Time to Genchi Genbutsu to the Gemba

It is time to learn from those who succeeded in what we are trying to do. One such people are the Japanese who have used technology to neutralize their natural resource deficit. They are very successful in the things of technology. Even in North America, with all its prolific innovators and technological progress, having a Japanese car in the garage is probably the rule rather than the exception.

Those of us who read management books and foreign newspapers may have come across the story of a Toyota executive whose duty it was to re-engineer the Toyota Sienna car for the export markets of North America. The gentleman began the project by getting out of his office and into a Sienna for a drive through the length and breadth of the United States of America, covering 53,000 miles, and recording every observation he made of the car in motion.

That cross-country ride gave the engineer, Yuji Yokoya, a personal experience of the behaviour of the Sienna, under all kinds of road-weather conditions. The result was a new Toyota Sienna minivan that was not only more stable on rough road but also very child-friendly and capable of serving as a living accommodation for extended stay for a family with children. The Japanese call approach to management Genchi genbutsu – to roll up one’s sleeves and go to the gemba (the scene of action).

Microfinance banks in Nigeria, and indeed all lending institutions, which have any modicum of the survival spirit in the current recession must, by now, be busy experimenting with a number of survival tool kits. These survival kits are designed to answer to the demands of hard times like a recession. They must, like the Biblical children of Issachar who know what time it is, must in addition to their new survival tool kits, be speaking a new foreign management idiom – Genchi genbutsu to the gemba – a phrase or statement that not only epitomises Japanese patience and attention to detail but has also become a veritable instrumentality of effective management.

For the avoidance of doubt, one of the key features of a recession is liquidity crunch – an economy-wide contraction of the availability of funding opportunity for all categories of institutions and projects. It is also a season of fear and pessimism. In the present case of Nigeria, this phenomenon began with the withdrawal of government funds in commercial banks, under the Treasury Single Account policy – a policy that has exorcized the banking system of one its corrupting products – public sector deposits – and initiated its rebirth, for good or for bad.

Of course, a natural corollary of credit crunch is high cost of funds. Interest rates would invariably rise when the cash flowing through an economic system dries up. In Nigeria, we seem to have a culture that promotes the saying: When trouble sleeps nyanga goes to wake him up,,, a la Fela Ransom Kuti. So, rather than wait for interest rates to rise naturally in response to the liquidity crunch, the Central Bank increased the Monetary Policy Rate (MPR) by 200 basis points for some opaque reason. Let no one be fooled by the esotericism of the term MPR. It means nothing but the rate at which the CBN lends to commercial banks. It is the king of interest rates – their chairman. It controls all other interest rates, which simply mimic its rise and fall.

In a country that imports most of its needs, inflation naturally follows the rise of interest rates, and depositors of funds in financial institutions will seek interest rates that cover inflation and leave them with some balance. Otherwise they have no reason to put their money in the banks. The implication for microfinance institutions, which normally buy funds at higher rates than banks, is that they will experience a double jeopardy – cash crunch and high interest rates.

Inflation and devaluation are kindred spirits. They create similar problems, especially for non-industrial import-dependent economies. They make imports more expensive and by extension increase cost of living. They may lead to economic growth under some tenuous circumstances located far from Nigeria’s current economic borders. Again, in the manner of Trouble sleeping and Nyanga going to wake him up, the Central Bank devalued the local currency, Naira, through a sudden floatation. The combination of inflation and devaluation has coalesced to massively erode disposable income, trimming aggregate consumer demand to the scalp.

There are certain character shifts the microfinance clients manifest in times like these – the purpose of their loans incline towards consumption. It is important for lending institutions to watch out for this likely change in the character of the demand for loans that might crystalized in the days ahead. As the recession spins towards its trough, there might be a shift in demand from loans meant for productive activity to those meant for consumption. The latter type of loan is called consumption smoothing loan. It is consistent with the Relative Income Hypothesis of economics.

According to this theory, consumers do not like their consumption to fluctuate with income. So when income exceeds consumption as is natural with the middle and booming career stages they save the surplus. This surplus is used to cover the shortfall in the future, when income falls short of consumption for a number of reasons – old age, retirement and such. The result is that in a recession, people are likely to borrow not for productive but for consumption purposes and repayment becomes a problem. Therefore, lenders must no longer approve loans sitting in their offices. They should, like Yuji Yokoya, Genchi Genbutsu to the gemba.

In a recession, small things often get magnified. Food items taken for granted on household dinner tables no longer show up. They become unaffordable. In the same way, simple KYC activities become more vital. It’s no longer enough to accept, hook, line and sinker, what your staff tell you about that customer whose loan application is about to be approve. You must now Genchi Genbutsu to the gemba.

Those managers armchair of lending institutions must now go and see things in the field. This is important for both new loans and existing facilities. The stress of a recession weakens everything organic, including your favourite strong client and even bank. Genchi genbutsu to the gemba means that managers have to be mobile. The key benefit of Genchi Genbutsuto the gemba is that it allows us to see the big problems. As Edward Deming said of Management by Walking About, if you wait for people to come to you, you will only see small problems and not the big ones. And if we recall Murphy’s Law, that there is always something wrong in the last place you look then managers of lending institutions, especially the MFBs, must Genchi Genbutsu to the gemba.

Emeka Osuji