Corporate World Interview with AccessBank Liberia CEO, Mary Clare Odong

Details

Published on Sunday, 27 June 2010 16:02

CW: Microfinance is a new phenomenon in the Liberian Banking Sector, in a layman’s language; can you tell us what Microfinance is?

Odong: Microfinance refers to the provision of financial services to poor, economically weak or low income clients in a sustainable way. Many of these clients do not have access to services by traditional banks because they do not have substantial collateral, are deemed as too risky, implicate high transaction costs and because of information and incentive problems. Microfinance lending institutions like AccessBank have developed lending technologies which resolve these problems and makes it possible for low and middle income groups to be able to access financial services beyond just credit provision, but the provision of other services as well such as current, savings and term deposit accounts, money transfers both national and international and other retail products and services needed by clients.
Microfinance has been in existence for a while now. It began in the 70s. A lot of people believe that a man named Mohammed Yunus of Gramen Bank in Bangladesh is the pioneer. In fact, 2005 was declared the International Year of MicroCredit and Microfinance by the UN because of the impact it has had on poverty alleviation and development in many countries.

CW: Why the choice of Liberia and what does AccessBank have to offer ordinary Liberians at this time?

Odong: Liberia is emerging from 14 years of civil war which ended in 2003. Liberia is considered to be one of the poorest countries in the world (I do not think it is because of the rich natural resources it has). According to available statistics, 80% of the population is unemployed. However, we see that a lot of people are conducting business and trading informally indicating high level of self-employment. A large part of the Liberian population is unbanked. In order to be able to support many of these individuals and small businesses in the informal sector to grow and thereby have an impact on their lives, households and the lives of others, we decided to set up a bank with experience in serving low and middle income groups. There are huge numbers of business and individuals doing business around market and business areas and the general population who do not have access to banking services like credit, savings, money transfers etc. Savings products allow the clients to take responsibility for their future by accumulating wealth. As the lives o our clients improves, their households have access to better education, better health care, better nutrition and they can employ more people as the businesses grow. At the same time, as a labour-intensive institution which deals with huge client numbers, AccessBank is also able to employ many Liberians and have an impact on their lives. As a development-oriented commercial bank, we feel that we can achieve our mission here.

CW: I am sure that you are aware of the poverty reduction strategy, a programme by the Liberian Government to tackle poverty amidst the citizenry. How do you think your Bank can partner with the Government in reducing poverty?

Odong: By coming here, we have already partnered with the Liberian Government, by opening up the first microfinance-oriented commercial bank which provides appropriate financial services to lower and middle income groups in Liberia. Though other banks may have units or divisions that attempt to provide such services, they do not do it to the large extent that we do.. We have the knowledge, experience, expertise, corporate culture, trained staff and we have the tailor-made credit technology to do this. Microfinance is our core business. We know how to do it; we have done very well in many countries and we can do it on a large scale. In relations to the PRS,  by providing our products and services we have an impact on the lives of clients and households which in time, will lead to better health, better education, less vulnerability to risks, higher employment, etc and all this helps to reduce poverty but it is not  the only solution. Large scale employment, infrastructure, healthcare services, good hospitals, education, legal reforms, institutional reforms, fighting corruption, democracy, good governance, peace and stability all play a role in reducing poverty.

CW: Is there any special strategy you have implored in getting to the small scale entrepreneurs?

Odong: When we first opened our banks, we do not do much marketing. Most of the marketing is done by clients through word of mouth when they experience how fast and reliable we are in providing good customer service; we are able to provide loans to clients within three (3) working days, they do not need to save with us to access a loan, we do not request for much of the conventional collateral security, we are friendly etc. so if the client comes in today, we will simply interview the client, then the loan officer will go and conduct the analysis at the clients business premises and homes and within three days, we should be able to provide the loan. In some countries, we do that within one day. One the current savings and term deposits accounts side, we have the lowest fees in the market and the highest rates at a time where many banks are not even paying any interest rates because of the global financial crises.

CW: Are there specific criteria you will be looking at before you can give the loan?

Odong: The business must have existed for at least six months. We don’t focus so much on documentation because our provision of loans to the lower group of people is not based so much on collateral. We base decisions on the clients cashflow and ability to repay the loan now, even without the loan and not on anticipated future incomes. We visit business premises and homes of the client to be aware of the clients economic and social environment. Many of our clients don’t have documentation but we are able to generate these for them. By requiring at least six months of a functioning business, we can be able to generate financial statements for them and at the same time, know if our clients have entrepreneurial and managerial skills (i.e., if the can run their business and operate their business profitably). We know that for our clients, a loan is a debt—and we want to be responsible in the way we conduct our banking business beyond what they can pay back, we do not want them to over indebt themselves, which is part of what has caused the current global economic crisis, and this course has not affected microfinance institutions so much because we base the provision of loans to our  clients on how much they can repay today based on their income today, not on projected future incomes which is very risky. This again is a main cause of the global economic crisis today.

CW: I really want us to be clear on that in view of what you have just said that giving out high-risk loans without really thinking on how to recover them is part of the cause of the global economic crisis and you said you don’t so much harmer on collateral, is it that you don’t ask of it at all or at what point do you ask of it.

Odong: As I said collateral is only secondary. Most of our clients, the ordinary people don’t have much security which is why they can’t usually access loans from conventional banks. We have developed a credit technology which tackles the problems of access, a tailor-made credit technology to address the problems faced by small business. We addressed those issues that prevent them from having access to the conventional financial services and used it to develop our credit technology to make it easier for us to serve this type of clients, who conventional banks deemed to be very risky because it is very difficult to monitor them and because the transaction cost of dealing with such clients are very high especially given that the amounts they request are quite small in size and indeed the transaction costs are quite high but we can operate comfortably. We have seen that in many countries around the world, microfinance institutions can operate profitably. When you look at the portfolio at risk or the defaults rates of micro financing institutions rates are far lower than those of conventional banks because we’ve been able to incorporate all the important preventive factors in our credit technology. This is also an indication that “small” clients are credit-worthy, more than the “big” clients because they repay their loans. The default rates are very low across the board in all continents lying below 2% for overdue loans in arrears above 30 days. Financial sustainability, outreach and socio-economic impact are measures that we also use to measure success.

CW: How and when do you begin to know if the bank is achieving its aims and objectives?

Odong: I’ll begin by explaining or mission and objectives. Our mission is to be able to provide appropriate financial services to the majority of Liberian population in particular the micro small and medium size enterprises, in this regard our vision is to be the bank of choice for the lower and middle strata of Liberian population and to be the leading provider  of financial services to micro small and medium enterprises…..

CW: May I reframe my question again? Am asking at what point in time do you as a manager begin to know if the aims and objectives of the bank are being achieved?

Odong: Yes, this is why I started by telling you what our mission is. The point in time when we begin to assess that is when we begin to look at the number of clients that we are serving which implicates outreach, the growth of their businesses, the frequency of return for products, increases in savings among others. We focus more on client numbers than on volume, so numbers will tell us our outreach, how many people we are able to serve, how many people we are supporting, and as they grow, they request larger loans or save more showing that they evolve and at this time they request for new sophisticated products. The number of repeated loan clients is a positive sign showing efficiency and good customer service. We look at our profitability, at least in the first two years we are going to be making losses which is natural, as a normal institution has huge initial investments and it takes a while for these to begin to payoff. Efficiency is important: how fast are we able to serve people, how productive are our loans officers, how long does it take our staff to serve one client, does this have an impact on customer’s satisfaction and customer service; this is what makes us who we are, we are a service institution if we can’t provide good customer service then a lot of customers will shift somewhere else. Quality of our portfolio is important to show that even with increasing business volume, we do not have many arrears and the portfolio is well managed.
.
We currently offer deposit facilities, we are also going to introduce international money transfer though SWIFT and money transfer services through either MoneyGram, Western Union or RIA.

CW: How has been the response since the opening of the bank?


Odong: A—I have to say the response has been very positive, we are expecting more clients to come in, we have been able to provide a sizable number of loans in a fast manner, we have been able to open a significant number of accounts. Clients have commended the good service and friendly staff.

CW: And the number of people, can you just give us the range?

Odong: As of the end of February, we have disbursed a total of 124 loans since the start of operations with a volume of about USD 150,000. On the retail side, we have so far opened about 900 accounts with a total volume of USD 128,000. We currently employ 56 staff.

CW: how do you view the business environment in Liberia?

Odong: the business environment is challenging but it is also an opportunity. (laughter), I mean you have to take note that the infrastructure is very poor, the operating expenses are extremely high generators, fuel, water, the courts are weak and rule of law is not properly functioning, staff capacity is a major problematic but at the same time we believe the market exists. In a country with about 3.5 million people, half of the population lives in Monrovia. As a commercial business, we start operations first in Monrovia before we go to other parts of the country, usually after 2 or 3 years, especially given that we always invest about the same amount regardless of the location of the branch, and the expenses or cost incurred are the same, whether we do business in Monrovia or we do it outside. We employ a huge number of people because as I said for us client numbers are more important than volume. We therefore have to be certain that we can get returns, that our branches can operate profitably before we can go out to the regions. Branch expansion ensures that the synergies and economies of scale are also achieved as this is beneficial for us; the authorities in Liberia been very supportive, there is a lot of good will so it is a good place to invest in and I advice other institutions and investors to come to Liberia to support development. You see a lot of development taking place everyday in this country, I have talked to people who came into the country in 2003 right after the war, I know how much has changed from all the stories that I hear, I see a lot of happening everyday in this country. New buildings are been set up, roads are being developed, shops, businesses, entertainment centers are being opened, etc.  There is a good chance there will be a lot of development taking place in Liberia.

CW: To put it right, according to the last population census conducted, the population of the country is 3.6 million, unconfirmed statistics however say about 200,000 out of this population have relationships with banks; how does your bank hope to improve this number and are you thinking of opening branches in other parts of the country?

Odong:  In our projection, we foresee twelve branches by the end of 2013, after five years. After 2 to 3 years, we will open branches outside Monrovia, in other regions. We have plans to open in the major cities like Buchanan, in Ganta, in Gbarnga and in Kakata, and other regions as well in the next five years.

CW: How receptive are your clients since started operations here?

Odong: Yes, our clients are very satisfied so far and we see them bringing in more people through word of mouth, that’s how we operate at the initial stage, because they see that we deliver what we claim to deliver, if we say we process loans very quickly, we are able to do it and most of are surprised when they see that they are able to access a loan within a very short time frame. They see that they have been served and treated well respect and in a friendly manner.

CW: Are there various stages at which you give out the loans?

Odong: of course there are various stages, if a client come to the bank say in the morning, and then we interview the client, that’s the first contact. Then we assign a loan officer to the client. The second contact is when the assigned loan officer takes responsibility for the client and visits the client’s business premises, visits the client’s home, works closely to collect information for tor the qualitative and quantitative loan analysis, once completed; the case is presented by the loan officer to the credit committee which either approves or rejects the case. Client visits are made throughout the lifetime of the loan where they are advised by the loan officer on how to improve the business and any developments are discussed. If we have all the necessary documents, also from the client, we are able to process a loan with three days.

CW: I learnt that microfinance has been doing very well in East Africa, is that true, it is, can you give us a country say Uganda or Kenya, where microfinance has been a good success.

Odong: It is very difficult to name a specific country because it has worked in so many countries. Those countries are doing very well with microfinance but so are other countries all around the world. It has successfully in many countries successfully. Empirical evidence has shown that microfinance in these countries has helped to reduce poverty, increase income and assets, increase employment, contribute to food security, reduce vulnerability to economic risks and improve social relations on levels of individuals, households, enterprises and communities. Many of the institutions have attained outreach, financial sustainability and socio-economic impact.

CW: What would you say is responsible for that major success?

Odong: Uganda for example had about more than 1000 microfinance institutions. Many of them not really governed or controlled by the central bank but then overtime they grew and become bigger and from the 1000 they joined together to become much bigger microfinance organization/institution that were then supervised and regulated by the central bank and this integrated them into the financial system and with about 1000 microfinance institutions-includes banks, NGOs, credit unions, becoming bigger, you can imagine how many clients they are serving in all  regions-in rural areas, in the capital city and in bigger towns. A lot of people now have access to financial services and you can see the impact. The same is true for Kenya, which has more than 500 microfinance organizations. Many, and not all these organizations have been well managed and have had the capacity to expand.

CW: What are the prospects of microfinance in Liberia compared to other countries?

Odong: We are the first institution of our kind, but I don’t think we will be the last. In time, some other institutions will come in and do the same business which is okay, because competition is also good, it provides options for clients and leads to better service  for the larger population and it is beneficial for the country in every sense. We are setting standards now and will continue to do so. Our vision is to become the leading provider of financial services and we will provide access to a lot of people. We have just started operations, what we have done so far is very, very minimal in comparison to what we see ourselves doing in the future as we expand by way of growth, branch expansion, staff development, clientele base, recruitment, etc.

CW: Microfinance or commercial banking, which one do you think will take African Countries out of the developmental crisis that we normally found ourselves?

Odong: Microfinance banking of course (laughs). Well, I will be very cautious in assigning this to just one institution; but microfinance seeks to address issues of development. Poverty is so diverse, the problems and the causes of poverty are so immense, there are so many various factors that lead to poverty, so you can not say that just one component is the magic portion to fighting poverty you simply can not say that microfinance will singularly solve the problem because there are many other coordinated and intertwined areas that need to be tackled as well. You have to work on the health sector, achieve good governance, fight corruption, provide better education, properly functioning institutions and legal environment. Poverty has existed for centuries, as far back as no one can remember and it takes time to alleviate it. I am also cautious and skeptical of the people who say by 2015 poverty would be reduced by half, poverty has been around for centuries and it will take long time to curb. We can have a significant impact with our work.

CW: No collateral for loan, who are the investors in Access bank Microfinance?

Odong: Access Bank Liberia’s shareholders are multinational institutions;  the majority shareholder is the Access Holdings AG, a joint stock holding company in Germany, IFC, the private sector arm of the World Bank, European Investment Bank and the African Development Bank.  But within Access Holding AG the same shareholders in ABL and others have also invested.

CW: No let’s come to Access bank as banking institution, can we have a brief history of the bank?

Odong: Access Group is a group o network banks in developing and transition economies founded by LFS Financial Systems, a management consulting firm in Germany. LFS is the technical manager of the network banks for AccessHolding. It works on three different levels.  Downscaling, where it teaches banks on how to lend to lower end market; Upgrading, where it helps NGOs and informal financial institutions transform into regulated formal institutions; and Greenfielding which is the one happening here, setting up new formal and regulated financial institution from scratch.  The shareholders in the Group are shareholders who as like-minded and who have development orientation but are interesting in banks run based on sound business principles in order to have returns on their investment. The group is expanding in Africa, Central Asia, Eastern Europe and Latin America. The oldest Greenfield bank in the group is AccessBank Azerbaijan. At the moment, we have banks in Madagascar, Tanzania, Nigeria, Mozambique, we will open a bank in Tajikistan soon and we are going to continue to expand in Africa. Latin America and Eastern Europe and Central Asia. We foresee 15 banks in the next 5 years. In Liberia, we foresee 12 branches in the next five years and more than 450 staff with a strong portfolio and deposit base.

CW: Now coming to AccessBank Liberia, what services do you provide apart from loans?

Odong:  Besides loans, we provide current, saving and term deposit accounts. We have check/ cheque books and we will soon introduce international money transfer through SWIFT and we are negotiating with some other companies to have money transfer services like money gram western Union or RIA. Over time, we will continue to develop products and services to suit the needs of our clients, which evolve over time as they grow and we have to meet their demands.

CW: Who is Mary Odong?

Odong: I have a BSc in Economics and Business Administration and I hold an MSc in International and Development Economics with a focus on Finance. I speak several languages, English, German, some Spanish, French, I also speak two Ugandan languages (Acholi and Luganda) and I speak Swahili.

CW:  Since when have you been in the banking?

Odong: I have several years of banking experience working for some major commercial and investment banks in Germany like Deutsche bank, Dresdner Bank, European Transnational Bank, Henderson Fund Management. I was always interested in contributing to developing weaker societies but in a sustainable way. I worked for microfinance-oriented banks in Albania, in Ghana and now here I am, in Liberia.


CW: When did you arrive in Liberia and how do you see the business environment generally?

Odong: I had made short-term mission trips to Liberia before relocating fully. I moved here in January 2008. Liberia is recovering from several years of war and in this regard, it is not the easiest place to run a business especially if you’re working standards are very high. However, there are business prospects and opportunities even in this sometimes challenging environment. But it will get easier over time as the country develops.

CW: Who attracted you to banking?

Odong: My father was a banker and I have a strong interest in banking. I guess I inherited that and was shaped by him. But I believed that it was the best way to empower people financially especially the weaker segments of society so that they can contribute to the overall development of their countries.