There are a lot of forgotten people in Nigeria who have been more or less excluded from financial services. These services are in forms of loans, consultations, financial reliefs, business capitals, etc. In Nigeria, most people – especially women and children who are dependent – live below $1 per day. These people are mostly financially excluded and inadvertently forgotten by conventional banks. Sadly, these people represent more than 60% of Nigeria’s vast populations. It is worthy of note that for a robust economy like Nigeria’s to soar, these neglected persons must be included in the financial equation. Like it or not, the roadside mechanics, the shoemakers, petty traders and the woman who sells pepper down the street all contribute to the Nigerian economy in ways unimaginable. Nigeria has the fastest growing economy in Africa even with the sorry numbers of the financially excluded. How is it possible?
As the years roll by, more and more women are becoming breadwinners in many Nigerian homes. This should ring a bell owing to the fact that a sizeable percentage of these women are financially excluded. There must be something we are all not capturing. There is a revelation at hand. This is where micro-finance banks come in. Micro-finance banks have been contributing immensely in closing the yawning lacuna between the haves and have nots in Nigeria. This they have done by providing cash loans, business capitals, consultancy, financial reliefs, etc to members of the public; especially for those who have been forgotten in the financial equation of the economy. This means that every job, every business and every venture contributes to the economy without announcement. Whether financially included or excluded, for good or for bad, micro-finance banks have a big role to play in determining the economic destiny of Nigeria. There is no doubt that the micro-finance banks in Nigeria play larger than life roles in ensuring that the poor are – to an extent – included in Nigeria’s financial reckoning.
Micro-finance banks have to a large extent localized financial services. Funds are now more readily available to those who need it. While many conventional banks focus on the nouveau riches and historically affluent Nigerians, micro-finance banks have come in and leveled the financial playing field. We should all wonder what the Nigerian economy would have been without micro-finance banks. Without their timely intervention, money distribution would have been top-heavy. They are the reason more and more women in Nigeria are becoming efficient breadwinners. This trend was almost impossible just 10 years ago. These women take business capitals or loans from micro-finance banks and pay back with bargain interests after few months. These loans are structured in a way that it does not turn into financial burdens to these women. These women would have been denied by an average Nigerian conventional bank. In fact, their fruitless efforts would have only be comparable to the relentless efforts of a mischief of rats to mount roadblocks against a herd of stampeding elephants.
History and Evolution of Microfinance Banks in Nigeria
Micro-finance banks in Nigeria did not fall from the skies. For more than 25 years, governments upon governments have tried but failed to provide micro-credit to the poor people who are operating micro and medium enterprises. It is common knowledge in every country around the world that over 90% of businesses are micro and small businesses.
In Nigeria, once upon a time,, there were people who went round taking money from other people in their work places. These people were like village banks. They took the risk of accepting the money like conventional banks as deposits for the people. This form of agreement among the people of this particular area and the people going about collecting money from them brought about trust among them. Though it was not the same with every community, the whole idea is the same which is deposit taking and saving, but what remains interesting here is that in some cases, these people that agree to save, form groups amongst themselves, and one or two people among them borrow the money after it has been accumulated. They usually gather the money for six to twelve months. The members who collect the money usually use it to invest in their businesses but they also know that they are required to return the money back to the depositors. This way other members will also have a chance to borrow. This is one of the interesting cases as it gives us an insight on how the financial sector operates in Nigerian villages and towns.
This process of formation of borrowing groups was not only common in Nigeria, but it was experienced around the world. An empirical evidence in Ghana (Owusu and Tetteh, 1982), Zimbabwe (Bratton, 1986) and Dominican Republic (Desai, 1983) shows that local conditions have influenced the ideal size of membership and that below or above the ideal size of membership correlates negatively with cohesiveness and joint accountability.
Anyanwu (2004) concluded in his research on micro-finance institutions in Nigeria, their policy practice and potential. In this research, he opined at the time, the ten major micro-finance institutions in Nigeria with respect to their location. These micro-finance institutions were Farmers’ Development Union (FADU), in Ibadan; Community Women and Development (COWAD), in Ibadan; Country Women Association of Nigeria (COWAN), in Akure; Lift Above Poverty (LPO), in Benin; Justice Development and Peace Commission (JDPC), in Ijebu-Ode; Women Development Initiative (WDI), in Kano; Development Education Centre (DEC ENUGU), in Enugu; Development Exchange Centre (DEC BAUCHI), in Bauchi; Outreach Foundation (OF), in Lagos; and Nsukka Area Leaders of Thought United Self-Help Organization (NLTNUSHO), in Nsukka.
The result of the analysis carried out by Anyanwu in 2004 showed that most of the beneficiaries of the services provided by the micro-finance institutions in Nigeria were women. More than 90% of the clients in the sample were women. Four of the institutions exclusively provide services to women, while five had over 90% of their clients as females. This shows clearly how women have been the most important target for the micro-finance institutions which is viewed as normal because of the fact that women in Nigeria are always believed to be marginalized in terms of socio-economic matters. The study was one of the triggering factors that led to the public sector seeing the fact that almost 60 percent of the Nigerian populations which reside in the rural or remote areas do not have access to micro-credit. This gave the public sector a thinking of coming out with alternative solutions to this problem.
The year 2005 was recognized by the United Nations as year microfinance took its giant stand. The United Nations is one of the sole organizations which foster the continual existence of micro-financing in both the developed and developing countries. The millennium development goals addressed the issue of alleviating poverty not only by giving foreign aid to the less developed and under-developed countries, but also by supporting the poor to stand on their feet. Therefore, teaching them to catch fish rather than continuously handing them fishes.
With all these developments that took place since the early 90s, like the other governments, the Nigerian government took a bold step. The Central Bank of Nigeria (CBN) responded in 2005 by establishing laws which will promote the establishments of better financial institutions to serve the Nigerian poor population. The microfinance policy, regulatory and supervisory framework for Nigeria entered into force in 2005. This law obligates microfinance institutions to be regulated in Nigeria. With this policy, regulatory and supervisory framework, the government addressed different issues needed to strengthen microfinance institutions in Nigeria. This law required the private sector to acquire license from the Central Bank of Nigeria. The license was open to start-up a micro-finance banks or an already established microfinance institutions that wanted to convert into a micro-finance bank. The policy aimed at having adequate regulation and supervision over the microfinance sector in Nigeria.
Types of Micro-finance Banks in Nigeria
There are currently five types of micro-finance banks identifiable in Nigeria. They are as follows:
1. Privately owned micro-finance banks.
2. Community micro-finance banks.
3. Government micro-finance banks.
4. Non-governmental organizations’ micro-finance banks.
These banks are completely different from the traditional or conventional Nigerian banks we are used to. These banks are focused on elevating poverty and providing financial services to the poor cum financially neglected.
Proscribed Acts of Microfinance Banks in Nigeria
The Central Bank of Nigeria (CBN) indicated in 2005 that there are some activities that are not expected of micro-finance banks. They are as follows:
1. Accepting deposits from the any public or government sector except in the events of paying gratuities, pensions, salaries, etc.
2. Micro-finance banks are not expected to meddle in foreign exchange transactions.
3. Cheque clearing activities.
4. Involving in real estate business except for accommodation purposes.
5. They are not to involving in renting, leasing, sales/purchase with any of her directors, employees, or any of their family members.
6. They are not to deal in international corporate finance.
7. International electronic funds transfer.
Benefits of Microfinance Banks in Nigeria
There are currently 902 registered micro-finance banks in Nigeria. However, only eight of them control more than 45% of the financial markets. The stipulated roles of micro-finance banks in Nigeria are as follows:
1. Micro-finance banks encourage people who are normally financially neglected in the society to save.
2. It provides credit facilities to the poor or needy who are economically active.
3. It creates job opportunities.
4. It creates an enabling environment for an economic plan even if incomes are stagnant.
5. By targeting women borrowers, loan repayment rates are increased.
6. Families who receive loans from micro-finance banks have a better chance for better education.
7. There is little risk with micro-finance banks.
8. Micro-finance banks make money available. Hence, interrupts generational poverty.
Challenges of Microfinance Banks in Nigeria
1. Just like many other institutions in Nigeria, micro-finance banks are battling with some recurring negative trends in the society. They are as follows:
2. Bad debts: most Nigerians do not pay back loans. Thus, most of these loans are written off as bad debts.
3. Credit Worthiness: most potential borrowers are not credit-worthy.
4. Inadequate investments.
5. Confusion on modeling.
6. Lack of financial education or awareness on services rendered by microfinance banks.
7. Over-dependence on conventional banks.
8. Many micro-finance banks in Nigeria are not well regulated.
Nigerian Women as Breadwinners: The Conclusion
There are a lot of sufficient reasons women are the darling of micro-finance banks in Nigeria. Credit-worthiness, high repayment potential and small scale economic involvement by Nigerian women are some of the reasons micro-finance banks in Nigeria lend more to them. But historically, Nigerian women have been known to be more emotionally intelligent, financially responsible, accountable and trustworthy. An average Nigerian woman actually cares for her family and for others. The qualities above are what is causing a watershed in Nigeria’s traditional societies. In the past, men were responsible for the upkeep of his family and even extended families but it is changing at a double-quick-march.
Female clients of micro-finance banks in Nigeria have been discovered to be breadwinners or potential breadwinners according to the African Development Review (ADR). When these banks grant loans to them, these loans are invested in their little businesses. Most times than not, the proceeds from their small scale business are used to cater for their families. This trend has the potential to increase in the no distant future. More than 40% of women in Nigeria are breadwinners and it is no surprise to put it mildly. We can only imagine how better it could get when more financial services are accorded their lots. The possibility is just limitless and mouthwatering.
There are strong indications that more and more women would become breadwinners of many homes in the near future but with the help of micro-finance banks. There is no other financial institution financially including women than micro-finance banks. There is no gainsaying that the marriage between them are a union sanctioned in heaven.
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