By Adamu Ibrahim
The issue of poverty hasÂ become a front burner issue all over the world especially in the continents of Africa, Asia and Latin America. The interest shown all over the world may be genuine but there are some elements of enlightened self interest. For example, in Nigeria, most of the violent clashes have been attributed to poverty. Poverty is always a threat to political stability and peace.
It is a sad paradox that Nigeria, a land flowing with â€˜black goldâ€™ continues to allow majority of its citizens to wallow in abject poverty in the midst of potential wealth. Over the years, different poverty alleviation programs have been introduced by various governments to address the issue of poverty and, from empirical evidence available today, we donâ€™t seem to have recorded any reasonable success.
I intend to, with this article, selectively trace financial poverty alleviation policies and measures introduced by past governments to date and the role that microfinance banks can still play in spite of its present surmountable challenges. Thereafter, I will share my thoughts on the way forward.
In recent memory, the IbrahimÂ Babangidaâ€™s administration was the government that made deliberate efforts to address the issue of poverty alleviation through the establishment of the now defunct Peopleâ€™s Bank, which was introduced by the late Mrs. Maria Sokenu who also became the bankâ€™s pioneer Chief Executive.
Though the bank achieved some measure of success, it failed to meet the aspirations of the people. The failure could be attributed to, amongst other factors, the fact that â€˜poorâ€™ people perceived the loans as their own share of the national cake, thus repayment became difficult.
Thereafter, community banks, which were meant to be private sector driven, were introduced, but this also didnâ€™t record much success as the banks were not properly funded and where funding was available, the promoters utilized the funds mobilized from depositors to promote their own personal businesses to the detriment of the communities they were meant to serve.
Sequel to the consolidationÂ exercise by the CBN under the leadership Chukwuma Soludo and the emergence of mega banks, the concept of microfinance banks, MFB, was introduced to provide a platform for the underbanked segment of the economy that may not be able to meet the stringent requirements of the conventional banks. It was also to be private sector driven. But this has already run into serious problems as most MFBs are already facing one financial challenge or the other.
From the above analysis, one can come to the logical conclusion that government-driven poverty alleviation programs are viewed by the poor as largesse while private sector-led programs are seen by promoters as avenues of mobilizing funds for their businesses. It is apposite to examine why the MFBs are having problems.
There is a serious dearth ofÂ experience man power. It is my personal conviction that we do not have the experienced hands to run the over 900 MFBs effectively in Nigeria today. What we have in most cases is family MFBs and under such a set up, serious mistakes are bound to be made especially in the area of lending. The principles of lending must be well understood because lending is lending whether micro or big ticket. With a paid up capital of N20m, an MFB canâ€™t attract quality staff. The most critical obstacle to expanding the MFB sector today is the lack of knowledgeable microfinance technicians to help institutions develop their management systems.
Another problem area is technology as microfinance banking is a volume driven business with a single staff managing over 200 clients. Without a good IT platform to support operations, managing that number of accounts becomes a nightmare, so the IT system must be capable of generating the information that guides management in its decisions and actions. However the most pressing need of an IT system is to provide the capability to track the status of its portfolio in a timely and accurate manner.
Microfinance finance banking is new in Nigeria and the challenges being faced holds true for most start ups except that the problems appear large in this case. The mechanism for the provision of microfinance continues to be a big challenge. Be that as it may, MFBs, for now, at least provide the best opportunities to address the issue of poverty alleviation. Government can not handle poverty alleviation because their microfinance programs are often perceived as social welfare, as opposed to economic development efforts. NAPEP, a good example of governmentâ€™s efforts at poverty alleviation, has not yielded the desired results because there is no reliable means of delivering the money to the people. For any microfinance program to succeed, it must be commercially sustainable. Micro credit should never be a dole out since it is meant for the productive and active poor who desire to change their status. The poor donâ€™t need sympathy but empowerment.
By contrast, formal financial intermediaries not only suffer from an informational disadvantage and an inability to enforce contracts, prohibitively high transactions costs of lending small amounts make it all but impossible to extend credit profitably.
Most Commercial Banks are practicing â€œone- leggedâ€ banking in the micro sector. In the face of stiff competition, they are mobilizing as low as N500.00 but they will never lend to these same depositors for reasons alluded to above because MFBs are best suited to cater for the micro segment of the economy. What is the way forward?
One, there is a need to review the capital requirements of establishing MFB to N100m. Given the disparity in income in the country, a further categorization can be made between urban and rural MFBs with the latter capital pegged at N50m.
Banks should be persuaded to drive the business initially with loans. It has been discovered that the transaction cost of mobilizing savings far outweighs the cost. The administrative complexities and cost associated with mobilizing savings, especially small amounts, may be prohibitive. Furthermore, the volatility of microfinance loan portfolio may put deposits at unusually high risks if the savings are used to fund unsafe lending operations. Mobilizing deposits through marketing efforts provides temporary liquidity but it can not be sustained over the long run because it may not be profitable unless the amount involved is reasonably big and stable. It would seem as if our penchant for deposit mobilization is as a result of copying the Asian model.
Â Our circumstances are quite different. The Asians have a higher propensity for savings than Nigerians. The approach in Nigeria should be to stimulate activities that will create more income for consumption, investment and savings. Failure to do this will amount to behaving like some state governments who have not consciously invested in income generating activities in their domain yet want to generate internal revenue through taxation. While the Asian models are good, we need to develop a model that takes in to consideration our peculiar environment. Defaulting on loan payment is frowned at serio usly in Asia and scandals are taken seriously. Scandals donâ€™t move Nigerians and many poor people will renege on honoring their obligations if not properly handled.
The need for a proper IT system can not be over emphasized. Not many banks can afford good packages. I will suggest that the regulatory authority in conjunction with the parent body of MFBs collaborate and come up with a home grown package that can be used by willing banks and this will reduce cost and make it affordable.
Finally there is a need to facilitate an enabling regulatory environment. MFBs and clients face a daunting array of regulatory constraints which the CBN can address in their policy reform work. MFBs, as presently organized, are less inclined to engage in policy advocacy work because they lack the resources, experience and cohesion.
Though microfinance banking is still relatively new in Nigeria, but we can still make a huge success of it.
Those who have been exposed to the world of microfinance are familiar with the success stories of institutions in other climes, which have not only lent successfully to large numbers of poor micro entrepreneurs, but have done so sustainably.Â These institutions have shown that the provision of microfinance can be an effective strategy for promoting economic development in developing countries. Nigeria can join that list of success stories.
Adamu Danjuma Ibrahim is the Managing Director of Lagos-based Integrated MFB