Microfinance and the KYC Principle

The wind of change is blowing across the land and irrespective of the kind of job one does or indeed, one’s station in life, there seems to be some kind of change going on. In the corporate world, a wide range of changes have come into play. For one, it is no longer business as usual. Some of the benefits taken for granted no longer apply. Job security has never been more uncertain. Good customer service, which has never been our strength, despite all the training being mounted on the subject, is beginning to get a space. Although we learnt early that the customer is king, this adage has never been fully operational in our environment.

The tradition here has never been to elevate the customer to that rightful position. Even the simple courtesy expected from shop attendants as a matter of course is mostly absent. In Nigeria, one never gets one’s money back when purchased items are returned to the seller, even if the customer never left the shop. In all of this, there is nothing that is done to show that the customer is invited to come back next time.However, the present time is spurning a change for the better.

In the corporate and especially the finance world, where job losses have become pronounced, it is no longer enough to know that the customer is alive and well today. It has become very important to know what he is doing and plans to do in the days ahead. Every customer is implementing survival strategies. It is important for the lender to know that those strategies being implemented do not include a loan repudiation or loan loss process. We have to know what the clients are doing,even if weare not sure of what you are doing ourselves.In essence, the concept of Know Your Customer (KYC) has never been more important. This is the time to read again, all the KYC notes we made in the course of the relationship with the clients.

There is a question they used to ask us in the banking schools in those our early days of merchant banking: If he can pay can he pay? That question appears most appropriate in these days of recession, when things change by the day. We were taught that the answer must be yesbefore we could sign off on the loan request we push on behalf of customers.

This question is however not answered merely by looking at the financials of the company seeking credit from the bank. Nor is it answered by the size of the balance sheet or the turnover in its account. If he can pay, can he pay may sound rhetorical but it is an important question that can only be answered when weaccess the inner spirit of the customer. And before you begin to accuse bankers of witchcraft or the application of unseen forces in their trade, let your mind be at peace because they do no such thing. None of those activities or technologies will answer the question for you. Banking is an art and at its finest, it goes beyond the physical and permeates the psychological in its unswerving determination to safeguard the bond of trust it has with customers. The protection of the deposits entrusted to it is a matter of life or death to any deposit-taking institution.

The skill needed to go behind the numbers and pick up transcendental information contained only in the inner spirit of the customer is one of the endangered skills of our modern banking. Such skills, like the pin-stripe suit, are among the inalienable trademarks and traditions of the old school banker now in jeopardy. The rapid growth experienced in the Nigerian banking system recently may not owe its origins to this kind of skills. Not only do they take time to learn and internalise, their proper application is also time-consuming. However, while speed, may have been a factor in the recent growth of our financial institutions, the art that lies behind effective loan repayment appears lies in the question we referred to, which sadly appears to be taking the back seat. But speed without efficiency is surely contrary to sound banking.

As the recession takes its toll on business it is time for us to change strategies because times like this make good men do wrong. Good loans will go bad if mismanaged. Most of these loans were properly appraised and intelligently disbursed.  The question of whether the customer will pay if he can may also have been honestly and correctly answered in many cases. However, the times that try the wise man’s soul have arrived. The legendary Dr K. O Mbadiwe was quoted to have said, when the come has come to becomethings take different shapes. The come has come to become right now and even the best written credits would need Divine intervention to run their courses and leave the credit officer smiling. It is time not only to KYC but to stay around and alert.

There are certain critical realities all loan-making institutions must embrace, as they ride the wave of this economic crisis. First, do not assume that the customers you see today will be there tomorrow. Like God said to the Israelites at the Red Sea, “the Egyptians you see today you will not see tomorrow”, not minding that minding that in that context Egyptians are “bad” while customers are good. It is better to keep the worst case scenario very handy: that the client you see today may not be there tomorrow. This gives one is a sense of urgency, alertness and reason to activate all the KYC statistics already acquired on the customer.

Second, nothing is more real than eye witness. The days of making calls and holding meetings with your clients on telephone and turning in a Call Memos are gone. Personal contact must be increased, not only for the assurance it gives on the state of affairs in the customer’soffice, but also for the additional feelers that are picked up from personal interaction. As we are not making mush loans now we have to apply the time to loan management.

It is also very important to note that the present predicament has implication both for the regulated lending institutions and their regulators. The CBN and NDIC cannot sit and wait for the news of some calamity to break before they take action. There is need for enhancing the proactivity they are known for. Regulators must step up surveillance. We already have a challenge of effectively covering the supervision field. With about 960 microfinance banks and over 40 Primary Mortgage banks, there is bound to be gaps in the information available to the regulators on what is going on in the field. Most of the operators are not as strong as they should be, a situation that may force regulators to soften policy action, to the detriment of the industry. Regulators should never concede to prodding along with weak operators for fears of the industry-wide implications. Our experience has shown that such a route should be avoided.

@Emyosuji

Emeka Osuji