The Managing Director and Chief Executive Officer of Mainstreet Microfinance Bank Limited, Adegoke Adegbami, has tackled commercial banks for offering lesser loans to customers compared to the Microfinance Banks. He said loans to customers are a small portion of commercial banks' portfolio despite benefiting greatly from the public who prefer to deposit in commercial banks than Microfinance Banks.
Adegbami said Small and Medium Enterprises and low-income people find it difficult to obtain loans from commercial banks and when commercial banks decide to offer loans to small business and low-income individuals, the loans come with stringent conditions that are difficulty for SMEs and low net worth individuals to meet.
"For commercial banks, people must know we are not operating the same business model with commercial banks. Loan to customers is a very small portion of the commercial banks’ total business portfolio in Nigeria. They collect all the money from the public and give a little back as loans to customers.
"They collect so much from the public because that is where everybody goes. Even the people that collect loans from MfBs, when they have small deposit, they take it to the commercial bank. And they come back to complain that the microfinance banks’ loan is expensive.
"What they give as loan compared to the total money they take from the public is very small. And how much of their loans go to the SMEs and low-income people? Even the little the commercial banks give to that segment are given under stringent conditions. Those conditions are not easy for SMEs and low net worth individuals to meet," Adegbami said.
Commercial Banks Prefer To Pay Fine Than Give SMEs Loans
To buttress his point, Adegbami said that's why the Central Bank of Nigeria (CBN) had to compel commercial banks to increase their loan level, but the commercial banks will rather pay penalties to the CBN than give loans to SMEs. He made this known in a report by The Nation.
"That is the reason why CBN had to start compelling them to give more loans recently. But some of them will rather pay penalties to the CBN than give loans to SMEs and the real sectors because they have many other ways of making money besides issuing loans. You don’t blame them also, because doing business is very risky in the Nigerian environment." Adegbami said.
Microfinance Banks Take The Risk For SMEs
It was learnt that despite having a preference for commercial banks when they have money to deposit, small businesses and lower-class individuals benefit greatly from loans offered by Microfinance Banks. He said 80% of Microfinance Banks' portfolio is loans given to customers.
According to him, Microfinance Banks are putting their business at risk for the benefit of their customers. He said such could lead to the collapse of any Microfinance Bank if customers and SMEs refuse to repay their loan as loan is the mainstay of Microfinance Banks.
"... We as the microfinance banks are actually the ones taking real risks over our customers. That is all we do. More than 80% of a microfinance bank’s total asset consists of loans to customers. And the customers consist 100% of SMEs and low-income individuals. It means if all those customers refused to repay their loans for whatever reason, the MfB will go down," Adegbami said.