By Adolphus Areban Abraham
Last week, I had the opportunity to express my opinion on what the decade portends for the microfinance industry in Nigeria for the decade last week. Following the reactions and comments I have received and for the benefit of the few who felt the piece was too lengthy, I have decided to break it into two parts.
This week, I want to discuss the big five.
Every potential investor in the microfinance industry should be conscious of the frictions, storms and blows that beats against the fabric of the industry.
The industry is not static.
It responds to the environment either positively or negatively. So, before you invest, consider the factors that will determine the value and quality of your investment over your period of investment.
The factors include but not limited to the following.
Financial Technology
This is the use of new technology to improve and automate financial service delivery. With the use of specialized software and algorithms on computers and smart phones, it aims to help individuals and business owners better manage their financial operations, processes, and experience. The CBN has recently issued operating license to entities whose core operating infrastructure is technology driven rather than the brick and mortar currently being relied on by existing operators. Recent technology has proved to, not only create access to financial services even on your palm anywhere and anytime, it has also proved to radically reduce cost of transaction for very poor and remote customers.
Demographics
This explains a situation where a business uses the factors of age, race, sex employment, education, income, marriage rates, birth and death rates etc to make informed decision concerning their product and services. In Nigeria, the factors that will affect the industry most are immigration, labour markets, urbanization and access to information. As the younger generation of today forms the adult of the future, the current drift abroad by young people due to changing immigration policies of some countries would be a deciding factor. The changing orientation of our teenagers who have now found the labour market unattractive, the high rate of rural urban migration making the cities more populated at the expense of the rural areas and the availability of information on the go, making people more informed and sensitive to product and pricing, the microfinance industry will surely receive its fair share of these imbalance.
Regulations
This refers to policies, standards and codes guiding the operation of microfinance as issued by the CBN. The quality and how the market respond to it will impact the industry from both side of the coin. Policies like Know Your Customer, AML/CFT, digital transaction, transaction fees etc are rife.
Government activism
This describes a situation where government strive to create friendly policy environment for microfinance operators and at the same time, raising competing institutions. With the existence of over 888 MfBs in Nigeria, government institutions that should provide funds for on lending are currently directly involved in lending to individuals and businesses. With larger balance sheet of government backed institutions, the competition with Mfbs becomes unfavourably skewed.
International Funding and incursion
This tends to look at how much inflow are received from outside the country into the microfinance industry. It is common place to notice that profits and cashflow generated from international businesses especially technology companies are being deployed to developing countries to solve problems of poverty and financial inclusion for which Nigeria is not an exception. The presence of notable technology or tech driven companies are already causing major disruptions in the industry.
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Abraham is the Managing Director/CEO of Rigo Microfinance Bank based in Lagos. He can be reached on jiyere@yahoo.com
