Early in 2021, I granted an interview to a media platform. The last question of that interview session was about my advice to the operators and regulators of the microfinance subsector in Nigeria. Of course, my answer was practically an outline from the work I did for our internal use back in 2020 at the peak of the COVID 19 pandemic in Nigeria.

I only outlined the points from that internal document as much as I could remember. I stumbled on one of the publications of that interview recently. After reading through the interview again, I felt that my response to the last question of the interview can be useful even for other non-microfinance businesses.

Even though I think that the question regarding operators shouldn’t be directed to me because I am an operator and I need to listen to non-operators advise us. However, since I was asked the question, I will make an attempt to highlight some of my thoughts on sustainability strategies for microfinance in the age of disruption.
First, I believe it is very important for a Microfinance Bank (MFB) to drive liquidity aggressively. With the level of disruption and uncertainty that we have, survival and the ability to withstand shucks depend on the level of liquidity available. Liquidity can come from any or all of capital, deposit, debt, grant, technical support, donations, and profit. A blend of all or many of these is better.

Liquidity for a bank also has two sides. One is availability and the second is management. A bank can close shop not only because the liquidity is low but also because it is not properly managed.

Product type and the segment of the market chosen to serve are supposed to be largely determined by the type of liquidity available. It should also determine the type and level of risk that an operator is ready to take.

Again, for operators, I will make it clear: Don’t do it simply because that is what your next-door neighbor is doing. We all know the importance of liquidity to our type of business, but the experience of COVID 19 has made it more important.

Secondly, all of us must prioritize risk management and corporate governance. We are not talking of only credit risk, but all the risks we are exposed to as MFBs. Risk environments are becoming more sophisticated and we must respond accordingly. Right staffing and training are very important here. All stakeholders must imbibe the right discipline. Also, discipline must be supported by clearly defined rules that are well communicated to stakeholders. Compliance with regulation and internal policies are very important for growth and sustainability. They should not be done just to please the regulators and counterparties. They are important for the long-term survival of the organization.

Thirdly, we must improve on our brand awareness. We must all be deliberate in investing money and other resources in creating awareness of the good work we are doing. Banking is a business based on trust and confidence. We must continue to do this in order to boost and sustain public confidence in us. You don’t need a huge budget like a commercial bank, but you must deliberately invest in this line based on your level and capacity.

Fourthly, we must all embrace and deploy appropriate technology. Deployment of hardware and software is very important but it must align with the internal culture of the organization and the quality of people. The phrase digital transformation can be misleading. Digital alone does not transform. Technology alone cannot transform, it must go with the right culture, right skills, and right people. And the customer must be the focus of any technology deployment.

Read More: https://newsextra24.com/immediate-and-long-term-sustainability-for-microfinance-in-the-age-of-disruption/