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Africa: Blue Enters Nigeria Financial Market
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The Voice (Francistown)
18 March 2008
Posted to the web 18 March 2008
Francistown
Johannesburg Stock Exchange-listed Blue Financial Services (Blue) and Nigeria's largest bank, Intercontinental Bank (ICB), have joined forces to introduce micro-financing services and products into Nigeria's retail market.
A new company, Blue Intercontinental Micro Finance Bank (BIMFB), is being established to market, distribute and sell the products. A statement from the company stated that product rollout would be under the BIMFB brand, in phases, starting off in the major cities. ICB's branch network will be utilised where possible, otherwise stand-alone branches will be opened.
The statement further reveals that the Nigerian market was significantly under-served and unbanked, with limited product offerings. Although there are more than 25 banks in Nigeria, less than 10% of their lending is to individuals. The average bank density is one outlet for 32,700 people in urban areas and one outlet for 57,000 people in rural areas. The Nigerian banking industry concentrates mainly on deposit taking and savings accounts and consumers are constrained by requirements to have existing products with a bank before qualifying for further offerings.
These limitations have led to around 60% of the economically active population having to be serviced by informal financial sector players such as non-governmental organizations, micro finance institutions, moneylenders, friends, relatives and credit unions. To address these problems, in December 2005, the Central Bank of Nigeria launched its National Microfinance Policy and Regulatory Framework, which aims to provide a conducive environment for the provision of sustainable financial services to consumers not adequately served by the existing formal financial system.
Blue CEO, Dave van Niekerk, says that the BIMFB venture will be able to tap into the potential of both a heavily unbanked market and the progressive reforms in the financial services sector. "We will be able to use Blue's proven collection and credit scoring methodologies as well as its processes and procedures that have been specifically refined for the African market. ICB will provide invaluable local partner expertise as well as a significant footprint in excess of 200 branches across all states."
AIG Capital Partners (AIG), which is a shareholder in both Blue and ICB (through the AIG Global Emerging Markets Fund) played an instrumental role in facilitating this new relationship between Blue and ICB. AIG is expected to become a partner/investor in BIMFB, pending final approvals. The potential structure of BIMFB is a majority 55% held by Blue, 35% by ICB and 10% by AIG. The new business has been capitalised by shareholder contributions to the extent of US$ 21 million (R156 800 000 at an exchange rate of R7.84 to the dollar.) Van Niekerk says barriers to entry in this market are quite high and regulatory costs can be significant as a financial services licence application costs approximately one billion Naira, or US$ 8.6 million.
Van Niekerk says the decision to launch in Nigeria involved two years of in-depth research and seeking out the right partners. "ICB has built up its brand equity over 18 years in the market and is ranked as the second fastest growing bank in the world and the fifth largest in Africa. AIG is already a partner of ours and it has an established presence in Nigeria." This is the tenth African country in which Blue has a presence - the others being RSA, Botswana, Zambia, Tanzania, Uganda, Kenya, Lesotho, Malawi and Namibia.
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The agreement between the parties was signed in Lagos, Nigeria on March 6th and the transaction is subject to approval by the Central Bank of Nigeria, the South African Reserve Bank and other conditions usually pertaining to an agreement of this nature.
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