The Mint:                     Good afternoon, Tony. And thank you very much for giving some time to talk to The Mint.

Tony Uagboe:               Good afternoon, Henry. It’s good to talk to you too.

The Mint:                     It’s very good to get some on the ground experience, and I’d really like to know more about your background and how you started and got involved with providing financial services to people who are normally excluded from them.

Tony Uagboe:               Okay. I have an interesting background, I’ve always done banking all my life. So when I left school, my first major role I got was in a bank, probably the biggest banking in Nigeria today called Zenith bank. So I started off as a teller in 2000 so basically started from a client’s interfacing role, let’s say from the bottom, actually. Then after about five years, I took a break and went back to do my post grad in strategy and economics at St. Andrews up north in Scotland, and found myself working again in banking in London, Santander bank, where I worked in personal bank. So basically it’s been all about banking. Came back to Nigeria, found myself working in banking again at a corporate investment department of Zenith bank. I mean, that afforded me the opportunity of having a 360 view of banking from the very basic of the retail to the corporate and investment aspect of banking.

                                    It meant that I was able to critically assess the entire gamut of banking. So identify degraded gaps where, because there’s one thing to have big banks, there’s other things to actually have financial intermediation, which is actually the purpose of banking. So it’s an operation. If you have big banks and big profits that you’re not having the corresponding impact on the economy. What we discovered was that banking was for a select few who had access to this banking who were always being served, why the majority of the populace couldn’t actually have access to banking as they should. So we decided to address it from the unit level. The options we have were to raise finance, set up small banks or small microfinance banks in different parts, but apparently we didn’t have that much finance. And I personally believe that you start with what you have.

                                    For us, what we did was we just decided to start with the little savings. We had approach some little communities and markets in close to the areas where my mechanic was. And we started giving up loans to the ladies there. What we did was we endured ourselves to them with the little savings we had so that they would trust us because one thing basically works with trust. And if you’re going to be dealing with this demographics, that’s under banks or the own banks, you have to let them know that ready to you’re ready to watch their backs. So that’s how we started. And we’ve grown it from one unit to several units across different towns. And because we started by giving out funds to these people, with no strings attached.

                                    Of course, they needed to pay back with some interest. It then means that they trusted us to the point where they could now give their savings to us. So after a year or two, they approached us and said, “Would love to save with you because you are already exposed to Ross anyways, with your loans.” And I then ask them. “So I realised that the banks don’t operate within your communities. How do you save your monies?” And they told me that they have a traditional way of saving your monies, where an individual in the community comes around on a daily basis to collect their cash, like a trips collector. The challenge with that system is there is a human risk.

                                    The day the trip collector dies, or he decides to take their monies and runs away, they lose their money. I then understood better why they would rather approach me to be the aggregator of their savings because I was already exposed to them anyways, with my loans I had given to them. That was when we started a whole journey again, in 2018 of trying to build a platform that would help us manage this savings and also manage our loans. That has been our journey in the past five years.

The Mint:                     I suppose there must be a lot of people like you who’ve had a career in banking, but not that many who decide to try and set up a new bank for people who are excluded from the banking system, because presumably that’s not straightforward. What was it, do you think about your own background or perspectives that led you to make that jump when most of your colleagues presumably weren’t?

Tony Uagboe:               I think really, for me was really about creating value. I personally believe that poverty is the greatest vain in our society. And one of the reasons we have so many poor people… I mean, when you define poverty economy, United Nations is $1 or $1 20 cents per day now, or whatever you say it is because people are not productive and they don’t have jobs. For me, it’s been a question of how can I fix this? By nature, I don’t complain. I try to fix things that I see are bad. That’s basically why I left the UK and resigned my job in UK and came to Nigeria. So it’s really about what drives me.

The Mint:                     And is that because of your background, did you come from a privileged or a impoverished or medium sort of somewhere in between background?

Tony Uagboe:               Yeah, I mean, I came from a upper middle class and my dad was a businessman. So he was quite, he did well for himself, but my mom was a teacher and incidentally, she was the one who introduced me to banking actually. Because from the age of eight, nine, I had begun to help her save her little monies in the house, in different corners of the house and keep records for her. At the time I was 10 years, she used to call me bank Anthony, quite interesting. But primarily that sense of trying to serve, which is something our father inculcated in knows.

The Mint:                     So why did you think… I mean, if all the big banks in Nigeria ignore these people, presumably they do that for a reason because it’s difficult or it’s costly, or how did you think that you could provide services to them on a financially sustainable basis when all the current banks couldn’t or wouldn’t?

Tony Uagboe:               I think I was just being stupid, but the truth is what technology has helped do is technology has acted as an amplifier, so you can scale. The big banks started operation 30 years ago, so they didn’t have the benefit of the open banking opportunities. We now have to partner with these banks and build technologies that I integrated with these banks to meet these people. So it is really about the concept of non consumption. I don’t know if you’re familiar with late professor Christensen of Harvard. I mean, fantastic guy. Who proposed this concept of non-consumption, so you’re creating a market in a place where there is a gap and all of a sudden becomes an opportunity to also make money by doing good. So the barrier to entry for the big banks is quite massive. You need close to 25 billion Nira to get a licence as a big bank. But today’s exchange rate that’s anywhere close to maybe a hundred million, maybe 50 million dollars. I don’t have that. So if I don’t have it, what do I do? I start with what I have.

The Mint:                     So you had lower cost, you could reduce your overheads, reduce your cost of operations. But in terms of the cost of actually assessing the risks of loans for small amounts of money, that is still a problem. Is it not?

Tony Uagboe:               Oh, that’s a big problem because I mean, the biggest challenge you face is with data because you have these 70 million people who are on the bank. In other words, they are not known in a sense, there is no data to assess them. So you have to manually do the work. You don’t have to come with creative means of analysing and appraising these people. So that’s a big challenge. But I know there are some organisations today who are investing quite a lot in that aspect. So that organisations like us can then partner with them in appraising these people digitally, without having to put boots on the grounds to go and do a manual appraiser.

The Mint:                     But at the moment, it’s very much boots on the ground is it, to assess?

Tony Uagboe:               Oh yes. You have to do boots on the ground. For us, we utilise agents. We have agents in different parts who are there on a daily basis. The agents are basically embedded in those locations, who are doing the collections on a daily basis. And I am very comfortable with that. Because like I said earlier on one of the ease I’m trying to address is the issue of job creation. So that’s why I’m not so big on the digital aspect where everything is driven digitally from top to the entire chain. I’d rather have agents that I’m paying, who go to these communities to do these collections.

The Mint:                     And have the personal relationships with the people who you’re banking, but that must all cost money. So does that mean your interest rates have to be quite high?

Tony Uagboe:               Not necessarily. What we do is try to be very innovative about it. Typically our rates would be comparable with what you have with other microfinance organisations. But remember, because we’ve also endured ourselves with these customers, they intend to save their monies with us. It then means that we have access to cheaper capital. And the way that model works, that savings model works is such that they save it at a fee. So when they save with us, we charge them for saving.

The Mint:                     You charge them for savings?

Tony Uagboe:               Yes. Quite counterintuitive, because that is the way the traditional saving system works. So somebody comes to them on a daily basis to pick their savings over 30 days. And when it’s time for them to collect their monies, they get their monies less ed.

The Mint:                     So effectively you charge a fee for providing security for their savings. Is that right?

Tony Uagboe:               Absolutely. And for making it easier for them to save.

The Mint:                     Okay. Presumably you are providing services to people who are relatively poor, so they can’t save a lot. And the amount you are lending is going to be more than the amounts that they are saving.

Tony Uagboe:               Okay. So what then happens is you are able to be leverage to the tune of three times of your savings. So if you save X amount with us, that means that you can then take times three of your total savings as a facility, as a loan.

The Mint:                     And what are the sort of interest rates on the loans? What level of interest do they pay?

Tony Uagboe:               Okay. Typically it would be anywhere between 7% monthly to 10%, depending on the level of risk.

The Mint:                     So that’s seven to 10% monthly, which obviously adds up to over a hundred percent or around a hundred percent a year.

Tony Uagboe:               Yes. When we started, it was far lower than that, but unfortunately we’ve not been able to assess cheap financing from institutions. I’m talking about the big banks. So what we then do is that we leverage on existing relationships from HNI’s who then place funds with us at a higher rate- high net worth individuals.

The Mint:                     Oh, so they’re supporting on the basis of your mission, your sort of effectively charitable mission.

Tony Uagboe:               Yes. Who understand what we are doing and want to support what we are doing. But of course they need to also get good interest rates better than what the banks would offer them. So they come to us and say, “What can you… Can we place these funds with you at 4% monthly?” So if we need to get that to those funds at 4% monthly, what we can only then do is to give it out as loans at a rate that cannot be less than seven or 8%.

The Mint:                     So are you mainly lending to businesses effectively to businesses?

Tony Uagboe:               Okay, these are what you call micro enterprises or you call them pet traders. So traders are trading in the markets. They trade in the markets, they trade by the roadside. That’s particular demographics that we are interested in. There are businesses, but they’re not your small scale enterprises. They’re not micro.

The Mint:                     So these micro-businesses have to pay about a hundred percent interest per year. And I was wondering, how can they make enough money to actually pay that back?

Tony Uagboe:               Okay. From our own research of the nature of their business because they operate very lean and they’re purely trading businesses. They actually make as much as 50% monthly, sometimes for those that are prudent enough. So they don’t have problems paying back their loans because they make enough-

The Mint:                     Is that 50% having paid themselves a living?

Tony Uagboe:               So because they operate lean, they’re able to manage their expenses. Of course, they don’t pay salaries to themselves because they’re not at that level. But from what we discovered, depending on the season, sometimes it goes as high as hundred percent monthly. Depending on the way they’re able to churn out or turnover the capital given to them. But of course, they’re also exposed to various risks because they’re not insured because they don’t know how to put it, manage their finances. So they don’t understand the clear purpose of profit and loss statement. So they don’t pay themselves salaries. The bottom line is they’re able to actually trade and make enough profit on the cash.

The Mint:                     What happens if they can’t, how do you deal with people who are unable to make the monthly repayments?

Tony Uagboe:               So that’s why we need to engage with them. To clarify, we would’ve engaged with them, have a relationship with them. I remember they already saving with us. So we’re also able to build a sort of profile of these people to know how well they’re doing in their businesses, the best people to give loans to are people who are not desperate for it. So we are able to then see that, this people or this particular lady has a good enough business case for us to give this facility to.

                                    For those that are usually desperate, we try to avoid them because that what has happened is that they’ve misappropriated earlier funds. Now they’re looking for a loan to go sort of pay back someone else they’re owing. And it just puts them on a cycle of poverty. That’s the reason we actually advocate that they build a savings culture. For us, we are more big on the savings than the loans, because we realise that they’re better off saving their bonds. And with the help of technology, we are able to connect them with service providers or merchants at literal or no fee without them necessarily having to not resort to loans. And that’s the power of technology.

The Mint:                     So you’re still charging them for saving…

Tony Uagboe:               The way this saving works is… Okay, go ahead.

The Mint:                     Yeah. I’m just trying to understand. How, I mean, so what you’re saying is that actually you’re looking for people with small enterprises and maybe not rich, but not absolutely desperate, who’ve been able to save a bit. So they’ve got a sort of record of running their business and saving. So you help them save more and they will save with you because you’re charging less or you’re more secure.

Tony Uagboe:               Okay. For the major need that we try to address with the savings is true. They don’t have financial institutions within their communities to save their monies. What we then do is we are providing them quasi private banking. We are actually going to their doorstep to collect the savings from them. Otherwise, they cannot save that money or otherwise if they don’t save, they would spend it on consumption. The option left for them apart from consuming the money is they then give it to these traditional trip collectors who eventually disappoints them. So it is that service I would try to address. We then found out, secondly, that as they then save, we’re able to build a profile around them, which makes them first to be eligible for loans, good loans at cheaper rates. And secondly, to be able to get connected to merchants who are like suppliers of the goods they sell.

                                    So what that does is that those merchants are not able to provide them supplies, credits based on the savings they have with us. It is a strategy that we started where we started by giving up loans. Now we are migrating these people to recognise that what they need is more of savings. So with savings, they’re able to do more and get better in their businesses and in their lives. That’s the thinking. I don’t know if it’s clear.

The Mint:                     Well, I think so. The fact that they’ve demonstrated an ability to save and whole savings becomes a sort of security, is that right? That then allows them to borrow more, knowing that they’ve got a record and some coverage of it and borrow more from you or from their suppliers to build their business further, save more and hence borrow more and so on. Is that right?

Tony Uagboe:               Absolutely.

The Mint:                     In terms of when you are lending them, do you take into account that you are actually, to some extent lending back to them money they’ve already saved?

Tony Uagboe:               Absolutely. That’s part of it, but you see what we then do is that we they’re able to leverage times three. And many a times they would’ve saved X amount that they need a leverage of times five. So we are constantly on the lookout for funds outside of their savings. Remember, we’re also duty bonds to ensure that their savings is secure. We can only make available just a little fraction of what they’ve saved as known for others, because it’s actually not our money. You get what I mean? So we then have to then go out of our way to look for deposits from investors. So that can make up for this short falls.

The Mint:                     And I mean, some of the microfinance scheme have come under challenge in terms of when people fail to pay back or get into trouble. There has been a, I believe in some places, a level of suicide because of the shame of failure and so on. Has that happened with any of your lenders?

Tony Uagboe:               No. No. We haven’t had that challenge. The reason being that, like I said, when we started, we thought that what these people needed, were micro loans or loans. But we then discovered in 2020, that what they needed was in loans. What they need is an aggregator to help them aggregate their little savings and give them access. And that’s where the challenge is. And if we’re going to rework the model of microfinance, that is what we should be doing. I’m not saying loans are not good. Loans are good, but loans are not an end in themselves.

                                    So the new thinking which we are bringing to the table is many of those people are productive. They do savings on a daily basis. Can you create a system that would help them aggregate that savings so that they didn’t have access to suppliers credit so that they have access to better education for their children so that they have access to micro insurance. So that they don’t need to pay out of pocket for healthcare. So that is a innovation we are bringing to the table. We started from loans, but I’m saying we are migrating to a point where we are also teaching these people that you can do better based on your daily trade turnover because, Henry, the reality is that these guys do daily trade and they make money. They do make money.

The Mint:                     But they may end up still borrowing more than the assets. I can see that they create assets. So they create a sort of official, it officializes their status if you like, but presumably they can still end up borrowing more than their assets.

Tony Uagboe:               What we do is that here’s a certain level beyond which you cannot borrow. So our loans are usually a 30 day, 60 day cycle of less than you typically between $80 to maximum of about 500, $3,000. It’s not like you just keep borrowing and borrowing until you completely… But we’re also able to track the progress of these people. So when you started by taking an $80 loan, what progress did you make? There should be sufficient progress from our observation and also from your savings, because it’s expected now that you should be saving more because you’ve collected $80. So we want to get to the point where after you then collect $500, you are able to then show us that, you know what? I have done this thing with you for the past one year. And I have bought a machine, I have working with me. I have made so much progress and now I don’t need your facility anymore. I just want to keep saving.

The Mint:                     So have you had any defaults of your-

Tony Uagboe:               Of course you have default, no matter how hard you must have default. Like I said, there is not enough data. So you obviously still have those sort of people who sort of sneak in and they’re able to get the loans. Then you go back there a month or two weeks after to do collections and they’re nowhere to be found because for some reason or the other, they’ve travelled out of town or they’ve relocated back to their village. So we have those situations, but if it’s in the cost of the business, maybe because business was slow, what we do is that we reason with them to refinance the loan in a very easy manner, that’s easy for them to then pay back.=

The Mint:                     Generally those sorts of people get through these difficult periods, do they or?

Tony Uagboe:               Yeah.

The Mint:                     So how now a lot of costs are going up and the inflation is rising and interest rates are rising. Is this going to create challenges for your model?

Tony Uagboe:               Actually, it is a challenge, but what we have decided to do is we have not increased our rates. What we are doing is we’re trying to get cheaper capital so that it then makes up for the increase in inflation. And the fact that the global markets are tanking right now, means that investors are also looking for people that will give them better rates. We are also highly… We’re coming from a strong negotiation point because it’s not a game to play. So when an investment would typically say, you know what, I have to put monies for you at 4%, because otherwise I take it to equities. Now he doesn’t have equities. He doesn’t have cryptocurrencies. So he can tell him, give it to us at 3% or we won’t take your money. So we are able to negotiate and get cheaper capital and make up for that extra costs.

The Mint:                     I mean, there are critics of microfinance in terms of it being portrayed as a sort of solving all the problems of poverty, if you like. How big a role do you see it playing? And what else do you think is necessary to address issues of poverty?

Tony Uagboe:               I think poverty needs to be addressed on the point of value based investments. It must be driven by values. So be its corporate finance, be its aid finance, be it microfinance. It must come with a sense of, can we objectively track the increase in the human capital indexes of these people. So it shouldn’t be all about the profits. Otherwise, you become a problem you are trying to solve. For us, technology gives us the option or the opportunity to reach out to many more people with a lean structure to say, you know what? We don’t need to guide you and collect high interest rates from you. But rather we want to see you do well as individuals, we want to see you being able to access better healthcare, want to see your children being able to go to better schools. So it’s not just about giving you monies and collecting high interest rates. They will want to see your life get better, by giving you access. So money is part of access, the money is not all the access there is.

The Mint:                     But I suppose we would think in the UK and a lot of other countries, obviously a key part of addressing poverty is transferring funds from richer people to poorer people through benefits, free healthcare, free education. And these and people sometimes suggest that well, that’s absolutely essential. And people are sort of saying, well, we don’t need to do that because we’ve got microfinance.

Tony Uagboe:               Yeah. I mean, UK and the US, you have the luxury of engaging in that argument of, should it be welfare or purely capitalism. But in this part of the world where the level of poverty is quite high, it has to be a combination of several factors. You must use different tools. So from the side of the government and the aid agencies, of course apply some build of welfare schemes, some safety nets. But from the point of capitalist, we must also be able to do capitalism with a sense of humanity. So let’s make monies, let’s be driven by the overarching thinking that we are adding value to these people. For us in this part of the world, it has to be several tools being used to fight for.

The Mint:                     Brilliant. Well, thank you very much, Tony, for giving up your time to talk to The Mint. It’s been a real pleasure.

Tony Uagboe:               Absolute pleasure talking to you, Henry. Thank you.

 

Anthony Uagboe

Tony is a finance professional from Nigeria and runs a tech enabled finance institution called Osemo Borealis (Osb), based in Lagos. As an impact oriented business leader, he founded Osb, …

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