Investors Beware

By Adolphus Abraham

By popular demand, I had broken down my piece on Microfinance outlook for the decade into two parts. The first part was published last week and it dwelt on the factors that will shape the industry for which every investor should be concerned. The factors were 1) Financial Technology 2) Demographics 3) Regulations 4) Government activism and 5) International Funding and incursion.

This week, I bring you the concluding part where I dared to share my conviction about the future of the industry. I assert that the microfinance industry will be very busy this decade as there would be a lot of changes as we enter year 2020. Major landmarks would be made. I have tried to pen a few of those changes below.

1. Brick and Mortar will disappear; Technology will rule the industry. The act of building branches all over location of interest would become unfashionable. This will allow MfBs to reach a wider clientele at a lower transaction cost.

2. Emergence of Mega Retail Banks: Microfinancing business will return higher yield on investment and capital ahead of traditional commercial banks. Commercial banks will see compelling reasons to focus on this area as it would contribute significantly to their bottom line and would therefore want to split their license. This would lead to the emergence of Mega Retail banking license instead of Commercial Banking. Commercial banks will disappear and give room to a holding structure that would hold various license as they find profitable.

3. The Poor will always be poor: As a Christian, I believe the bible when it says in Mathew 26:11 that the poor will always be among us(paraphrased). You can manage and attempt to alleviate poverty but you cannot eradicate it. The war against poverty will continue with gainers and losers.

4. Colonisation of the Nigerian Financial system: There are currently 9 National microfinance licenses, out of which 7 have international affiliations. More investors have shown interest and this will continue for sometime. Foreign investors are interested in the population of Nigeria. It is exciting to have your potential target in excess of hundreds of millions. By the time we realise the impact of the great influx giving rise to financial colonies, we will fight hard to free our economy but not without paying the price.

5. Higher profitability due to the reducing marginal cost of serving customers as they scale. The current pricing regime allows for sufficient interest rate to enable operators cover their cost, the use of technology will reduce transaction cost. Supported by a teeming population, there will be higher returns to attract more investors and the cycle continues.

I then concluded that the poor will always be around and that microfinance will on a sustainable basis remain a significant interest with sufficiently orchestrated venture. A greater number of social investors will emerge to saturate the industry and skill set draught will almost contentiously, be prevalent.

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•  Adolphus Areban Abraham is the Managing Director/CEO of Rigo Microfinance Bank based in Lagos. He can be reached on jiyere@yahoo.com