The Managing Director/Chief Executive Officer, Crownrise Plc, Mr. Babatunde Rufai-Lariba, believes finance house business in Nigeria is a more critical promoter of Small Scale Enterprises (SMEs). In this Interview with our reporter, he explains how the sub-sector will be an engine of economic growth in the country.
Why have finance houses recently gone silent?
Well, it is just like any other business in Nigeria. There is a common thing in Nigeria; whenever people hear that a particular business is profiting, you will see them rushing into it, whether they are knowledgeable about the business or not.
So, as a result of this rush, there was a record of over one thousand finance houses in the country. They all were just trying to outdo each other. Therefore, they were offering some kinds of benefits that were not attainable or achievable but just to attract customers; all the promises were not possible to keep at that time.
What we are talking about are interest rates and some other attractive benefits that when the issue of coming to take benefits comes, along also come the problems.
All these were happening because there was no window, like the one that was created for the banks. Government needs to be a backup for the finance houses because of the sensitivity of the position they are holding within the economy. But that was not happening then; so then there was a problem.
At that time, government was yet to define the market we were operating in. Meanwhile, people see us like the banks, forgetting that we are only to bridge the gap. We need to understand that our major function is to assist Small and Medium Scale Enterprises (SMSEs). For instance, the finance house only provides assistance to people that need quick loan, like N10 million, N5 million and other little forms of loans for projects, which will not go through the rigorous procedure like with the banks.
So, when all these were not there, the only thing you could with was high rate of collapse, but still the serious one like us, have remained in business. This is why very few of us still exist today.
We are different from the others that promised unnecessary interest, like 100 percent. In this vein, when those people’s businesses collapsed, it affected a lot of people, even the banks were victims.
Let’s not forget that finance house was brought into Nigeria in 1985, in Apapa Lagos. It came into the country as an operating leasing, which is why we have Equipment Leasing Association of Nigeria (ELAN).
The Central Bank of Nigeria in 1991 began to regulate finance houses, when they saw the popularity and that its prominence was getting too much among Nigerians.
But now it is hard to enter into the business because of CBN rules, on what to do and how to run the company.
Considering these challenges within the sector, what have been the selling points for Crownrise Plc?
As a former banker, right from my youthful age, I followed good mentorships – those that have made it in the industry. So when I started, I selected a good set of shareholders that are resilient, with careful selection of staff that work with us.
Above all, money discipline – which is very important because you must not spend money that does not belong to you. I acquired this knowledge right from my early age.
Why are you going into Finance Lease when some companies are focusing on operating leasing?
Remember, I told you that we are a member of ELAN, which helps us in operating leasing. So we started operating lease this year. Finance lease has its own demerit and to a larger extent, notwithstanding your carefulness and financial organisation, your fingers could still be burnt.
Considering that some Nigerians are not honest, most of them do not want to pay for what they have enjoyed, whether it is on transportation, equipment, assets etc, they would not want to pay for what they have used.
Therefore, we need CBN to help in re-orientating Nigerians on the importance of repayment. Because you need not to be chased about for payment of want you have enjoyed. So, it is true that some finance houses are moving out of finance lease, the simple reason is just because people are not paying. And the main reason is because many Nigerians are not honest.
Secondly, the rate some finance houses are offering is too high. How do you insist that a customer pays 120 percent and you expect him or her not to default? But in operating lease, the rate of default is usually little, because at the end of the day, after finishing the payment for the assets, or the property, it automatically becomes yours.
Even if you can’t pay and the finance house takes the leased item back, the company can always sell it at a price that will be favourable to you.
All these are ways we use in assisting the economy and the government is very happy with us over this. In fact, that is why CBN is applauding and really supporting us with the bonds.
We all know that banks are going into the market to raise funds and nobody is asking them what they are using the money for. They just create unreasonable forecasts. We that are analysts know that all they are saying is not real. They have backing from the CBN. Nobody exposes them when they are under stress because CBN is assisting them. But we are more open yet do not have such opportunities which if given to us, will not be useful to us alone but also for the SMEs.
So CBN is happy with us, because we want to assist the Small Scale Business in the country. When we have the funds, we give loans to SMEs at better rate.
Briefly what are the differences between Finance House, Merchant bank and others?
A finance house can do everything banks do except receiving deposit and foreign exchange. Merchant bank on the other hand is a finance house, just like Crownrise Plc, though, they are allowed to do foreign exchange but we cannot do it. They are also called Investment Bank. They are not allowed to operate on saving accounts just as we are also not allowed to.
A finance house can be converted to Merchant bank after many successful years of operation. We do the same thing except for forex transactions.
For Micro Finance Banks (MFBs), they are like commercial banks. Also, MFBs cannot do foreign exchange, and they cannot grant above five thousand naira as loan (by law). Recently, however they increased it to N5 million, while a finance house like ours, can give whatever amount of funds as long as the capital is multiplied the amount by 20, which could be more than what the person is asking for.
So, the Micro Finance Banks is modelled after commercial banks, while the finance houses are modelled after Merchant Banks. There was a time CBN stopped Merchant banks, but they later realised that there is need for wholesale banking, so they brought it back.
So what we are fighting for now is that CBN should caution commercial banks on what they are doing. What are commercial banks doing in leasing? The banks are entering into our business.
Have you been privileged to access any of the CBN initiatives?
We have privilege to the funds but the process is too cumbersome. CBN is not making it easy for us, that is why mortgage banking is not succeeding in Nigeria in terms of its regulation.
CBN has done well but we need its assistance because there are many opportunities in the industry, since they now supervise us just like they are doing to the banks. We now have our (finance houses) own department in CBN. There is room for expansion, from 3,000 finance houses in the country which the apex bank has reduced to 71 so they will know if we have any issue.
We do not do things outside CBN directive and instruction. The bank is always behind us when we are in trouble.