By Amaka Agwuegbo
Despite the 2005 launch of the microfinance policy, which ushered in the microfinance banks (MFBs), the informal sector, through which billions of naira circulates, have largely remained unbanked and lack access to formal financial services, which is impacting negatively on the country’s economic growth and development.

Though a body of evidence shows that access to financial services, and indeed overall financial development is crucial to economic growth and poverty reduction, but a large number of Nigerians have resorted to traditional methods of saving money or taking loans in order to cater to their financial needs.
In Nigeria, one of the oldest informal means of collecting and saving money is the group contribution known as ‘esusu’, which transcends the shores of Nigeria, to Western African states up to the West Indies and the Caribbean.

But this practice is not without its shortfalls as most esusu groups operate without any written laws but on only oath of allegiance and mutual trust. The general practice is that esusu associations contribute a fixed amount periodically and give all or part of the accumulated funds to one or more member(s) in rotation until all members have benefited from the pool.

Vanguard’s investigations reveal that Nigerians are shunning the financial services that are being provided by these MFBs due to the increasing popularity of the esusu practice, particularly among informal sector, though some bankers or groups of friends do engage in it.

Though there have been instances whereby members of the groups have been duped of their money contributed, but a lot more people engage in this practice because of the zero interest rates.
According to Mrs. Lola Johnson, a business woman, she joined an esusu group to enable her raise funds for her business.
“I and 10 of my friends formed an esusu group and we each contributed N50,000 monthly. I joined them so as to raise more money for my business because the banks were not willing to give me loans and those that wanted asked for ridiculous collaterals.
“Why I joined the group was that there is no interest rate to be paid unlike when you take loans from the bank and you have to pay back with interests.”

Commenting on the safety of the money, Lola said “I had no fears over the safety of my money because we are friends and know each others homes and business places. It is well organized and no one defaulted in remitting her contribution and when it is your turn to collect, you are sure of getting the money by the second day of the next month.”

For Iya Monruf, a textile dealer in Lagos, said she joined an esusu group because she could not trust the banks with her money.
“My sister, the rate with which these banks close shop is really scary and I can’t keep my hard earned money there. I prefer this esusu because you know the person and where she lives and when you urgently need money, you are sure of getting something from the group. This is better than going to banks to ask for loans that you’ll never get, or may get with huge interest rate.”

The rapid growth of the informal sector is attributed to the stringent conditions that formal financial institutions attached when granting of loans, as well as the exclusion of the poor from formal financial services.

This Iya Ibeji, a popular provisions dealer, concurred to as she had to join an esusu group due to her inability to access credit from formal banks.
“After I don try well well to get loans from one bank and them no give me, I come join one esusu group wey we dey contribute N5,000 every week. This don help my business because when e dey reach my turn, na N60,000 I dey collect and this don help my business well well.

“I no dey fear say dem go run with my money because no be today these people don dey do this thing. Also, we know where the woman wey dey collect the money dey live, so if wahala dey, we go go her house.”

But according to a source of the Central Bank of Nigeria (CBN), people can not be forced to put their money where they don’t want to.
“All these boils down to sentitisation and creating awareness for people to see the benefits of banking with regulated financial institutions because when they lose their money, they will still cry to us for help, though we would not be able to help them.

“I think the MFBs particularly have to do more to strategically place themselves and their products in such ways that would attract the so called informal sector because this group is the hub of economic activity in Nigeria.”

There is no denying the fact that the activities of the informal finance sector have profound impact on the whole economy accounting for 75 per cent of the money outside the banking system and it plays several roles in the growth and development of the nation’s economy.
Among the roles played are : provision of productive outlets for a large number of people who prefer or have to be self employed thus contributing to the economy in terms of output and employment; provision of competition in the economy and outlets for experienced specialist manpower from the medium and large scale enterprises who wish to be self-employed, using minimal capital; reduction of unemployment level, though many such employed could be underemployed; stimulates and enhances innovation and adaptation; and, helps in the mobilisation of capital and human resources which would otherwise have been laid waste and idle thereby increasing the utilisation of virgin and re-useable materials.