Mr. Simon Hughes of International Banker interviews Mr. Olukayode Pitan, Managing Director and CEO of Bank of Industry.
Today, International Banker is joined by Mr. Olukayode Pitan, Managing Director and CEO of Bank of Industry, to discuss the financial inclusion in Nigeria, the country’s SME sector and the role that the bank plays in improving the economy of Nigeria. Very good to have you here.
Thank you for inviting me.
Now, let’s start with the term “financial inclusion”. What does that mean to you? Is it simply about providing more access to banking services and credit, or is there more to it than that?
Thank you very much. There is more to it. It goes beyond just providing credit. We actually want more of our people to be using the financial system. In Nigeria, there is a lot of business that the people would say is not the formal business. We’re trying to get them onboard. Aside from giving them the money, there are many advantages to being part of the international banking system and the local banking system. They will have access to credit. There are things they can do. So, we are trying to get the money across to them. But we also want them to be part of the banking system, because there are many advantages.
What are some of the most effective ways in which Bank of Industry is currently promoting financial inclusion in Nigeria? How successful are they proving to be? Those many examples that you are thinking of.
For now, we are working with government. There’s the GEEP program, government empowerment, an entrepreneurship program, that we are doing, managing, for the government. And the idea was to bring at least 2 million people onboard very quickly, working with a lot of fintech companies. We were able to achieve that figure. We go to the various states; we onboard them. We take their statistics. Many of them had never used the banking system before. So, that way, we have been able to bring about 2 million people onboard. But these are women, who are traders, these are organizers, these are people who are doing small businesses. So, if you bring two million people onboard, you might actually be touching 10 million people. So, that’s just one example of what we have done successfully.
And in its efforts to boost financial inclusion in Nigeria, does Bank of Industry form strategic partnerships with organizations such as NGOs? And if so, have those partnerships proved to be fruitful?
As a bank, we are now in 22 states in the country. We have 36 states. So, even though we don’t have enough of a branch network to do what we would like to do, the way we have been able to manage and reach out to the people is by working with commercial banks, microfinance banks and the NGOs. And they have proved to be very useful. For instance, in Aba, the leather cluster, we work with Ford Foundation, on capacity development for the people, onboarding them to bank facilities. It’s worked very well. So, the NGOs who have a stake or interest in financial inclusion or development, microfinance banks and commercial banks and merchant banks, we have worked with them. We have used their networks to reach out to more people. There was no way people could know what we did without working with those NGOs and other financial institutions.
That’s a great example of doing that. What do you think is the most single effective solution for boosting financial-inclusion levels in Nigeria? Is the solution something that Bank of Industry can adopt, or is it currently adopting?
It’s a very interesting question. Now, for those who have been lending to that segment of the market, they will tell you, “This is a very risky kind of business to do”. In some cases, we have seen losses close to 100 percent of the money that we disbursed. But there are a lot of people in Nigeria, there are about thirty seven million MSMEs, the micro and small to medium enterprises. How do you reach that number of businesses and people? The only way you can do that is through technology. Because even though the government is in a hurry to reach out to the people, some of the banks only have three million customers. So, we’ve had to rely on technology to do what we have done. Technology will play a large part, because nowadays you look at Nigeria, the number of Nigerians with mobile phones. You can do a lot with mobile phones. You can convert those mobile phones to a bank, many banks. And through that, you can reach a lot of people. The answer in short form is technology.
Now, you mention your network and where that kind of reach is. Thinking of accessing the unbanked or the underbanked, do you consider your current branch network across Nigeria to be sufficient? And do you expect further branch expansion, like in physical bricks and mortar, as a future way of boosting the financial inclusion? Or is it all going to be down to tech?
I think it’s going to be down to tech. For instance, the Nigerian banks, they have over a thousand branches. We have about 22, 24 branches. Now, if we were to decide to have a branch in every state. And let us even go further down, to have a branch in every local government. There are 774 local governments in Nigeria. That means we’d have about 1,000 branches. For the size of the country, depending on who you are talking to, we are approaching 200 million people. That would be grossly inadequate. In the last three to four months, working with government, we’ve been able to give some kind of financial solutions to about 1.8 to 2 million people. So, definitely, the way to go is fintech. Bricks and mortar is not going to solve the problem.
And thinking of your kind of career in banking, which is over 30 years—including, what was it, Citibank and FSB International Bank—from an internal-culture perspective, what do you consider to be the most significant difference between working for commercial banks and working for a development-finance institution?
Also an interesting question. When I was in commercial and merchant or investment banking, the bottom line was number one. You had targets; you’re looking at how much dollars you’ve made. But when you work for a DFI, and we are one, a development financial institution, the yardsticks go beyond money. What is our impact on people, on their lives? We loans that we give out. Were we able to meet government targets in terms of employment, in terms of reduction of foreign exchange? Because if Nigerian companies can do some backward integration, then they will demand less of foreign exchange. So, the parameters, the things that we are looking at, it’s a bit different. And for me, it’s very fulfilling when I see a factory that was closed down before that is back into production because of our assistance. I see people are employed. And we need to get a lot of Nigerians youths back to employment. Don’t misquote me to say, “Well, is that all you’re looking at? What about the bottom line?” We are also making money. My background in commercial banking tells me to look for us to do what we are doing. And for it to be sustainable, we have to make the same profit. Last year, 2018, we have just published our accounts, we made about $800 million in profit. So, the bank is profitable. But more importantly, we are able to meet the other yardsticks, which is not only in terms of the profit figure that you have.
So, the focus is on not just the bottom line but the people. But, also, of course, you’ve got a lot of MSME-sector businesses in Nigeria. Do you think they’re being adequately supported by Bank of Industry? And what are some of the most significant projects with which the bank has been involved in recent times?
That’s sector is large. Like I said, you’re talking about 37 million firms that fall into that category. Definitely, they’re not being served adequately, either by Bank of Industry or the whole industry. We’re trying to correct a few things in that sector. Most of the banks don’t want to lend to them, because it’s a very risky sector. So, we have to find a way to de-risk lending to that sector. We are talking to government and some of our biggest insurance companies to see how some of the losses can be shared between Bank of Industry, the lending banks and the partner banks, so that people can put money in that sector. We have increased the amount of money that we lend to that sector. And in the last three years, we must have, I think what we gave last year was about five times what we gave about two, three years before. But that is just scratching the surface. We would like to do more. Some of the other Nigerian banks would like to do more. But that sector, we need to de-risk it, and that de-risking has to come from government because there are so many issues. For instance, because they are just coming into the financial system, they have no credit history. So, when you are even talking to insurance companies to say, “What can we do?”, and they’re asking for statistics, they’re not available. They don’t have a credit rating. So, even to know how you are going to lend to them is difficult. But now, through the fintech companies, we are able to do things. Like, for instance, when we have their telephone numbers with some algorithms that people can run, we can know that this particular person can get credit up to a particular level, taking the other things that they do that we have figures for, like telephone bills and things like that. So, that’s the future. We can do more than what we have done, but there’s still a lot of work to be done in that sector.
And thinking kind of innovation, new ideas, one of the bank’s most interesting products appears to be something called the Nolly Fund. Can you briefly explain some of the key features of that product?
Now, Nolly Fund was actually created to take care of Nollywood, Now, what is Nollywood? You know of Hollywood, which is the American one. You know of Bollywood, the Indian one. Then the Nollywood is the Nigerian film industry. We are number three in the world, depending on who you are talking to. I think we are number four. The Chinese are probably much bigger than people give them credit for. But that sector is huge, and there are a lot of people who are engaged in that creative sector in the film industry. Most of them could not access facilities from normal commercial banks because they are creative people, they have ideas. Sometimes all they have is the script of a film. And you come to a bank; you’re trying to get a facility. So, we came up with a product whereby we can lend money to them to make the ideas come to life. And that’s the idea of Nolly Fund. Initially, it was about one billion naira, but as of today, our portfolio in that sector is about 20 billion naira. So, it’s about 20 times the initial concept that we had, because we’ve been very successful. Some of the good films coming out of Nigeria today were financed by Bank of Industry. We are proud of that.
Through the Nolly Fund.
Through the Nolly Fund.
Here’s another one. TraderMoni. What is TraderMoni? And what role does Bank of Industry play in the development of this program?
TraderMoni was a government product initially; it was part of the GEEP. The government wanted to empower a lot of Nigerians. The idea was, if these guys had no access to facilities, why don’t we as government give them small loans? $10,000 naira, $30, $50, with our security for about six months. That way, you are bringing them into the financial system. It’s part of financial inclusion, it’s part of financial empowerment, it’s part of financial entrepreneurship. And the government gave us a target of two million Nigerians. So, it was a loan of $10,000 naira over a six-month period, interest-free, without collateral that we were able to disburse to about two million Nigerians. And the funding came from government. The manager of that was Bank of Industry. And the network that we used, the backbone, was fintech. And it was quite successful.
Now, another thing that the bank’s recently made clear is its intent to play a pretty major role in developing economic zones within Nigeria. What do you see as being some of the main benefits, both to Bank of Industry and the country itself, of creating such zones?
Well, if you talk to people who are in the industrial sector, they will tell you things about power, the cost of power, infrastructure. So, what that means ultimately is that the cost of production becomes too high. The products will not be able to compete with imported products. So, the idea of the industrial zones is to have some particular sectors of the country. And we’re talking of having one in the south, one in the southeast, one in the north, to start out with, where everything is provided within that zone. Power is there, water is there, infrastructure is provided, so you rent at minimum cost. It brings down your cost of production, and it makes more Nigerians to be employed. We have seen, we’ve gone around, there are parks in China, even in Ethiopia, that are working very well. So, the idea is to see how we can make it work in Nigeria. It can be used for the textile industry; it can be used for different kinds of things. That’s the idea, and Bank of Industry wants to be a part of those who will make that to happen.
You’ve been setting out lots of kinds of ambitions, what is the one goal above all others that you hope Bank of Industry will have achieved by the end of 2019? And why is it so important?
By the end of 2019, that is short, but yes, there are things we would like to achieve. I was appointed as MD/CEO about two years ago. My target was to double the balance sheet of the bank within three years. We’re close to that. I think we’ve done about maybe 60, 70 percent. The bank is more profitable. Because of the need that I see in the industrial sector and the paucity of the funding available, I’m driving myself and the bank to raise a lot of money. Last year, we were successful. We were trying for the very first time. We went out into the international market to raise money. The plan was to raise $500 million, but it was oversubscribed because the bank is well run. We have a Fitch rating, we have a Moody’s rating, local ratings, we are Double A. We raised $750 million. Last year we raised over a billion dollars. I would like to raise a billion dollars this year. I would like to do more than we did last year. Because more Nigerian factories, more Nigerian industrialists need our services. Most of the loans we provide at Bank of Industry, the pricing is 10 percent. The average cost of funds, if you are borrowing from Nigerian banks, is between 20 and 30 percent. So, we want to bring down that cost. We want to make our industries to be more viable, more profitable, so they can expand. And ultimately we want the 10 million Nigerians who are unemployed now to be employed.
So, that’s a kind of target for the end of 2019, but as MD/CEO of Bank of Industry, what’s the biggest challenge ahead of you that you hope to accomplish before you finish this role?
You see, Bank of Industry is owned by the Nigerian Government. Our two major shareholders are the Federal Ministry of Finance and the Central Bank of Nigeria. The normal perception of government institutions is that they are not well off. At the end of my tenure, I want to have left a bank that, although it is owned by government, is run like a private bank with staff who are well trained, who can compete with and have the same quality as staff of any good DFI anywhere in the world. I want to leave a bank that is profitable and is actually fulfilling its mandate of helping industries to expand, to grow and to revive the ones that are dead. And, of course, I would like to be able to leave successors who can do better than I have done. So, I will say I have played my part.
Great vision. Good luck with that.
Thank you very much.
Thank you for your time today.