This is a continuation, and the final part of the piece we contributed last week, which sought to give some moral support to our friends in the microfinance industry. The times have been hard long before the pandemic. Needless therefore to say how they are today. The entire world is on stop! That cannot be a passing event. The microfinance industry in Nigeria has faced major disruptions over the past several years as insurgency, spreading from the North Eastern part of the country, is gradually sipping down south and sideways to other parts of the north. It is therefore appropriate to infer that the industry has been walking a very tight rope and now has limited breaking strain. What the pandemic has done, to say the least, is to add salt to an open wound and make a bad situation worse.
The last point I raised last week was on the need to control expenses – cost containment; effective cost containment. Being able to bring costs under control is very important at this time; not only because no fresh money is about to be made but because the one in the kitty is vanishing through inflation that is about to have multiple births. This subject has been of interest to me over the past several years. Perhaps this is the most appropriate time to reemphasise it again. Without doubt, every coin hast two sides. Making money and Saving money or reducing expenditure serve the same purpose. They both help to ensure the company meets its obligations at all times. Therefore, cost minimisation is another route to financial stability or the fair side of revenue maximisation. Sadly, many people, as well as institutions, public and private, somehow strangely, and not just the operators in the microfinance industry, find this simple concept hard to accept. Even our national and subnational governments find it so hard to embrace cost containment, despite evident signs of revenue instability and a likely worsening of the fiscal position of governments across the nation. If your income falls and you can no longer make as much money as before, the wise thing to do is to look at your expenses – not just a look but a good hard look. In controlling cost, especially at a time like this, care must be taken not to inflict permanent damage on the business. Cost containment badly implemented has counterproductive effects.
Properly executed, it has been proved that cost containment efforts have many advantages and unintended positive fallouts or consequences. They often lead to the discovery of more effective ways of reducing waste not directly related to cash. Effective cost containment efforts may also lead to better ways of blocking, reducing and combating corruption. For public institutions, especially in developing countries where the integrity of the pay roll and, by extension, the wage bill, is often in serious doubt, cost-containment diligently executed could lead to a reduction in the wage bill. This happens for a number of reasons including the discovery, blockage and eventual elimination of errors. Those seeking to cut costs often discover the real root causes of other negative influences on their costs, such as the now notorious phenomenon of “ghost workers”, which is rampant in public institutions in Nigeria.
In this regard, while the wage bill may be an important cost element, it should be approached with care. A cut in the wage bill is necessary but not all categories of staff should make the same level of sacrifice
Ghost worker drain substantial revenue from the Nigerian pubic services. Unfortunately, even after they are discovered and “eliminated”, they mysteriously regroup and re-enter the payroll, drawing salaries every month. The bigger mystery is that we have hardly heard the true story of how ghost workers are recruited, documented and given all necessary pass to the pay roll. In the public service, we always read of how ghost workers are discovered and eliminated but we have never heard of any “paymaster” being queried talk less of being jailed for this crime – one of those uniquely Nigerian phenomena.
In this regard, while the wage bill may be an important cost element, it should be approached with care. A cut in the wage bill is necessary but not all categories of staff should make the same level of sacrifice. A graduated pay cuts that recognises that lower levels of staff have little or no savings to fall back upon works. Such staff could be saved entirely from salary reduction. After all, how much do they really earn. A cut in their pay may not make any meaningful contribution in shoring up revenue but will impact heavily on morale. Look for the big fishes and give them a haircut. They will absorb it better. But take my words, if you do it without consulting them, do not say I advised you. Consultation is the first step to dealing with “matters that touch the heart”. Pay cut is one of them.
Nigeria is currently served by 907 microfinance banks that were in operation as at December 2019, with most of them (330) located in the South West. This is a far cry from the 1008 operators in existence in 2018. We have therefore experienced considerable attrition and should as much as possible prevent more of such.
