The Executive Director, Lagos and South-west Directorate, Fidelity Bank Plc, Mr. IK Mbagwu spoke about mobile money and how it will significantly support the cashless policy. He spoke to Obinna Chima
In less than one month, the cashless policy will be extended to 30 other states in the country. What is your assessment of the policy and do you think the country is ripe for the nationwide rollout?
When we first started, we said we were not ready, even from the pilot scheme in Lagos State, some said we were not ready then. But obviously, you have seen how far we have gone. It is not a 100 per cent success and even the nationwide rollout may not be 100 per cent success.
But it is a journey that we must start and the only way to start is to enforce the policy. I think that is what the central bank is trying to do. In terms of infrastructure, we may not be a 100 per cent ready.
However, the Point of Sale (PoS) machines are there, the Automated Teller Machines (ATMs) are there, internet banking is available and these are some of the major planks of the cashless policy. The banks are also ready for the cashless policy too.
Most of us have been working on it for more than a year now, creating the enlightenment, making sure that customers understand what it means to use the channels rather than coming to draw physical cash or moving cash around. Indeed, in terms of statistics, the physical cash has actually reduced to some extent.
For us for example, we measure what customers come in to do in our banking hall and we have found that whereas in the last three years ago, most customers were basically used to taking cash.
But as at today, about 80 per cent of the activities have moved to electronic channels using ATMs, internet banking, PoS and others. So there have been a conversion that has already happened and I dare say this has happened in many banks today.
So, I believe that we are ready for the cashless policy. We are not 100 per cent ready in terms of infrastructure, but you cannot wait until you are 100 per cent ready in terms of infrastructure. But remember, cashless does not mean there is no cash; it is just a matter of ensuring that the preponderance of transactions are not done by cash.
But mobile money, which is also expected to support the cashless policy, is yet to gain traction especially because most of firms that were granted licence are not offering the service. What do you think is affecting the growth of this channel?
It is like everything else. When something is coming out, there is always some inertia. People who are used to doing things in a certain way will always find it difficult to switch.
However, as you persuade people and as you begin to introduce new ways and people see that it is easier, they would switch. It is a matter of time. We are one of the banks for example, that is establishing mobile money or mobile payment.
We got our in-principle licence from the central bank late last year. We are now in the process of getting the final approval. We have put the technology and the infrastructure in place and we have a few things to tweak before we launch commercially.
The commercial launch of mobile money by most of the parties would certainly aid, not just cashless Nigeria, but financial inclusion. Financial inclusion will be a prerequisite for cashless Nigeria because if you have not included everybody in the financial system, there is no way they can talk about cashless.
They must keep the money under their pillow. But if you include them into the system, then they can begin to talk about cashless and then they can have access to the electronic channels and those things that can make life easier for them.
So, for many people, the mobile payment/ mobile money/mobile banking are all part of the financial services system, part of the prerequisite for going cashless and also part of the prerequisite for financial inclusion. I think rather than saying cashless is the ultimate goal, the ultimate goal is financial inclusion.
That will enable us to properly measure the economy. When for instance, we say the Gross Domestic Product (GDP) is X, we can not truly know it unless everybody is financially included. Those that are outside the system, you cannot measure what they are doing. So, financial inclusion is the ultimate goal for the economy to work.
We have noticed an increased focused on small and medium scale enterprises (SMEs) by Fidelity Bank, what is the drive behind the move by the bank?
SMEs worldwide are where most economies develop. In Nigeria for example, 70 per cent of the people or more, are engaged in SME activities or are employed by SMEs and we have over one million SMEs. The hairdresser is an SME, the man who has a small store, is an SME and down to the basic ones.
But going up, you have other SMEs that are organised, the once that can be called Managed SMEs. These are people running small technology companies, those running small transport services. You can define them maybe by turnover, the number of people they can employ, etc, but they are all SMEs.
These are the major and largest employers of labour in any economy and that is the reason why if you look around, most banks and not just Fidelity Bank are focusing on SMEs.
The key test would be how successful you are and we have adopted a fairly unique strategy that we hope will work successful in the SME sector. So SMEs are the key for industry growth and the ministry of industry and commerce also recognises this, which is why they have SMEDAN.
Can we say banks are gradually shifting from corporate banking to the retail and SME segment?
Absolutely, there is and it is very clear. Apart from maybe one or two of the banks, many banks have realised that the corporate banking area is fairly saturated. The number of people coming into the corporate banking sector of the banking industry is limited.
I am not sure you will see too many entrants there. The same people you know: Nigerian Breweries, Guinness, Nigerian Bottling Company, Nestle, Unilever, etc. They are the same companies. A few companies such as Dangote, MTN and the telecoms, but they are still few.
But in the SME sector, I dare say there are more than thousands of entrants every month, not even every year. So in terms of business, the SME segment is where to look for business because there are a lot of them. So, the focus has shifted towards SMEs, retail and consumer lending because these are all the people that are down market.
But the risk involved in lending to that sector is higher?
Banks have different strategies for risk management. For us, we have an enterprise-wide risk management system. When I say enterprise-wide risk management system, it means that we have a coordinated risk management system that takes everything into consideration.
It takes in operational risk, market risk and credit risk. Credit risk is what you are talking about particularly for the SMEs. Our strategy is a fairly wholesome one.
What we do to our SMEs in particular is that we are not going to lend to every SME that walks through the door. We are going to first identify those we call Managed SMEs.
We have different products for different SMEs. We are not going to give loans to everybody and we are not going to give the same type of loans to everybody.
For example, an average hairdresser who wants a loan, maybe N200,000, the type of loan you give such a person is a small loan that has minimal complications and you tie those loans to their turnover.
You will ensure that all their income come into your bank. That way, you have a hold on their cashflow. As long as they have a cashflow, the loan would be repaid.
That is one strategy for achieving repayment in an orderly manner. For the managed SMEs, that is the slightly larger ones where their turnover is about N50 million, what we do for them firstly, to look at the business that they are doing.
We help them with their financial management, we help them with their technology, and we even help them with governance. We go to the extent of making sure that they have board of directors to direct the affairs of the company. We help them to make sure that they have good auditors so that you can even tell what their performance is.
So our strategy is to get involved in the things that make them better businesses before we talk about lending. When we have gotten past that stage, we pre-qualify and segregate them into groups and decide the amount they need.
So those type of people who need money to support their business, we don’t give them money to go and buy a car or a generator, we give them overdraft to support working capital. So it is a game of segregating and properly determining what type of loan to give, how to structure your repayment and also to make sure that they repay.