Mr Azubike Emodi is the Managing Director of VFD Microfinance Bank (MFB). In this interview in Lagos, he speaks of the prospects of the financial sector in 2021 and the impact of the VFD model on the financial inclusion drive of Nigeria. This is coming at a time when some MFBs have folded up.
How would the COVID-19 disruption affect the financial sector?
In 2020, the suddenness of the situation was a bit unexpected. You jump into a new year and before the end of the first quarter a virus starts ravaging. Before people could understand what the virus was all about and how it could be treated, it had spread so widely. That led to the first series of lockdowns, but the renewed hope for 2021 is as a result of the vaccines that were recently approved.
However, as the vaccines are also coming out, we have also heard that there are new strains of the virus ravaging different parts of the world.
There is another phase of lockdown in the UK and some other parts of the European Union (EU). In Nigeria, we have also seen the very wide spread in the second wave of the virus.
Therefore, the situation makes the economic outlook of Nigeria look unclear with the lockdowns, and with the hospitals already complaining about being overburdened with the new wave, it is quite challenging.
In 2020, regulatory authorities liquidated 42 MFBs, is there any concern for this financial subsector?
There are about 900 registered MFBs, and probably another 5,000 to 10,000 operators who run some sort of mushroom financial services illegally ascribed as MFBs. Those ones bring a lot of negative news around the MFBs because when they run these ponzi schemes, they dupe people and shut down; what you hear is that the MFB has shut down.
However, the Central Bank of Nigeria (CBN) and the Nigeria Deposit Insurance Corporation (NDIC) are doing a good job of supervising the registered recognised MFBs, and if there are concerns about their operations, they quickly withdraw their licences to ensure they cause no harm to the banking public.
In the case of the 42 MFBs, most of them were insolvent, most of them had long closed and so shutting them down is the right thing to do. What I think, on the other hand, is that the CBN has done very little to douse the tension such an announcement brought on the sector. CBN should provide more context to assuage the fears of the MFBs’ clients.
For us in VFD, we do a lot of things differently. We place a lot of premium on corporate governance and on getting our books so that when we have those regulatory revisions of our books, we come out tops, and that has happened for six years.
It may interest you to know that from our second year of operation, we have been profitable. In 2019, way before CBN even started talks about the recapitalisation of MFBs, we started the process to recapitalise, and by early 2020, we had fully recapitalised and we got CBN’s approval.
Even with the new capitalisation requirement, even if it falls due by June, we are already 1,000 per cent above the requirement.
VFD has had a good performance, how did you do this?
Four hundred per cent growth in total assets in a year like 2020 was quite commendable. If not for the clogs we had in our wheels with the pandemic, maybe we would have been on 4,000 instead of 400.
We are very happy with what we have achieved and I think what helped us achieve that result is our doggedness. We see opportunities where other people see challenges and we ride in those opportunities to grow.
We have taken some calculated steps to grow the business, especially with the launch of the V-Bank App early March, 2020. We didn’t know there was going to be a lockdown. We tried as much as possible to battle through that lockdown to get out the benefits of it.
On the credit side, the process we have adopted is quite robust. We found out that even when there were credit shocks around the place, we were better able to manage our clients and we engaged them early on before it became such an industry-wide issue.
We gave them a soft landing in some cases and in some, it was about rethinking their business models and helping them with some sort of financial education. So, in addition to getting better for it, we also came out unhurt. So I think that was what really did it for us in 2020.
What is your lending policy for the informal sector?
For those in the informal sector that are willing to subject their processes to some of the things we advise them to do, we will gladly and willingly support them.
If you tell me to give you a loan and you cannot show me your turnover, it becomes difficult for me to appraise your capacity properly. It becomes very difficult for me to say if you can repay N1 million or N2m.
So, we are willing to assist clients in the informal sector. We provide free financial or business model services. If you come in for a loan and we discover that your business is not structured to the point where we can support you, we can give you a six-month period and tell you what to do.
There MFBs in other countries, what can Nigeria learn from them?
One thing we love or I have seen people cling towards in Nigeria is size. They assume size means doing it better.
In Canada, it’s quite different. They have banks that are in enclaves and in small areas and everybody in those areas believe that the banks understand their businesses more than any other person.
So, what most people will tag a disadvantage, in our case, is the major opportunity that we saw early on and that is what we are using to gain a significant market share because we are better able to listen to clients and provide the resources they demand in a more efficient way.
How soon will VFD be listed on the floors of the Nigerian Stock Exchange (NSE)?
The group which is the holding company for VFD MFB is already a Public Liability Company (PLC).
The plan is to have one in three people have VFD accounts. If we have one in three people with V-Bank accounts and the transaction volumes expected from that number, I can assure you that the growth will get to a point where we would want everybody to be a part owner of the bank where you have your account.
For a long time now, CBN has also been hampering the cashless society. What we run from day one is a cashless MFB.
We have not handled N1 in cash in our six years of operation. The volume we do on a daily basis is a testament to the success of the strategy. We have also maintained a zero charge on all transfers to the V-Bank app and we have opened other avenues to make the process more.
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