Our client is a donor-funded private healthcare sector support project. Its mandate is to strengthen the capacity of private hospitals, clinics, maternity homes and pharmacies to deliver improved reproductive health services in six Nigerian states.
In 2007, the project discovered that, though its technical support was delivering improvements in the clinical aspects of healthcare, it was not enough to achieve stability and growth in these health facilities. They found that the facilities also required support in the areas of business management and access to finance.
Private hospitals, clinics, maternity homes and pharmacies are not just healthcare providers. They are also businesses. Meanwhile, the medical professionals who own and manage these businesses typically have had very limited exposure to business management principles and practices. This knowledge gap thus limits their ability to operate their businesses efficiently and profitably, which it turn threatens their ability to deliver quality healthcare to the public.
A study conducted in 2008 suggested that, while healthcare businesses struggled to find funding to maintain or expand their facilities, banks were very wary of lending to them. Most bankers did not even see the healthcare sector as a viable investment opportunity. The dominant mindset was that the healthcare sector was insignificant in size and lending to the sector was excessively risky.
A closer look revealed that this mindset was largely because most bankers knew next to nothing about the healthcare industry. Furthermore, most healthcare business owners were suspicious of banks and so had never bothered to explore financing options. This mutual ignorance-driven distrust was largely responsible for the limited flow of investment to the healthcare sector.
Our client mandated us to design and implement programs to build the business management capacity of healthcare business owners and stimulate the flow of lending to the health sector by Nigerian banks.
We began with a detailed study of the 2008 survey and its findings. We then conducted some interviews with owners and managers of different healthcare businesses to better understand their issues. We also talked with some bankers to help us have a deeper understanding of their perceptions and the reasons for them. Next we gathered and analyzed some economic data on the African and Nigerian healthcare sector and used it to develop a business case for health sector investment.
To address the knowledge gaps on the business owners’ side, we designed and delivered a series of basic and intermediate level business management courses. These courses were specifically meant to improve participants’ ability to identify, understand and find solutions to business management challenges. The financing module was designed to increase awareness of how the banking system works, understand different types of financial products and how to access them.
We organized seminars for senior officials of commercial and microfinance banks where modeled and described the health sector value chain. We shared our health sector business case, with data on industry size and growth trends, both from the IFC and from our own studies. The sessions were designed to draw bankers’ attention to the viability of the health sector as an investment option and to discuss industry risks and mitigation methods. We emphasized that the health sector includes, not just borrowers, but deposit sources such as HMOs.
From the banks which responded positively to our partnership invitation, we selected a few as partners based on some defined criteria. Our selection criteria were primarily based their fit with the health businesses in our portfolio, in terms of size, geographical spread and financing needs. We also sought evidence of the bank’s institutional capacity to serve the SME market.
We provided technical support to these select partner banks:
- We helped them develop, package and market loan products specifically for the health sector (an industry first).
- We designed and delivered training programs for managers and loan officers at the branch level. These courses were designed to help loan officers understand the different health sector businesses types and their business models, how to meet their financing needs, how to evaluate credit requests, how to identify and mitigate risks. They were encouraged to explore opportunities for both loans and deposit products.
- Working with the donor agency, we packaged a portfolio guarantee scheme for the banks
- We monitored performance at different levels based on preset portfolio performance standards and project goals
To build bridges and promote mutual understanding among stakeholders we worked closely with the associations of private doctors, nurses and pharmacies to organize interactive sessions. We seized every opportunity to ensure partner banks were invited to associations’ state and national conferences, to facilitate dialogue.
As healthcare business owners became more aware of business and financing issues and bankers gained improved knowledge of the healthcare sector, mutual trust grew. This mutual understanding and trust was further strengthened as they attended various interactive sessions.
The result was significant growth in healthcare loans in the six project states over a period of four years. 880 health businesses received new loans and grew the loan portfolio to US$2.8 million in two years, with average PAR of 3%.
At the end of two years, our microfinance partner bank had exceeded its guaranteed portfolio limit, but received Board approval to continue to lend because they had become convinced of the viability of the healthcare sector.
Furthermore, our success created a demonstration effect in the industry as several other banks took an interest in the health sector. One large commercial bank launched two products (one for hospitals and the other for pharmacies) and was offering interest rates lower than that offered by our partner bank. As at the date our exit this new entrant had grown its portfolio to about US$1.2 million in just eleven months.
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