Early this year 2020, I came up with a few predictions for the microfinance industry. The predictions were premised on factors pre covid 19. This week I am tempted to review that same prediction to find out which has been shattered by the effect of the novel pandemic.
Who would have imagined that painstakingly articulated plans could be shattered within the first quarter of the year? Organisations are now faced with the task of discarding their annual budget to prepare short term cashflows in months and quarters since no one really knows when the pandemic would be over. The predictions below were mine for the decade earlier this year.
1. Brick and Mortar will disappear; Technology will rule the industry. The act of building branches all over location of interest would become unfashionable. This will allow MfBs to reach a wider clientele at a lower transaction cost.
2. Emergence of Mega Retail Banks: Microfinancing business will return higher yield on investment and capital ahead of traditional commercial banks. Commercial banks will see compelling reasons to focus on this area as it would contribute significantly to their bottom line and would therefore want to split their license. This would lead to the emergence of Mega Retail banking license instead of Commercial Banking. Commercial banks will disappear and give room to a holding structure that would hold various license as they find profitable.
3. The Poor will always be poor: As a Christian, I believe the bible when it says in Mathew 26:11 that the poor will always be among us(paraphrased). You can manage and attempt to alleviate poverty but you cannot eradicate it. The war against poverty will continue with gainers and losers.
4. Colonisation of the Nigerian Financial system: There are currently 9 National microfinance licenses, out of which 7 have international affiliations. More investors have shown interest and this will continue for sometime. Foreign investors are interested in the population of Nigeria. It is exciting to have your potential target in excess of hundreds of millions. By the time we realise the impact of the great influx giving rise to financial colonies, we will fight hard to free our economy but not without paying the price.
5. Higher profitability due to the reducing marginal cost of serving customers as they scale. The current pricing regime allows for sufficient interest rate to enable operators cover their cost, the use of technology will reduce transaction cost. Supported by a teeming population, there will be higher returns to attract more investors and the cycle continues.
Next week, I will be reviewing the above positions to see how far they have been affected by Covid 19 and if there are new implications, I shall state the impact.