Blue Financial Services already has a considerable footprint across the African continent. The company is now taking on the Nigerian market.

South African micro-financier, Blue Financial Services, has recently added Nigeria to the long list of African countries in which it operates. Jaco Maritz spoke to Morné Reinders, the company's Investor Relations Manager.

Give us a brief overview of Blue's operation in Nigeria?

Blue Intercontinental Microfinance Bank (BIMFB) was incorporated in Nigeria on 8 July 2008. After the commencement of operations in Lagos State, due to happen in August this year, an additional eight branches will be rolled out in Oyo State. Roll-outs will be in the form of branded kiosks inside Intercontinental Bank (ICB) branches. Stand alone retail branches will be established where ICB's footprint doesn't allow for kiosks. We plan to gradually expand into other states.

Describe your relationship with Intercontinental Bank. Why did you decide to partner with them rather than going at it alone?

Given Nigeria's complex business environment, Blue realised the value of a "street wise" partner from the outset. ICB's proven track record, their branch footprint and approach to doing business made them the ideal partner to launch BIMFB. Blue Financial Services owns 65% of BIMFB and ICB 35%. American International Group (AIG) has the option to acquire 10% from Blue in the future.

ICB will introduce its more than 2 million clients to BIMFB's micro-finance products. All micro-finance clients who do not have bank accounts will have to open an account with Intercontinental Bank. Because BIMFB kiosks will be situated in all of Intercontinental Bank's branches, the increase in customers will directly benefit ICB.

Who is the typical Blue customer in Nigeria and what micro-finance products are you offering?

A typical customer would be low-income earners/groups, such as government and corporate employees who cannot access mainstream banking services due to the small loan size they require, or because of their lack of collateral. This would include the lower tier of ICB's customers who would naturally not qualify for educational, home improvement, retail loans and personal loans. These products will now be accessible through BIMFB. Very soon as part of BIMFB's strategy, Small Business Finance loans will be offered. Approval will be based on the viability of the project and the owner's own contribution.

How do you aim to ensure that you recover debt from borrowers? In Rwanda you are going to follow a deduction code model whereby debt repayments can be deducted directly from the payroll before the salary reaches the borrower's bank account. Will you have a similar system in Nigeria?

Yes, the approach will be the same, but we are also exploring collection through debit orders as in South Africa. Blue's proven credit scoring methodologies, whereby extensive affordability checks and verification of employment is done, will also be utilised in Nigeria. This will further lower bad debt risks.

Who is your main competition in Nigeria?

There are a number of micro-finance banks across Nigeria, some better run than others. BIMFB's product structure and capitalisation backed up by ICB's reach makes it unique in the industry.

How does doing business in Nigeria differ from South Africa or other more developed countries?

Nigeria is a very challenging business environment. The financial services industry has matured over the years with the consolidation of banks. The micro-finance sector however is effectively 2 years old and therefore still in a developmental stage. This offers a wealth of opportunities for the likes of BIMFB to shape the market to its advantage.

What aspects of the investment in Nigeria worry you the most?

Doing business in Nigeria is not necessarily different from doing business in Africa per se. Business risk in Nigeria particularly relates to keeping costs of operation to reasonable levels as a result of limited power supply. It is something we'll have to deal with.

Are you going to make use of local Nigerian staff?

BIMFB will have three executive directors who will manage day to day operations. These are appointees from Blue and ICB. As in all countries of operation, the majority of staff is local to ensure effective consultation with clients in their home language.

What have been Blue's greatest challenges in setting-up the business in Nigeria?

The biggest challenge was infrastructure i.e. logistics and communication - a process that would’ve taken much longer without the correct partners and staff with micro-finance experience.

Have you experienced any red tape in Nigeria when dealing with the government?

Again, Nigeria is no different from the rest of Africa, but in our own experience we've enjoyed good support from the Central Bank and ICB during the due diligence and actual registration of the company.

How do you feel about the political situation in Nigeria?

Just like any new democracy, there will be a transition period and Nigeria is going through this phase. The country has transited for the first time from one elected civilian president to another, which bodes well for political progress.

What is your message to investors looking to invest in Nigeria?

As demonstrated by the cellphone companies, Nigeria offers a very attractive investment opportunity – but it also holds certain risks common to investing in an emerging economy. It is therefore important to do as much homework as possible and work with reputable local partners, such as legal advisors, accountants and financial institutions.