High interest rates unhealthy for financial system, says Accion MD

The Managing Director and Chief Executive Officer (CEO) of Accion Microfinance Bank (MFB), Taiwo Joda, has expressed concern over the high interest rates associated with digital lending, describing them as unhealthy for the financial system.

Speaking on digital lending during a briefing with journalists yesterday, in Lagos, the MD acknowledged the challenges posed by the current interest rate regime but expressed optimism that increased competition in the sector would lead to better regulation and more affordable rates for borrowers.

He, however, highlighted the importance of financial systems digitalisation to enable swift banking operations.

Joda said technology keeps evolving and the concept of digitalisation has become a necessity to drive innovation and efficiency, to achieve a better result.

He explained that the concept makes it easy for customers to borrow as they can access a loan in 10 minutes, as against the analogue system which can take up to three weeks.

“Digital lending has, at the back end, complexities like machine reading, some level of augmented intelligence, that profiles you, looks at your phone, how much you recharge your phone with, debits in your account and is able, in two minutes, to tell from the back end, through your profile, to the front end, to the decision maker, how much you can be loaned,” he added.

He stated, however, that the challenges with these systems include hackers who steal the identity of individuals to access their funds, system glitches and talent identification and retention.

He added that there are mitigating factors, such as facial biometrics that link one to their ID, making sure it’s the right person.

Joda, addressing the e-transfer levy about financial inclusion, said technology incurs costs, emphasising that its maintenance and the convenience it offers also come at a price.

He noted that the levy is a reasonable cost when compared to the expense of conducting the same transaction without the use of technology.

“While I think the government has a responsibility to ensure that these services come as cheaply as possible. I also think when you weigh the opportunities to the costs, it looks reasonable.

“As we go, we are going to moderate that. These are teething challenges in introducing technology. The first problem that digital vendors have solved is accessibility and that was a major challenge.

Chief Digital Officer, Accion Microfinance Bank, Paul Ehiagbonare, said the bank has adopted a strategy for digital transformation by developing effective and efficient systems to address clients’ needs.

According to the MD, Accion MfB has upcoming innovations such as save and earn promo, save to loan promo and buy-now-pay-later initiative, which would kick start with Justrite.