Operators in the microfinance sector will do themselves a favour if they stop the sector from its current drift away from its core mandate. To do this, there is something which microfinance institutions in Nigeria should use these initial low activity months of the year, when business is at low levels, to accomplish: personal review. This personal review, which should be both operational and structural, should seek to identify in themselves some of the key characteristics that make an MFI strong. A strong institution is one that is not only profitable but has the financial and institutional fibres to withstand any business eventuality within the foreseeable future.
Over the years and in the pursuit of the demands of business growth, profitability and competitive edge, many of them have deviated from the key characteristics of a strong microfinance institution. Attention has been focused mainly on the so-called bottom line and turnover numbers essentially to the detriment of other key requirements of longevity. The risk in this development is that an institution may be growing in financial strength but not in character. Meanwhile, it is character, by which is meant the core values and fabrics of an institution, that come to the rescue when real danger or crisis happens.
First, it would be very important for every MFI to review its vision, if it has one. This vision is usually captured in clear and concise written statements that help to promote, internalize and institutionalize the vision. Not all institutions have clear and properly written vision statements.
Perhaps, this review will provide the opportunity to put the vision down in writing and make it available to all stakeholders. Again, vision statements are not written by just anybody. There is a way to craft it to avoid a confusion with the mission statement.
Usually a vision statement goes with a mission statement. It is usual to find in the mission statement the target market of the institution and the services it intends to provide in order to achieve its mission. The commitment of the leadership of the institution is also reflected strongly in such mission statements. A review of the vision and mission of our MFIs will help refocus and redirect them to the ideals of microfinancing. It is no longer a piece of allegation that many of them have mutated from microfinance institutions to something between a financial institution and a general merchandising organization. Some have become micro-commercial banks and no longer microfinance banks. And for those trying to replicate commercial banks, my advice is for them to seek commercial banking licences. It is the failure of commercial banks that gave rise to microfinance banks. It is therefore foolish to make the same mistake the banks made and expecting a different result. Commercial banks tried to serve the poor and failed woefully because by their very nature they cannot, even if they wish to.
It might be necessary to dig out the feasibility report that brought about the particular microfinance institution for the purpose of perusing it afresh.
In many cases, we may find that the activities going on in the place are mostly alien to those intended or anticipated by the feasibility report. In other words, the MFI has gone widely astray from what it was set up to do. This not only robs it of the institutional experience required for future growth but also introduces it to some new risks that are not contemplated by the founders.
Second, there is an urgent need to take a look at the current service delivery strategies and methods adopted by our microfinance institutions, especially the banking institution (MFBs). The method of delivery is as important as the service itself. We should begin by reviewing our services to ensure that they meet the criteria of microfinance services. These criteria include the fact that such services have to be simple financial services, adaptable to the local environment and easily understood by those for whom they are intended. Above all, they must be pro-poor services. This ensures that the services cohere effectively with the target market definition and the mission statement of the operator.
Third, the way a microfinance institution is organized is critical both to its effectiveness in service delivery and also in its long-term sustainability.
This is so because organization structure will affect the quantum and quality of the human resources attracted and utilized in the service delivery. MFIs must up the standards, as it were, in the organization and delivery of their services. There must be effective use of human and material resources. Proper job description must be attached to every job with appropriate rewards and or incentive schemes. How is your institution organized?
This reminds one of the importance of Client Turnover Ratio, which we have discussed in this column in the past. It is a measure of how well clients’ needs are met by the microfinance institution. Unfortunately, Nigerian businesses are not famous for their interest in repeat business. Indeed, our business culture is anti-repeat patronage. But this is one of the key sources and causes of longevity of businesses in other climes. How many business houses in Nigeria, especially the MSMEs, care about the comfort of the customer when designing the business premises? Many do not know that a welcoming business premises, be it an office or a one-room shop, is an important factor that helps determine whether a customer comes again or not.
There is a very obnoxious act that has gradually become the tradition among traders in Nigeria. Once one has paid for an item, one will never get one’s money back. It does not matter if one has not left the shop and changed one’s mind about the item. This is a most primitive and repulsive behaviour of Nigerian businesses that always leaves a sour taste in the mouth of their customers. In other climes even after several months one desires to return an item, one is welcome provided certain things are in place, like the labels. Is there any wonder why most of our business establishments don’t survive their founders?
The idea of microfinance becoming a commercially viable business should not in any way be interpreted to mean that microfinancing is no longer a peculiar kind of enterprise. For one, it remains a financial service for the very poor members of society alone and not the rich. This feature is fast eroding among our MFB services.
Fourth, microfinance services must reflect the urgency and time-sensitive nature of the needs of the poor. This is why all data forms must as much as possible be limited to one page. No form should extend to a second page. The documentation must be concise and smart, easy and brief. This implies that standardization is critical in the operation of MFIs.
Fifth, most of the microfinance institutions in the country can be classified into two headings: those that are technology savvy, with functional Management Information Systems (MIS), and those that are technologically illiterate, with little or no MIS. There is need for investment in this area.
It should actually be compelled by the regulators. Those operating in the sector must devote a certain amount of money to install relevant software and systems to enhance their operations.
