There is an inherent systemic flaw in the microfinance banking business model in Nigeria. I know someone won a Nobel Prize for pioneering the broad nexus of microfinance sector, but in Nigeria, it is simply not a good business model. You are expected to serve largely non-premium customers even though you cannot receive easy deposits as a “bank”. Yes, you have to look for expensive capital to serve people you would struggle to make money from. No issues – you would just be doing it until you run out of cash.

So, it is unexpected when CBN noted that it would be revoking the operating licenses of 182 other financial institutions in the country. Most of these entities ran out of cash and that was it. You cannot be serving those at the bottom of the pyramid who are typically very expensive to serve with the most expensive capital in the land. Commercial banks enjoy cheap capital through deposits, and yet they typically avoid bottom of the pyramid because they cannot make money from them. (Sure, that is changing through human-platform banking.)

The Central Bank of Nigeria on Wednesday gave a notification to revoke the operating licences of 182 other financial institutions in the country.

According to the list released by the regulator on Wednesday, 154 of the affected institutions are microfinance banks; six are primary mortgage banks; while the remaining 22 are finance companies.

The CBN said 62 of the microfinance banks had already closed shop; 74 became insolvent; 12 were terminally distressed; while six voluntarily liquidated.

Get me right – I am not saying that microfinance will not work. But the way we are running it across Nigeria has no core competitive advantage anymore. The Central Bank of Nigeria stripped all the things which made it appealing in most countries where it worked. But you cannot blame the CBN: Nigerian banking does not have super-great records on keeping people’s monies. There is no generation which has not been battered by failed banks either as depositors or sovereign losses through bailouts.

Fintechs in Nigeria

As the capital structure of microfinance banks haunt them, the fintech revolution is also catching up with many of them. Simply, fintech companies like Interswitch, Paga and Paystack are now automating out many microfinance banking institutions out of business. The services from the largely analog microfinance banks are expensive to use while the fintechs’ are cheaper. Because the fintechs are digital institutions, they are scaling their services thereby making them more appealing as they are everywhere at the same time. Just like that microfinance banking has become an endangered business in Nigeria.

The Remaining Niche

As fintech companies expand, the best remaining sector for most microfinance will be trade services: give traders money to trade locally. Most microfinance banks are unable to participate in the lucrative foreign financing part because of asset base and regulation. For the local trade services, I can give some microfinance banking institutions operating in our typical open markets (e.g. Aba, Iduomota, Onitsha) few years to live before they are annihilated by fintechs. The future is not that promising for microfinance banks in Nigeria unless they can use their licenses and become fintechs by digitizing how they work. Digitization will reduce marginal cost which is extremely important in delivering affordable products and services to the bottom of the pyramid constituency.

• Trade financing: You contribute to finance trade in some Igbo men going to China. But you need to have the right people. They mop money and use that money to bring containers. This is a thriving business in Aba and Onitsha as most have shunned banks due to cost of fees. And with the good returns, some people are taking risks. They offer good contracts and in some cases provide collateral as they own shops. Personally, I have used this model to assist some people. Yes, people I know. Their returns are the highest in Nigeria. The deal happens over four months as that is the typical time to go to China, import items and sell them at wholesale. Please do not ask me for contacts. If you are interested, this is very common in Aba, Onitsha and Lagos where there are concentration of Igbo traders.

All Together

If you are in a banking business where you only have access to expensive capital (compared to commercial banks with free deposits), and at the same time you have to serve the most expensive customers, you are in trouble. Microfinance banks in Nigeria are in that state: it is a total paralysis, and I do not see any positive outcome for many. Now, fintechs are automating most of their functions and the few “premium” customers they used to serve are moving to Paystack, Paga, and Interswitch.

The implication is a hopeless state which will not end well. So, when you read that CBN is revoking licenses of 154 of them, just understand that CBN is not even hard. It is not a business of the future unless you can do what is necessary: use the microfinance license and evolve as a fintech with scalable services where marginal cost is low, making them affordable for the extremely price-sensitive non-premium customers. Without that redesign, they would all die!

The Nigerian blockchain & AI Roundtable has announced Ndubuisi Ekekwe as the keynote speaker, Business a.m. reports. Prof Kingsley Moghalu and Chike Ukaegbu, both presidential aspirants will also speak. Besides, Heads of Security and Exchange Commission, and Nigeria Interbank Settlement System, respectively Mary Uduk and Dr Aliyu Abdulhameed, will participate.

The first Nigerian blockchain & AI Roundtable, which will hold in Abuja on the 19- 20 October 2018, would have Ndubuisi Ekekwe, the Zenvus AI for agriculture inventor and chairman of Fasmicro Group as keynote speaker.

The roundtable would have in attendance top government decision makers, industry regulators, entrepreneurs, enthusiasts, developers, chief technical officers, students, and investors to discuss how the convergence of blockchain and Artificial Intelligence would contribute to the prosperity of the Nigerian economy.

“I have accepted to keynote Abuja Blockchain & AI Roundtable in Abuja, Nigeria,” Ekekwe told business a.m.

He said the goal for the Abuja blockchain & AI roundtable will go beyond the current hypes about crypto and provide a common framework for thinking about what the convergence of blockchain and AI means to Nigeria’s economic prosperity agenda.

Pulse reports on the nature of the event

Business leaders, government and regulatory agencies, data practitioners will gather at the second edition of Abuja Blockchain & AI Round-Table Conference scheduled to hold between October 19 and 20, 2018 at the Sheraton hotels, the nation’s capital.

The hybrid conference will feature a melding of the AI and Blockchain communities in Nigeria and across the world, exploring the possibilities at the intersection of these two technologies, with talks and panels encompassing some of the world’s top experts in the field

As I work in agriculture, I have learnt one thing: Nigeria’s agricultural paralysis is not solely due to low productivity but making sure our little production capacity is optimized from farm to table. We waste a lot of food in this nation. Yes, a nation where excess of 87 million are classified as being extremely poor is still wasting farm produce. You can argue that the waste is really the reason why we have that level of poverty in the land.

At the end of May 2018, our trajectories suggest that Nigeria had about 87 million people in extreme poverty, compared with India’s 73 million

Today, a commissioner narrated how few years ago, Bauchi farmers were forced to sell baskets of tomatoes for N300 (~$0.89) per basket because no one could buy them. And when the government brought in consultants to help, they told them that the most strategic roadmap was to allow the tomatoes to waste as the cost of harvesting and transporting them will exceed any value derivable.

Yet, the next year, do you know what happened? Government doubled down on more incentives on growing tomatoes. Interestingly, no one got the memo that even the little produced last year was largely wasted. We think that has to change.

Next year, under the pioneering engineering of Kobo360, a category-king logistics company in Nigeria, together with Zenvus (my agtech company via the zCapital services), a pilot will be launched in a northern Nigeria state. We are exploring how to ensure that no single produce would be wasted, post-harvest.

Kobo operates under the principle of Aggregation Construct which depends on network orchestration where it works as an arbiter for many partners and customers. With this model, the customer experience becomes a key part of its business. It does not have ships, planes and trucks delivering services from U.S. to Nigeria and beyond. But it has a technology to simplify trade and commerce. It has got happy customers who do think its services are even better than firms like DHL.

If you have access to a governor or commissioner in your state, please reach out. We can put you in this pilot. Our vision is to micro-aggregate all produce from farms to cities and factories, and deliver generation-shaping productivity boost anchored mainly by reducing wastes. It goes beyond building expensive warehouses and cold rooms to deploying the best logistics operating system in Africa to move things out as quickly as possible. Kobo engineering is supremely solid in fixing logistics friction and is on call to help farmers.

In a piece on how to invest N10 million (about $28,000) in Nigeria, I explained that financing trade could be very lucrative. Largely, returns of 40% have been recorded within four months.

Put 40% to finance trade. In Aba and Onitsha, some people put money to finance trade. Some men mop cash and travel to China to bring containers. The return can be close to 40% with my recent data in four months. It is a solid business outside the banking sector run by some Igbo men. Say someone needs to import something of N220 million, they pool money and once the items come in, they sell wholesale and balance the people that funded them. This is the real investment and can technically make you whole. But it has risks if you do not know the person. You would not like to give money to someone you do not know.

Someone followed up and commented as follows

Thanks for the clarity of your write up and of course the well researched content. One question though; why would traders be willing to offer up to 40% returns in as few as 4 months while rejecting bank loans which typically hover around 21% per annum. Is it just the interest rates or more about the quality of their collaterals.?

This is my response (edited for clarity)

I am not a trader but if you work with these guys, they can mobilize cash in 72 hours. I am not sure any bank can achieve that in Nigeria. Also, banks most times will ask you to import in their names or something like that, holding the assets until you have cleared the loan. But here, the trader is in control. People do not go to payday loans because there is no bank; people go there because they are more convenient with lesser frictions.

So, people do give away 10% of their salaries for immediate cash in America even though a bank will do it largely free. But the problem is that a bank will ask for many things while a pay day master does not ask for anything.  Convenience matters to the people who patronize payday lenders.

The payday loan in U.S. is like fiction until you see people queuing to give out 10% of their salaries to get cash about 3 days before the cheque is due. So, you have a cheque of $1,000 and you collect $900 today for someone to cash that cheque and keep $100 in 3 days. It is a big business in U.S.

Sure, government does tell people to stop that. But the reality is that the ease of walking into a small office and coming out in 10 minutes with that $900 without filing any major form or going through background check seems to be better option for some people than trying to save the $100 by going through the vetting process of the banking system.

It is that philosophy that drives traders. Banks will need you to submit all kinds of materials and waste 3 months to mop that cash. Members can help you move money in 72 hours. Even if bank is offering 21% interest per annum, that is irrelevant because of the friction involved. Payday masters could make 10% in 3 days and yet people go there! It is unfortunate on that level of margin but it happens.

In Nigeria, companies like Lidya which are focusing on SME lending can fix some of these frictions by finding better ways to engage traders and businesses. The requirements in the formal banking system remain a huge burden to most traders. But you cannot blame the banks because they need to meet financial ratios set by the regulator while making sure they are not tripped into bad loan paralysis.

Lidya, the digital financial services platform focused on improving access to credit for micro-, small-, and medium-sized enterprises (MSMEs) in Africa, today announced that it has raised $6.9 million in a Series A investment round, one of the largest in Nigerian tech history.

Of course financing trade will remain challenging until Nigeria builds a top-grade credit system. With a credit system, the risk will drop and banks can easily offer loans and credits without demanding onerous collaterals.