Financial Services in Tanzania: Altemius Millinga Gives an Overview of Yetu Microfinance Bank

Interview with Altemius Millinga, Managing Director of Yetu Microfinance Bank PLC

What is the scope of your business and the core business of the company?

At Yetu Microfinance, our core business is providing financial services, loans, savings products, money transfer and payments to the lower end of the market of the financial sector spectrum. So, basically, we are a specialized bank. There are four of us in the market which specialize in microfinance. The market still remains under served because the lower end market of any business component here is very big.

What is your assessment of the microfinance sector in Tanzania?

Microfinance in Tanzania is an emerging sector. In the 90s, the economy was opening up and the banking sector was undergoing structural changes. Before 1991, banking was dominated mainly by the government. So, when the banks were licensed, what happened initially was that many people did not have bank accounts. That is how microfinance emerged as a new alternative for those who are not able to access banking services. We operated outside the legal framework until 2000, when the microfinance regulations were put into place. But currently, with the new government, we have a new microfinance law in place. That means microfinance is now able to attract local and foreign investors because we have microfinance law, which was approved by the Parliament in 2018. With microfinance regulations, there are four categories or tiers. We have microfinance, which is done by commercial banks, microfinance led by microfinance banks, then you have savings and credit cooperatives, and finally you have informal groups. But there is always a linkage between the two because SACCOs (savings and credit cooperative organizations) and microfinance informal groups depend on the banks for other services.

What are the major challenges of your business? How competitive is the sector?

The main challenge of the business is the level of financial literacy among the lower income people in the country. We need to invest a lot in financial education so that we can make them understand what we are doing and how we are doing it. For example, we had to look for biometric technology because most of our customers are not able to fill the long forms when you open up an account, when you cash out, when you cash in. So, we were forced to go into a biometric teller system, which now enables even an illiterate person to access banking services. That is how we address the challenge.

How much technology have you used to try to push this agenda of trying to create more awareness and get a bigger market?

Our vision is to be the leading microfinance bank in the country in terms of client base, in terms of geographical outreach, in terms of providing solutions which are driven by technology.

We have pushed a lot. We introduced instant account opening technology back in 2017. That allows us to open an account in real time at your house. And that was the best instrument to reach out to rural markets because the rural markets are far from the urban centers. Rural markets also provide challenges in every aspect in terms of the cost of delivery. So, we sorted out that problem by using instant account opening devices so that we can an open account anywhere. Then, we introduced digital loans for emergencies which enable anybody to access loans anywhere. We have also introduced mobile banking where you can send, withdraw from your account, and make payments in any remote area using the USSD code. Customers can do this using a basic mobile telephone, so you do not need a smartphone. That is how far we have gone with the technology: people are able to bank anywhere, anytime, with a simple basic telephone. That is the best way and the only way to serve the bulk of our customers, given their location, their level of illiteracy, and all these other elements which have cost implications and to deliver to the lower end market. Our transactions are small: somebody can transact $20, $10, $30. If the cost of transacting is high, then you are in trouble. That is how from day one, we went into technology. We are using students and small companies to provide us the services so that we do not have to go to bigger companies which charge us much more.

Who are your main clients?

Broadly speaking, our clients are the low-income population and their community. So, it means small and micro entrepreneurs, people who run small shops, people who sell fruits and vegetables on the side roads. We work with a very individual based clientele, not company clientele. We have also smallholder farmers who normally farm three to four acres which could be in rice farming, cashew nuts, coffee, etc. And then in the same context, we have some clients for whom we provide home improvement loans in rural areas where they would need corrugated iron sheets, bags of cement, etc., to improve their housing.

In addition to individuals, do you also work with smaller companies as clients?

We have small companies who have grown with us. We have a client that started from $50 and last week we approved a loan of $75,000 for them. We have some clients who started with one single class. Now, they have a full school which we started financing. This is the type of small business clients we grow. We are now working on the products which will be launched for the next year to expand the client base to small and medium enterprises by introducing overdraft facilities to finance their working.

Will you continue to concentrate on these small clients that you can grow with or move towards larger companies?

We are taking the model of most of the successful businesses in Africa. They target the small transactions. For instance, if a company has some products which sell for less than one cent, because the majority of the consumers fall into the categories of the lower end market, if you are able to capture that market, that is where you can get the match of the revenue and your company can grow. For most of the companies which have grown big here, their main focus is the same: customers who focus on providing consumer goods. Our vision is to provide for the lower end market (which by any definition is huge) with financial services and then with the technology. It is easy to reach them. They can transact anywhere without needing to visit a bank. That is where we see our direction. But we are focusing on the small and the medium companies because of the linkage they have with our customers because they also serve the same market.

What do you offer that is different from other microfinance institutions? What makes you unique?

There are many differences. First is the ownership structure. This is a publicly listed microfinance, the only one of its type in Africa. Some of the 12,350 shareholders are retail shareholders and who are 100% our customers. That sense of ownership is there. Our customers are also our shareholders. That is how we differentiate ourselves from other microfinance institutions. Out of the four here, two are international microfinance institutions, one just emerged after three microfinance institutions. That is why we have the motto, “It is ours; it is yours.” We are competitive because the market is huge. Normally, competition comes in terms of product. If you are innovative with the product development, you can easily excel. For example, if you take salary loans, there you see competition, everybody is rushing. We are not that way. Our approach is quite different. The competition is by product because only 17% of Tanzanians have a bank account. So, we still have 83% unbanked.

Has COVID impacted the microfinance industry?

Yes, we had an impact from COVID. But we were able to manage this situation. First, 60% of our loans are delivered through group loans, which means meeting is necessary. So, with social distancing, that was the first challenge we faced. One meeting is 50 to 60 people. The government set a regulation of a maximum of 30 people per meeting. We got this first challenge in March. But it gave us leeway to think twice. So, we came up with a solution of going mobile and we were able to move quickly to mobile services so that they could repay their loans. The other challenge was in Zanzibar, because everything is linked to tourism. Hotels were closed, everything was closed. Most of the micro businesses supply vegetables or eggs to the hotels. So, with COVID and the hotel closed, that was a big challenge. But that one is not a big market in the sense that it was only 4,000 customers who were affected compared to the 70,000 customers we have. Since the country did not lock down, business continued. Actually, for our performance in the second quarter, non-performing loans were only 5.3, while in the industry it was 11. So, we performed better. And the reason is microfinance and the micro entrepreneurs are people who work under stress. It is a remedy, a mitigation against economic hardships. They are used to it. I recall we had meetings with the customers and they said, “That is how we live. We will continue pushing and selling our products, and we will continue submitting the loan repayments.” That is why at the commercial bank level the non-performing loans went to 11% but our non-performing loans were 5%. It increased slightly by a point during the third quarter by September. But otherwise, the challenge was contained. The reasoning behind it is microfinance, microenterprise, small enterprise, the susus are mitigation against economic challenges.

Did that impact bring something new to the business where you would develop something or a new product? Did it change anything within the company for you?

It brought a new way of thinking within the company. We came up with a new partnership with the mobile companies and a new way for customers to repay their loans and that came about because of COVID. We are also working towards diversification which means having small businesses and medium enterprises become part of our customer base. We are also working on technology solutions. We have started a call center and voice message system. In the future, we need to find a mechanism of we can how best deliver this. So, on the technology side we would like to improve and in the market side we would like to diversify more. We want to also add strength to our market base of micro, small, and medium enterprises so that they are resilient when it comes to such problems as COVID. Microfinance was meant to provide solutions to distressed families, distressed businesses, so that they can grow and cope with these situations.

What is your vision for the company in the next three years, the medium term?

We are now working on a strategic plan. Our vision is to be the leading microfinance bank in the country in terms of client base, in terms of geographical outreach, in terms of providing solutions which are driven by technology. Our vision is to have technology driven solutions which are combined with the social marketing and all these other elements. We are planning to expand, we are planning to have more technology use, and in terms of profitability, we expect to grow our asset base by four times in the next three years. We are preparing for growth. We also want to make sure that the banks continue to be profitable. We want to maintain a return on equity of 16% minimum, because currently, we are at 12. In 2017, we reached 16. So, we want to come back to where the level was (minimum 16, maximum 25). At the same time, we want to continue to provide the needed financial services to the low-income population of the country. That means our mission remains to provide access to finance to the lower end markets of the financial sector in Tanzania.

Are you looking for investors?

Yes, we are. Actually, we have a plan for the increase of capital after every two to three years. For instance, this year, we had plans to invite investors to join. We had all the papers and the clearance from the regulatory authority and we had already started discussions with some investors. But unfortunately, COVID stopped everything. We opened up an IPO, but people were not able to come over to see how the business is running. So, everything has been shelved until next year. As a listed company, we are open to investors and our objective was to expand the capital base, because the bigger the capital, the more the scope of business when it comes to banking services. Next year, we will come back again to potential investors to invite them to invest in us.

How do you find investors? What is your strategy?

We normally hire a consultant to put the papers together. We also do the roadshows. We invite potential investors in each community and then talk to them, sell to them because we have the prospectus already prepared and approved. Also, I normally conduct interviews on television. We have adverts on television to invite potential investors. Our long-term view is to make sure that at least 50% to 60% of the shares are owned by retail investors.

Do you do interviews mostly on Tanzanian TV?

Yes, because that is the main target for investment. When it comes to foreign investors, we use the network and list of investors we have including Slack, Symbiotics, Triple Jump, CD from France. We also use the original papers, like the East Africa, to solicit investors to come onboard. We attend all the international investor forums which focus on microfinance. Last year, I was in Ouagadougou for a big conference on microfinance where we met with potential investors.

What are the key factors that are important for new investors?

First, they look at the performance of the company, regardless of their size, profitability, sustainability, and the potentials for upscaling. On the issue of the local situation, we are best positioned to handle it more than a foreign investor. We know how to manage the taxes; we know how to manage the regulations. We are a part of the Tanzania Bankers Association and Tanzania Microfinancing System Association, because those are instruments to make sure that we run the business smoothly. Normally, when the foreign investors look at us, they ask if we have the capacity to interact with the bigger picture – the policymakers and the government. Banking will always continue. A colleague of mine told me about the situation in Nigeria, for example. Even if there is a shooting in the morning, in the afternoon, we will continue running the business. People have to eat and people have to reach their banking services.

Your business is quite resilient.

When COVID broke out, some of the foreign directors left for their own countries. But where do we go? We continued business as usual. Today, it is smooth. This is our country. This is where we live. But some other decision makers left. I remember one situation I was reading about in one of the papers, when there was an outbreak of Ebola in Sierra Leone, there was a big MFI which had much of its management team from outside the country. They all left. We did not close or leave. So now, when they came back after COVID, they were not received very well because they left when their clients needed them the most.

In crisis, this is the moment where a lot of changes happen. And also, a lot of opportunity happens. We have seen business changing all over the world. For the ones that find the right business at the right time, in crisis is when you grow the most.

During crisis, we have to be together. We have no other place to go. We are part and parcel so we continue business as usual. That is our spirit.

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