Necessary framework for financial services to perform missing in Nigeria – Experts


As financial services spread from rich countries to the developing world, especially Nigeria, where the level of poverty is high, stakeholders have advised the Federal Government to improve economic growth through microfinancing.

The thinking is that financial services are badly implemented in this part of the world, as more people are unable to access loans to develop their businesses. As a result, basic life necessities such as property insurance are rarely available, while mortgage loans are very costly, owing to massive market and regulatory failure.

Some financial pundits who spoke with our correspondent said although the regulatory failure was being corrected, “the barrier to effective microfinancing is too strong, for example inflation rate is high and unstable, while the government continues to institute bad policies; the necessary framework for financial services to perform is also missing.”

A professor of financial economics, and Dean, Faculty of Business Administration, University of Uyo, Leo Ukpong, in a sideline interview with The Point, said, before the banking sector reform in Nigeria, there was little attention from government as regards the implementation of microfinancing in the country.

According to him, this was because there were a few banks and financial institutions that were interested in the scheme.

He explained that since microfinance meant giving working capital to very small organisations, like the road side mechanics, carpenters and small business operators, who did not have any collateral, many banks were not interested in giving out loans.

“Apart from collateral, most banks were really not interested in financing such micro businesses because they lack formal structure, had poor management skills and no records to show for their operations in the form of proper account (book-keeping). But after the recapitalisation of banks, many of them could access loans as banks now had enough money to work with. It has also been speculated that many microfinance operators would be able to access soft loan on a long-term basis as time goes on,” he said.

He said this change of attitude had also received the attention of policy makers, while some experts had also argued that micro finance was appealing to the government because it offered hope of improving the lives of many poor people, who ordinarily should have been catered for.

CBN to promote access to credit finance

But the Central Bank of Nigeria had said that a national micro-finance bank would be established to promote access to credit finance for small, medium enterprises and other unbanked groups in the country.

The Governor, CBN, Mr. Godwin Emefiele, while speaking with financial journalist in Abuja recently, said the bank would be established in collaboration with the Bankers Committee, the Nigeria Incentive-based Risk Sharing System for Agricultural Lending and the Nigerian Postal Service.

Emefiele said the new national MFB, which would be technology driven, would leverage on NIPOST’s presence in 774 local government areas of the country to reach its target beneficiaries.

“The bank will serve as an efficient channel for the disbursement and monitoring of key intervention funds by the CBN, such as the Anchor Borrowers fund, SME fund, to farmers and SMEs at the grassroots level,” Emefiele said.

However, the new national micro finance policy seeks to give a defined structure to the micro finance sector, which has over the years, operated without a modules operandi, a situation responsible for the sector’s poor showing.

Statistically, micro credit, according to the CBN, accounts for 0.2 per cent of the nation’s Gross Domestic Product and its proportion of total credit is only 0.9 per cent. For a country of about 180 million people, the apex bank said 80 per cent of total population being regarded as poor is ridiculous.

Lesson from Grameen Bank

The founder of microfinancing and Grameen Bank, Prof. Mohammad Yunus, during his visit to Nigeria many years ago, had said, “I believe we can create a poverty free world because poverty is not created by poor people. It has been created by the economic and social system that we have designed for ourselves; the institution and the concept that make up the system and the policies that
we pursue.”

According to him, Grameen has grown to provide collateral-free loans to over five million clients in Bangladesh, 96 per cent of who were women.

“Over the last two decades, Grameen Bank has loaned out over five billion dollars to the poorest of the poor, while maintaining repayment rate consistently above 98 per cent. There are certain characteristics of the global recovery, which we noticed in the various markets where we operate. For example, we noticed attempts by policy makers to stimulate credit growth by lowering interest rates to zero,” he said.

He, however, advised that government at all levels should play their roles in the development of microfinance.

“In this respect, the states and local governments should pay their one per cent contribution to the microfinance banks in order to enable them release more money to the small scale businesses,” he said.

Benefits, challenges

Stakeholders have said that the benefit that microfinance brings to the poor families goes beyond increased income and employment.

According to them, it gives poor families a chance to improve their livelihood through their own economic activities, and this is the best way to open up the economy for sustainable and inclusive growth and

“Low level of infrastructure is, however, one basic problem of microfinancing in the system. Government should provide infrastructure to reduce the cost of doing businesses in the country and pay attention to genuinely developing the SME sector,” Managing Director, Alliance24 Media, Dr. Hameed Gbadamosi,