risky in the Nigerian environment. And so, funding those businesses is very risky too.
We as the microfinance banks are actually the ones taking real risks over our customers. That is all we do. More than 80% of a microfinance bank’s total asset consists of loans to customers. And the customers consist 100% of SMEs and low-income individuals. It means if all those customers refused to repay their loans for whatever reason, the MfB will go down.
You said what you are doing is not debt cancellation or interest waiver. Can you expatiate?
Even the commercial banks, none of them is doing debt cancellation or interest waiver. And there is no basis for anybody to expect general debt forgiveness. By the way, what we do is intermediation. We collect from those that have money at a cost and channel it to those that need money. Any money we deploy either belong to depositors, lenders or shareholders. Each of these people left their money with us at a cost and we are under strict obligation to return their money to them with interest anytime they need it.
I cannot tell people that have deposits with me that I am unable to pay them back because there is Coronavirus. We also borrow from different sources to be able to on-lend to our customers. In fact, we have loans from commercial banks; none of them has cancelled the debt or asked us not to pay. So, if we don’t collect our debts, how do you expect us to meet our obligations to depositors, lenders and shareholders?
I also wonder why anyone will make issues out of the fact that a bank or any lender at all is asking for repayment of loans. Despite the pandemic, all of us still make phone calls and browse the internet. And we still pay for recharge cards. We buy data. We pay our electricity bills.
Even if you go to the hospital, you still have to pay despite COVID-19. We did COVID-19 solidarity and awareness jingles on radio. The radio stations did not do those things for us for free. The people that composed the jingles for us to run didn’t do them for free. Even the government is still collecting taxes and levies.
How then do you expect a lender not to ask for repayment? I think the only solution is adequate engagement between both parties. And if you are owing, you don’t have to wait for your lenders to engage you. It is your responsibility to engage your creditor if you have sincere challenge that did not let you meet your contractual obligations. Make the move to engage your creditor in dialogue.
If you have any debt at all, either to a bank or a non-bank, the right thing is to engage your creditor in dialogue. Don’t forget your creditor is feeling the pains of the pandemic just like you are feeling it.
What do you advise microfinance banks and other SMEs should be doing currently to ensure their survival post COVID-19?
I believe I have said a number of things that are applicable to the survival of individuals, families and corporate entities both during and post COVID-19. But because you asked the question, the first thing is for everybody to take responsibility. We should all follow the precautionary protocols as put in place by the government.
I believe the government also doesn’t have all the answers, but at least, they have better information than the individual citizens. People should adjust their lifestyles and spending habits. Cash is going to be king at the end of the day.
Only put your resources on those things that are very essential. We are facing COVID-19 now, when this is over, hunger will be the main issue. Businesses should cut their expenses wherever possible. Businesses should also use this time to review their business models and do everything possible to transform, particularly to the adoption of technology. For us, what we are doing is to intensify efforts at our ongoing digital transformation process. Businesses should do everything possible to ensure good communication and relationship management with their customers and staff.
This is particularly because you will need them after COVID-19. I see the rush to reduce staff, sack or right size. I want to suggest organisation should do their best to avoid job loss as this time. There some cases where job loss becomes unavoidable to save the organisation at large. But that should only be applied as a last resort. Engage your creditors in discussions and renegotiations where necessary.
Review all your social relationships now and ensure you don’t unnecessarily expose yourself. Governments and corporate organisations are reviewing their budgets now, individuals and families are to do the same in their own ways. Citizens and businesses should make good use of different government stimulus package and palliatives.
How has your bank responded to COVID-19?
Thank you very for this question. By mid-March 2020 when the number of Coronavirus cases in Nigeria and level of awareness were still very low, we started taking steps to ensure safety of our staff and customers. Early in March, we provided hand sanitisers, face masks and hand gloves for all our staff. They had to go around with bottles of hand sanitisers. At the same time, we provided machine hand sanitisers across all our branches. In fact, we are co-tenants in our Head Office building at Broad Street.
The building has six floors of which we occupy two. We provided machine hand sanitisers for the entire building. We believe solving the pandemic problem requires collective effort. Safety of your neighbour is an important part of your own safety. At the same time, we embarked on awareness programme for all our staff and customers about COVID-19. We produced banners across our branches providing necessary information about the pandemic and how to stay safe. We also shared the same information via emails and a summary format was sent to all our customers by texts.
We have more than 100,000 customers in our books. It may also interest you to know that we stopped about 70% of our staff (particularly those that have to come to office via public transport and those whose duties involve coming very close to customers inside the busy markets) from coming to office about two weeks before government declared lockdown. We were not used to remote working but we had to start it for the safety of our staff.
We directed our customers to our e-channels. Since March 2020, we have served our customers via e-channels and our internal activities are done largely via remote platforms or working from home. In addition, National Association of Microfinance Banks, Lagos Chapter donated food stuff to the indigents, many of who are microfinance banks’ customers. We did the donation through the Lagos Sate Government.
The chapter also sponsored radio campaigns to create awareness among our customers about Coronavirus and ways to ensure individual and community safety. We sponsored another radio jingle in support of the frontline men and women in the fight against Coronavirus. As a member of the Association, our bank contributed money to those efforts. I also did personal donation to the Association for that purpose.
Our Board has also approved three months moratorium on loan repayment for our customers whose businesses are directly affected by COVID-19 and resulted in their inability to repay their loan as and when due. What this means is that they can have extension of up to three months in their loan repayment. It is not a loan forgiveness and it is not an interest waiver. They will still pay their loans. But they have the repayment spread for additional three months. We will also not apply any penalties on those three months, provided you don’t have history of default before COVID-19.
To qualify, a customer has to formally request for that extension and he must keep to that extended period of repayment, otherwise penalty begins to apply after those three months. If a customer desired to pay down earlier than the agreed extended period, he/she is qualified for a new loan immediately at a reduced interest rate.
This extension is however applicable to only those whose loan defaults were caused by the pandemic and the lockdown. There are customers who have been in default before the pandemic and the lockdown. Those people are loan defaulters and penalties apply on their default in line with the loan contracts.
I must also tell you that we have some customers who are still paying their loans despite the lockdown. Those people are automatically qualified for new loans at reduced interest rates. You know it takes strength of character to repay loans even at this difficult time. And good character is a currency in the business world.