Nigeria’s consumer finance market massive, risky says Opaleye

The Chief Executive Officer, SEL Capital Limited, Mr. Segun Opaleye, in this interview during the opening of the company’s head office in Victoria Island, Lagos, spoke on its support for small and medium scale enterprises and its plan to transit into a merchant bank in the next three years. Hamid Ayodeji presents the excerpts:

How do you think opportunities in the power sector can be unlocked so that investment in that sector can be attractive and the risks in the sector minimised?

The major problem in the power sector is illiquidity. When you look at the entire value chain, you have the Gas Company, the power generation companies (Gencos), and power distribution companies (Discos) and government agencies as well. For example, you have a Genco that is supplying about 900 megawatts to the grid but getting paid half of that due to Aggregate Technical, Commercial and Collection (ATC & C) losses. So, today, no investor will want to lend to any sector that is plagued with illiquidity. For us, we are very careful and that is why we support captive power plant projects. With captive power plant, there is a willing buyer and a willing seller. So, you are only taking the risk of the off -taker or the buyer. If you see any power project getting funded easily, it is most likely to be a captive power plant because all the illiquidity challenges are not there. So, you really will not go wrong with such. As long as those challenges in the sector are not addressed, the sector will not be attractive to funding.

We also have a funding gap in consumer finance segment, which you also want to explore. What do you think has improved in that sector to enable you take such risk?

Consumer finance is a very massive market and very risky business as you rightly pointed out. But again, you are taking the risk of the individuals. So, we find out the risk of lending to you and that will determine the rate you will get. Of course, there are some cases where the proposed borrower does not meet our risk management criteria. In that case, we cannot go forward. We developed a proprietary algorithm that enables us sieve out the people we cannot lend to. But if you are in lending business, you will still have some bad loans, but a good collections structure and your ability to sieve those that will not payback help reduce the non-performing loan rate. It is a tough market, but if you understand the market very well, you will do well.

Since its creation, the Investors’ and Exporters (I&E) forex window has been attracting a lot of money inflows. So, the question we should be asking ourselves is where have we been all this while that we did not think through that?

And we need consistent policy, and continuity to be able to do things. There are economic plans that you do not truncate even if a new government in place. It must be independent of politics. And that is how we can achieve this type of thing. I know the economic managers are looking at it, but it will not happen overnight. Clearly, we need the right economic team in place, and a framework that ensures that economic policies are not truncated due to change of government.

Why do you think it is difficult to bring down the Monetary Policy Rate (MPR) to the level where the funds will be cheap to achieve lower lending rates?

It is not as if the Central Bank of Nigeria is not mindful of the need to have a lower lending rate. But the reality is that we are a nation that depends on a lot of Foreign Direct Investments (FDIs) and Foreign Portfolio Investment (FPIs). And one of the things you can do to encourage these investors is high yield. Some of them understand the problems in developing nations. There is a premium they require for the foreign investors to find your economy attractive. If you keep the rates low and you do not get what you need to reflate the economy, it is big problem. There must be strategic direction and plans and at the minimum, it is a three to five-year plan. It is not a knee-jerk response, otherwise you will kill a lot of things. And we need consistent policy, and continuity to be able to do things. There are economic plans that you do not truncate even if a new government in place. It must be independent of politics. And that is how we can achieve this type of thing. I know the economic managers are looking at it, but it will not happen overnight. Clearly, we need the right economic team in place, and a framework that ensures that economic policies are not truncated due to change of government.

Can you tell us the business that SEL Capital Limited specialises in?
I will start by saying that SEL Capital Limited was incorporated to seize emerging business opportunities in the financial services sector. Our vision is to become a leading Pan-African financial institution, offering financial advisory, wealth management & investment advisory services and provision of funding solutions to individuals, Small and Medium Enterprises (SMEs). We also help project promoters to create bankable projects and access funding for their projects. Our aspiration is to be the gateway and catalyst for mobilising capital for growth and development across Africa.

And that is essentially, the way we are structured. We are starting off with consumer finance, SMEs structured finance, all advisory services around project finance, corporate finance and wealth management. We are one-stop funding solution. We want to leverage our transactions experience working in one of the biggest financial institutions in Africa to drive business growth, which we believe is the required catalyst for growth and development in any economy.

Regarding funding for SMEs, are there special approach you are deploying to achieve your vision within that segment of the market?
One of the major challenges facing SMEs is that a lot of times, the business is not in a position where one can go to sleep as a lender or a potential equity investor. What we usually do for them is to start them off with the advisory services, helping them to understand exactly how the business should be structured for easy access to capital.

So, we take so much time in guiding them through what is required to run a proper business. We try as much as possible to help them create a structure that clear the usual doubts about SMEs. Although everybody talks about providing support to SMEs, but the question is are you really giving them the solutions that set them apart from the pack? First and foremost, you have to get them to the point where the structure supports transparency, good governance and sustainable business. That is what we are doing: guiding them through the process and helping them to fund and grow their businesses.

You also talked about the High Net Worth Individuals (HNIs). What advisory supports are you providing to this group of people?

We provide investment advisory services to them. We all know that HNIs understand some of the market dynamics. Based on our experience, we provide them with the requisite insights that will help them in making better investment decisions and spotting compelling investment opportunities.

We see that you are expanding. This should be your second outlet and headquarters?

Yes. We started out last year from Parkview Estate Ikoyi, Lagos. We believe we needed a bigger space, a befitting corporate head office and that was what informed this head office in Victoria Island, Lagos. This has been in the works for the past six months. Now, it is ready, and so we are ready for more business.

With the opening of your head office, are you likely to lend more to deepen your market penetration? What will you be doing better?

The whole idea is to increase our clientele base across all our touch points, be it our physical locations and e-channels (SEL Mobile App and Web Access). We have also in the short period, been very instrumental in capital raising for clients’ projects in key growth sectors of the economy. For instance, we just concluded a $12 million capital raising for a captive power plant project for a client. We are also lending to businesses and individuals as well as helping SMEs to meet their funding requirements. We are helping SMEs to establish Letters of Credit (LCs), fund their Purchasing Orders (POs) and support their treasury management needs. On the wealth management side, we have a few new products and at the appropriate time, we will let you know about some of these products as soon we get the regulatory approvals.

Can you tell us about your financial inclusion project and how you are exploring opportunities in the retail market space?

As part of our financial inclusion strategic drive, we are planning to float a N2 billion SME Fund. We are starting with tranche one of N1 billion which is expected to close within the third quarter of this year.

Can you give us overview of your growth trajectory?

Our plan as an institution is to move from this initial phase, and in the next three years, translate to a merchant bank. So, some of the things we are doing today are geared towards ensuring that we can easily move into the merchant banking space, which is our end game. We believe that with the support of our customers and other key stakeholders, we are on track to achieving this goal. While, we acknowledge it is a tough order, but if you see what we have done in the last one year, everything is geared towards that goal and we are poised to achieving it.

Are there special plans you have to deepen your operations in the oil and gas sector?

I will not sit here and say that we can compete with the big players in that market. We define what we can do based on our understanding of the market. So, our goal is to support every SME business across sectors. Like I said earlier, we are also planning to become a merchant bank where we can take on the bigger players within that market.

What do you think gives you an edge over your competitors given the highly competitive environment you are playing in?

For us, the business model is very clear. You really cannot support customers if you do not know their business. We do not intend to play in a sector we do not understand. Remember what I said earlier concerning the SMEs space. You can lend to anybody. But the question is are you creating value for your customers? Value creation is the only way to create emotional connection with your customer. In our own case, what we do first is to create value through our advisory services. The same thing goes with our other lines of business. We work with them, give them the best by understanding their needs and being able to provide the solution that meets their specific needs as demonstrated in the example I gave you concerning the power plant. It is all about providing solutions. If you do not provide solutions to their issues, there is no way you can keep them.

What are you doing for start-ups?

The fact is most of the start-ups are SMEs. According to the International Finance Corporation (IFC) nine out of 10 new jobs worldwide are created by small businesses. Therefore, for an economy to develop, such economy must develop the SMEs space.

At SEL Capital, we help business owners to create a sustainable business and make their business more bankable. If we understand what you are doing as a business, then the question is, is it in a sustainable/ bankable state that equity investors or lenders will be comfortable to fund the business? So, we guide you through the process to ensure you get the needed support.

For someone that is not yet your customer, what will the SEL Mobile App do for such a person?
If you download the SEL Mobile App from Google Play Store, it asks you whether you want a loan, you have a business idea that you are seeking capital for, or you want to invest with us, or you want to take a personal loan as a consumer. So, it allows you to do your Know Your Customer (KYC) and of course, you are up.

Many SMEs have complained about the high cost of loans. How are you addressing that, and do you think they can get better lending rates?

Let me take you back to the commercial banks today. In commercial banks today, as a non-prime borrower, you will probably get loans at 20 per cent plus. The question has always been, why have we not achieved single digit lending rate? The truth is that the same customer that wants you to do a single digit lending is the same person that will bring funds to you and be asking for 20 per cent. And remember, financial institution’s role is purely intermediation. The good news is there are government initiatives and policies geared towards supporting SMEs.

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