The microfinance banking terrain in Nigeria has arguably been a quite slippery field. In the midst of it all however, one organization, LAPO Microfinance Bank, has seemingly towered above its peers. In this interview with Business Hallmark, Dr. Godwin Ehigiamusoe, the founder of the Lift Against Poverty Organisation, midwife of the LAPO Microfinance Bank and winner of the Business Hallmark People of the Year Awards 2019 in the microfinance category speaks on a myriad of issues relating to the bank and the sector.
LAPO recently organised an event with a health theme in Abuja. Also, a medical and diagnostic facility has also been floated in Benin City, Edo State. Is there any major reason for the focus on health?
Interestingly, Lift Above Poverty Organization (LAPO) was initiated as a development organization with focus on three programme areas, namely: access to finance, or what is also referred as microfinance; healthcare and social empowerment. For over thirty years, we have implemented programmes in these areas. Understandably, microfinance has become the most prominent. However, Lift Above Poverty Organization, LAPO is a more all-embracing project.
For example, we have been at the forefront of the fight against HIV/AIDS
At the height of the HIV/AIDS pandemic, LAPO played a very vital role in organizing rural women to address the scourge. Women who were infected were organized into support groups. In these groups, we also provided them with credit for income-earning activities as well as training and support with nutrition.
In more recent years, LAPO has been organizing rural medical outreaches, whereby volunteers, who are medical personnel, provide basic medical services to adjoining communities. It usually runs for three days a-piece and we have carried such outreaches to a sizeable number of communities
LAPO in 2018 also completed a 3-Year Cancer Awareness project in five focal states. LAPO implemented the Project with the support of local implementation agents which were essentially local or community development groups. The interim report on the Project is very revealing even as it is equally depressing. The findings will greatly influence our health activities in the coming years.
The Abuja event you referred to was actually the 26th Annual LAPO Development Forum. For twenty-six years, we have been organizing sessions of the Forum to draw attention to development issues. This year’s session focused on the state of healthcare in Nigeria.
Why have you set up your brand-new Benin medical facility?
The Benin Medical Care facility which consists of a hospital and diagnostic centre was set up in furtherance of our healthcare mandate as a development organization. It is set up by Lift Above Poverty Organization, and certainly not the LAPO Microfinance Bank. Through it, we seek to respond to the healthcare needs of the region. It is well resourced with the latest in diagnostic investigation technologies. The latest generations of MRI and CT Scan machines are available.
Will it be affordable?
We are prioritizing access to quality and affordable healthcare. An informal health insurance arrangement is being put in place to ensure that large numbers of our clients and indeed other low-income people have access to the services offered by the medical centre. It may interest you to know that LAPO has before now been facilitating access to health care for its clients through an informal insurance scheme.
Nigeria is currently sitting atop the global poverty ladder. You have been working as an organization for almost three decades, fighting the scourge of poverty in the country. If other actors in this crusade had done as much as you are doing, would our situation have been this bad?
Perhaps yes. The reality however, is that there are a lot of individuals and institutions acting in various ways to address the scourge. The current rising trend in poverty began with the introduction of the Structural Adjustment Program (SAP) in the mid-1980s. And key actors in the developmental sector, namely government agencies; local and international organizations and agencies have actually been focusing on the various dimensions of poverty. In the early 1990s, several development-oriented non-governmental organizations were initiated to support people, especially rural dwellers, to deal with the challenge of poverty. There were also government-led initiatives. Whether or not these have been able to have the desirable impact in addressing the level of poverty is debatable. But what is not also debatable is the fact that some specific actions – like access to credit – may not be sufficient except they are supported by other range of services that empower the poor. We who were at the forefront of what is today known as the microfinance revolution were perhaps guilty of over promising on the possibilities of microfinance. We probably presented access to finance as the silver bullet in ending poverty. Access to finance can only make impact within an enabling environment that supports and empowers the poor. Where there are several poverty-generating factors, access to finance alone cannot make the desired poverty alleviation impact.
Some of the support systems that could help, like our educational system, do not put emphasis on income-earning. We no longer push for vocational education. The average person comes out of secondary school and is almost not too useful to himself and the broader society until he proceeds to a tertiary institution. Don’t you think our support systems are also to blame for the upsurge in poverty?
To a very large extent, one cannot believe otherwise. Education is key in developing human capital and human capital is necessary to address poverty. There is a consensus on the gaps in our approach to education. For too long we have seen access to university education as a status symbol. Often you hear people in moments of self- glorification saying, ‘I have eight children, and all are university graduates’. A Vice Chancellor said recently that the workplace no longer values certificates, but skills. I agree with him. My recommendation is that we should urgently refocus our attention to two areas. First, we should go back to re-examine or reactivate the 6-3-3-4 system. It is a fantastic policy. It was designed to provide education and vocational training to our children according to their abilities and aspirations. Poor implementation of the policy landed us in the mess which manifests as the youth unemployment crisis of today.
Second, I am not really a fan of the practice prompting our children to be instant employers or to set up their own businesses right after school. Rather, efforts should be made through fiscal and direct support for existing businesses to scale up. It is only scaled up businesses that can create mass jobs in which aspiring entrepreneurs can gain some form of experience before launching out. A rookie will require a minimum of five years to get prepared to launch out. Except in technology-scape, must successful entrepreneurs had had some launching pads. Nigeria does not lack large numbers of micro and small businesses, but the challenge is that most managers of those micro businesses do not have the capacity to deal with the very challenging operating environment to scale up their businesses. Therefore, the appropriate enterprise development framework that provides the necessary support to assist existing businesses in scaling up is required. Perhaps this is a more effective approach to addressing our depressing youth unemployment scenario.
We notice that your loans disbursement policy is seemingly skewed towards the womenfolk. Are you insinuating that we don’t have poor men that require the kind of support you are bringing to our society?
LAPO as a development organization has never stated expressly that we would provide services, in this case, loans to only women. But our prioritization of women is as result of the development realities. It is only in very few societies where women are not treated as fodder to men in terms of access to life transforming opportunities. This is more acute in developing societies as ours. The women we have today were girls of the 1960s and 1970s who were somewhat deprived of opportunities to prepare for adulthood, especially in the area of access to education. This and other gender-related factors constrained women’s access to assets and capital. The truth is, if you see a poor man, be sure he is most likely to be a husband of a poorer woman. We felt we needed to channel our limited resources to where the problem is more acute. Somehow however, more men are now accessing our services
You operate a seemingly very risky business by giving out what may come across as unsecured loans. How do you hedge against bad and non-performing loans?
Unsecured loans or non demand for collateral is a key feature of true micro-lending schemes. When it comes to repayment performance, the most important thing is the business model. And our business model is premised on our understanding that we should break the barrier to credit for ordinary people and we realize, as many do, that a very strong barrier to access to credit for micro and small businesses is the collateral requirement. For us at LAPO, asking low-income earners to provide collateral is simply asking them to provide what they do not have in the first place. So, we decided to substitute the need for collateral with other alternatives. For instance, a very popular strategy is that we organize most of our clients into groups. These groups are self-selecting and members play a role in the loan appraisal processes. They have very robust information about each other. They are aware of the character, the capability and the track record of their members and this helps to reduce our risks.
Another strategy is that we have over time created a sort of a culture in which most of our clients – especially those who have been with us for fifteen to twenty years – do not really see LAPO as another lending organization. They see LAPO as their own organization because we clearly go beyond the provision of financial services. We support them with health programmes, insurance policies, enterprise training, legal aid, and equally support their children with scholarship awards, both for secondary and tertiary education.
We also prioritize their qualified in employment. They value this so much, and understandably so too. And you may too, realising that job opportunities for the children they have struggled to train are very few as they do not have the social reach or network to gets jobs for their children or wards.
Again, we invest hugely in the training of our staff not just to deliver loans but other services too. It is for that reason that credit officers in LAPO are designated as client support officers (CSOs).
Lastly, we have what we refer to as pre-loan training. Pre-loan training enables clients to know what LAPO is and what LAPO is not. It also equips them with basic micro business management skills.
Looking at your balance sheet over time, we discovered that your loan assets have been higher than deposits. Where do you source the extra funds you give out as loans?
The fact of microfinance is that, the practice is credit-led; that is, most people and enterprises at the lower rung of the economy demand for loans more than the volume of deposits they make. This explains why microfinance was initially known as micro-credit. For institution like ours with expansive footprints and a firm commitment to low-income people and micro enterprises, it is not surprising that our balance sheet structure reflects higher loan assets than deposits. To bridge the funding gap in such situations, true microfinance banks and institutions turn to local and international financial institutions for funds. Specialized development banks such as Bank of Industry, Development Bank of Nigeria, International Finance Corporation; African Development Bank as well as some commercial banks with strong commitment to micro, small and medium enterprises are sources of funds for microfinance banks that meet their lending terms.
Several microfinance institutions have gone under. What is wrong with the sector? Is it because it is not really viable?
On a general note, many institutions in several other sectors have also gone and are indeed also going down. Businesses here operate in a very challenging environment no doubt.
Specifically, the microfinance sector contends with a number of challenges. First, that of loan delinquency. Due to a number of factors most of our people even at the lower end of the society lack a sense of credit discipline. Also, many borrowers at whatever level do not feel that they have an obligation to meet repayment terms. Delinquency is certainly a deadly virus of lending institutions.
Second, is the fact that at inception of microfinance banking, the practice was confused with micro-banking by most operators. Gradually most operators are realizing that micro-finance is much more than micro-banking and they are now getting the operating processes much better.
Third, is the huge cost of operations. Micro loans are expensive to borrowers because it is very expensive to deliver micro loans. A commercial bank could make a loan volume of N10billion to two or three persons or businesses. For LAPO Microfinance Bank, we will need to make such an amount to over 100,000 borrowers. This translates to 100,000 borrowers to appraise, to monitor, etc. To do this successfully, a minimum of 2,000 staff members will be required. Many microfinance institutions have in the process collapsed on account of the huge cost burden.
Lastly is the legacy of community banking. Most microfinance banks of today were community banks of yesterday that were hardly financial institutions in the real sense of the word and were supervised by a government agency in the Presidency. Many were poorly capitalized, with weak management and governance structures. Many of these institutions have not been able to successfully transform into strong lending institutions
NIPOST and the CBN are currently involved in the process of setting up microfinance institutions. Don’t you think we may get into the same boat of potential collapse once again?
From a development perspective, I feel that any initiative which will expand the frontier of access to finance in our environment is welcome given that the penetration rate of financial services in Nigeria is significantly low. Again, it will engender competition in the sector which will benefit the people in terms of higher quality of services and at lower costs. My only concern and that of most Nigerians who truly care about enhancing financial inclusion is our not too good history with similar initiatives.
Fintechs, telcos, and even deposit money banks are now getting involved in processing instant loans. Do microfinance banks need a little bit of help to be able to respond to some of these new dynamics in the future?
I do not think so. The rise of microcredit and later microfinance is a part of the desire to include the low-income people and micro-enterprises into the mainstream financial system. The rise of fintechs is a continuation of that process of expanding the frontiers of finance. Microfinance banks as business entities should take strategic positions to deal with what you consider as the fintech threat in order to survive. What type of help they need in this regard, I do not know.
The popular belief out there is that you started your microfinance activities as an experiment of sorts: from Ogwashi-Uku to Benin and later to other cities where you have now consolidated the brand. Thirty years down the line, the brand has continued to grow. In another ten years, what are we to expect?
Sure, we have come a long way. I was there at the very beginning of the global microfinance movement. LAPO has gone through or survived key critical phases of development of the practice. The Ogwashi-Uku initiative was an experiment by an idealistic young man who wanted to try out his convictions on a perspective of development which prioritizes the poor. The latter LAPO was a robust and well thought-out project to address the three dimensions of poverty namely; material deprivation, addressed with micro credit; poverty health, addressed with health programmes; and social exclusion, addressed with social empowerment programmes. On the micro-credit dimension, we went through the phase when the feasibility of giving loans to the poor and micro-enterprises was considered not feasible. The global leading lights of the practice were involved in designing delivery structures and processes that will make the poor access loans, utilize the loans and meet repayment obligations as at when due. We went from there to the era of ensuring sustainability of microfinance institutions. We are now in the era of full blown commercialization of microfinance with its attendant challenges. Having gone through these phases and coming out strong, I believe LAPO has a bright future. With the new leadership coming on board I see the emergence of a LAPO that will be more robust in terms of its services and targets. With the strong foundation already laid for sustainability, I see an institution that will perform excellently on notably three dimensions of superior financial performance; people and environment.
Has microfinance banking made an impact on the national economy?
The tendency is to think that put side by side with commercial banks, the impact of microfinance banks is insignificant. Yes, the balance sheet size of one commercial bank may be bigger than that of all microfinance banks but then this is only one side of the story of development. The reality is that given the spread of microfinance banks across rural and urban communities; the large number of ordinary people they service, the micro and small businesses they touch; and of course the jobs they create, microfinance banks are making huge contributions to our national development. LAPO Microfinance Bank for instance engages over 7,000 staff members across the country.
As you exit LAPO Microfinance Bank, what is next for you?
I will take some rest and reflect on the last thirty years and also figure how I could share my experience with current operators across the continent. I am also going to be very supportive of my colleagues in the other dimensions of Lift Above Poverty Organization (LAPO), namely, the health and social empowerment programmes.