The coronavirus pandemic popularly referred to as COVID 19 probably took the world economy by storm and unawares. Not many saw the devastating impact this will have on the global economy a few years before now. To be sure, not many even expected the novel coronavirus to have spread the way it has done and the damage it has done and may continue to do to world economies in the coming months and years.

The IMF and indeed many countries are beginning to predict global economic recession should the pandemic continue to scale up the spread and linger to disrupt economic activities. The Central Banks of many nations had in the past days readjusted their fiscal and monetary policies to reflect the emerging threats posed by the global pandemic occasioned by the coronavirus. To be sure, plans and forecast of businesses, nations and individuals have been affected by this. Recently, the Nigerian government through the office of the Minister of Finance had announced the government’s reduction of its 2020 fiscal budget.

The impact of this is that the economy may need creative and strategic thinking and actions to pull us out of the looming doom that boldly steers us in the face. Businesses and individual may now need to dig deep to discover new realities, new opportunities and manage new threats in the wake of all of these misadventures. We all have to set new benchmarks, adjust our projections and change the narrative of our business conduct and dispositions.

 IMPLICATIONS FOR MICROFINANCE BANKS

The Microfinance Banking ecosystem which deals mostly with clients from the bottom of the pyramid, most of whom depend on daily income generation for their survival, savings and loan repayment, this pandemic would have impacted negatively on their financial plans and businesses. Of course, the entire financial eco-system is recording dismal financial outlook, the Microfinance banks will definitely be worse hit.

With the express directive of almost all State Government in Nigeria to have partial or total lockdown of the business and human traffic to prevent the continuous spread of the virus, the banking industry has started afresh promotion and awareness on the use and benefits of electronic banking and internet payment services. This may seem the best way out of creating continuous banking services but the financially unserved population may have been cut off completed from banking service in some state most especially Lagos and FCT where we have total lockdown of financial institutions.

The implication of the above is that our clientele base is going to be adversely affected by this lockdown directive. Markets and businesses are closed. Income-generating activities have been suspended and this poses a great challenge for our sector. What this portends for the sub-sector is that sources of cheap funding are eroded, reduced hampered and or altered. The recovery time for such businesses may depend on several external factors too. For those on loans, repayment will be affected. This will in turn impact negatively on MFB’s performance scorecard.

Even clients who have regular and predictable income may also be affected by the lockdown directive because of other financial exigencies such as stocking household, meeting the needs of immediate relatives, holding contingency liquidity for possible changes in market forces that may crop up in the phase of this pandemic.

As MFBs, we now face crucial decision to save our businesses, protect depositors’ funds, shareholders’ equity as well as avoid backlash from the customers as a result of the outbreak.

WAY OUT

There are some practical steps that can help cushion the effect this pandemic could have on our businesses. Some are immediate while some may be in the medium or long term depending on the Risk Acceptance Criteria(RAC) of the Bank. These are listed below:

1. Regulatory Forbearance: Based on the regulatory forbearance provided by the Apex Regulator (CBN) in its circular on palliative measures to cushion the effects of the global pandemic to begin to negotiate and implement loan workout and restricting. There may need to make compromises to ensure we limit our losses.
2. Interest Rate Concession: It may also be instructive to review our interest rates on loan products downwards. This should be considered in the context of reduction of the income-generating activities that have also reduced liquidity level in the system. This will create a positive perception for MFBs and facilitate better customer loyalty; build trust and commitment of the teeming customers in these trying moments.
3. Need for Constant Follow-up: Though most States and Cities are on lockdown, it is important that we empower our staff to continue to follow-up on our numerous clients during this period of lockdown through electronic channels. The probability that most customers could relocate as a result of this is high. Continuous monitoring and contact will also show our care and concern over the plights of the customers. Information flow at this point is very critical to a business decision and so should not be inhibited during this period.
4. Review of Business Models: This period will and has exposed the efficacy of developing potent business models. Our business model must be reworked going forward to accommodate environmental risk and unforeseen contingencies. Will our businesses survive in the phase of such pandemic? How prepared are we should such disruption occur again? Do we have a proper disaster recovery and business continuity plan in place? The truth remains that some MFBs will be adversely affected than others. Those who are already under the pressure of recapitalization and are hardly surviving may be under more pressure! As we go through this period, it behoves on all operators and other relevant stakeholders to re-consider our business models and reposition our businesses to cope with unfavourable events that may affect our business negatively in the future.
5. Products and channels: We may need to restructure and repackage our product programmes and delivery channels to respond to bad times and contingencies going forward. Although there are some MFBs that have forward-looking Board and Management and have prepared well ahead for this type of scenario, there is need to continuously appraise our business model, the fidelity of our structure and systems and keep performing a stress test on all our individual bank.

Some good questions operators need to ask themselves are: What impact would this lockdown have on the entire bank? Can our delivery channels survive further lockdown for months and not cause major disruptions to our business? Do we need new products or modification of current ones? How effective are our electronic delivery channels? Are they adequate and fully functional? What challenges could hamper their effectiveness? Are we considering a robust and hairy strategy to cope with the uncertainty? What is our catch-up plans for the gaps that this compelling break may have created in our financials? All of these and many more concerns would have to be on the front burner of strategy and all operators attend and respond to this pandemic.

My final thought would be that the MFB ecosystem is in dire need of strategic thinkers. Gone are the days when we box banking to bricks and mortar. Many years ago, not many people believed that we could do banking from the convenience of our home, offices and other remote locations. Today, we are facing a different scenario. What does tomorrow hold for our subsector? The popular adage says “failure to plan is planning to fail”.

While on lockdown, we should engage our team via available social media platforms and begin to fashion out new ways to ensure survival, stability and sustainability of our business. A lockdown is not a lockout. There are opportunities and threats to post-COVID-19. How prepared are you? How well your business will perform post-COVID 19 will depend on your level of preparedness and the conversion of lessons learnt from this unfavourable and bad times to productive and positive use.

We are all in this together and we are ready to support the Banking Sub-sector but your bank is your

About the Author

Eddy is the head of Monitoring and Evaluation at the National Association of Microfinance Bank (NAMB) Corporate Headquarters Abuja.  NAMB is a permanent member of the Nigerian Microfinance Platform(NMP), the leading network of all major stakeholders of the Nigerian Microfinance sub-sector. In its few years of existence, the NMP has grown to 32 members across the Nigerian Microfinance Space. NMP provides a unified Nigerian platform for facilitating systematic exchanges amongst major stakeholders, in order to build synergy in the individual interventions for the development of the microfinance sector. Its vision is to become the leading microfinance platform working towards the goal of financial inclusion in Nigeria.

NMP secretariat is at 37, Opebi Road Ikeja Lagos Nigeria.