First two quarters of 2017 will be tough for businesses, RenMoney CEO predicts
Even in times of economic recession, there is still growth for RenMoney which opened for business in 2012 with objective to provide fast and easy-to-use unsecured loans and investment products to individuals. Though the firm did not meet its growth target for 2016, the CEO of RenMoney Graham Lee told BusinessDay that its 500% sales growth achievement is based on understanding the clients’ needs. He said the company with blended approach to marketing would not open more branches in 2017.Lee said even in recession, RenMoney has actually performed quite well. Excerpts
2016 is gradually winding down, how do you describe the business environment so far?
I will discuss it in two parts. One is the general business environment and the other in respect to RenMoney. Under general business environment, it has been a tough year. This is obvious when we look at our clients, our business partners, suppliers and competitors; and things have been tough for them. In recent months particularly, you can see a significant tightening in liquidity in the banking sector and the increasing difficulty for importers in sourcing forex for imports. Generally, all these have contributed to a difficult business environment. This is also reflected in banks, FMCGs and other service industries retrenching or cutting salaries. This affects everybody and it also affects RenMoney. However, RenMoney has actually done quite well. We have grown our sales loans very significantly by about 500% from where it was 18 months ago. We have continued to grow reasonably and strongly but at the same time we have continued to improve on our risk numbers and bring our risk rates down given the environment. We are very proud of what we have achieved this year. Having said that, yes, we have grown well, but we grew much lower than we targeted. This is largely because of the economy. The reason for this is not only the economy but looking forward, we are looking at the year and 2017. We made some pretty hard decisions on the risk management side and we stressed our risk criteria. We gave loans to a small proportion of clients who applied. What we have seen in recent months is a large increase in number of clients applying for loans. But we declined a large percentage than we did in the past on the back of our risk management view of the year going forward.RenMoney grew consistently and significantly throughout 2015. Business wise, loan sales grew 100% from 2014 to 2015 year-on-year; the company also recorded significant increases in gross earnings and operating income. Our average monthly loan loss provision (LLP) charge/net loan ratio is less than 1% signifying a high quality loan portfolio.
How did you achieve the significant growth when others, as you said, are retrenching?
There is different number of ways. Firstly, we continued to make sure that the starting point is understanding our clients’ financial needs and designing simple money solutions that meet those needs. Secondly, is getting out there much more strongly. When we started, we brought this category of finance to Nigeria. Initially Nigerians were not used to the idea. When they became aware, some of them were suspicious. But over the last couple of years, we managed to build up the brand strongly and get our message out. Thirdly, we managed to build trust in who we are and the solutions we offer.
Could you explain more what informed the increase on the number of loan applicants?
What is important is that what customers were borrowing to do has changed significantly over the last two years. If you look at July 2014, you could see a number of people borrowing money for overseas trips. Two years later, the same set of people is borrowing to pay school fees and fund education. There is always need for funding but what they would use that funding for changes with the state of the economy. Going back to our growth numbers, at the beginning, the base was quite low. 500% sounds like incredibly strong growth but our base was low 18 months ago. We didn’t have the distribution network we have now. We have grown well, but it is not what we wanted, we expected a 1,000% growth.
Looking at the 2017 on the background of rising unemployment and harsh economy, what do you see?
I see the last quarter of this year and the first two quarters of next year being very hard for businesses. We will see continued decline and continued contraction in the economy. The normal implication one would expect from that is in terms of less employment and less compensation from that in real terms. As far as second half of next year goes, I don’t expect upswing instead I expect a stabilisation. But strong growth would only come to play in 2018.
What do you see informing growth in 2018?
Firstly, the recent contraction is not just led by oil and gas, but most economists have seen the contraction recently; we see that continuing, driven fundamentally by lack of liquidity in the financial sector; which means there is no money available to fund productive growth. There are already difficulties within the forex regime, which means equipment, raw materials used for building the long term capital in the economy as well as imports in the short term increases would pose a continued shortage of capital and raw material import. In the longer term, we see a number of factors playing to the stabilisation of the economy and the subsequent growth. Firstly, we believe in the government policy of diversification of the economy. It is sensible and a way forward, though there are a lot of infrastructure that need to be put in place. From what government officials have said, this is identified and understood and plans are underway. We are optimistic about that. Secondly, there could be further rise in the price of oil coupled with expected stability in the oil producing regions in Nigeria which would lead to gains and thirdly, there is likely going to be policy changes in the supply of money and forex and this would lead to greater market efficiency.
In recession, how is RenMoney therefore managing its risks?
We continued to maintain strong internal discipline and strong operational efficiency. In the last 18 months, we have taken strong proactive steps to ensure efficiency. We strengthened our risk criteria to make it difficult for certain high risk clients to get loans from us and for those who do get, the loans are priced adequately. Secondly there are certain aspects of employees of industries we lend less to and some cases, don’t lend at all. Thirdly, we continue to build more diligent underwriting processes.
With current slide of the naira to the dollar, what do you think the SME’s can do to relax the present economic situation?
We need more investments in Nigeria for Nigeria made products. In order to diversify the economy from its current reliance on crude oil, other sectors need to be funded. With more investment in SMEs and higher purchase of locally made goods and services, more money would circulate within the country. In time, exports will increase leading to a more stable economy. SMEs can focus on trading in high quality ‘made in Nigeria’ goods to reduce the cost of doing business and ensure that their profit is put back into the Nigerian economy.
New wave in financial services now is technology, how are you applying that in RenMoney
Technology is key to improving. Technology is not the most important component of the business in the sense that what is most important is the client and understanding the client needs. Technology is only important when it could be used to meet those clients’ needs. We use technology for different reasons; we use it to increase our distribution, virtual channels and to support our contact center. We use technology to improve internal efficiency. We automate where we can automate. We use it for verifications. Thirdly we work with external partners to improve the efficiency of payment collections in the Nigerian interbank system. We use technology to manage strategic partners which creates additional products for customers.
Do you see conventional banks moving into your area of operation, if so how are you positioned for the competition?
We certainly going to see an increase in competition going forward both from banks who are paying attention to retail banking and giving attention to lower rungs of the ladder. We are also seeing competition from non-bank institutions. We will compete the way we have chosen to compete by having better products that meet the needs of the clients; that are simple and easy to understand, accessible and the pricing is transparent.
What makes RenMoney different from other financial institutions?
RenMoney is not average commercial or microfinance bank. RenMoney is a consumer finance company. This means that our core focus is on individuals not institutions. We focus on providing simple money solutions to persons and not businesses. These solutions span valuable savings plans or quick access to loans to meet personal needs. This is an area where most people do not understand that there is a gap. RenMoney has also been structured to stand on the four key pillars of our strategy. These pillars are: world class risk management (including both risk analytics and collections); innovative and cost-effective technology that allows for processing high volumes at low marginal costs; price leadership and strategic partnerships. These pillars have helped us become the best at offering the kind of services we currently offer at competitive prices, while remaining profitable to our shareholders.