Nkem Okocha, is the founder of Mamamoni, a FinTech social enterprise that provides financial services to rural and poor women in Africa. In this interview she speaks on access to credits as it affects resilience in business.
What does it mean to be financially included?
Most people think financial inclusion means access to a bank account. For a person to be truly included, they need to have access to a range of affordable, accessible financial products and services that are fit for the realities of their everyday life. From facilities to enable transactions to savings to affordable credit, insurance and pension facilities. Most Nigerians are only partially included and only have access to one or two of the services listed.
We have seen how the shocks presented by COVID-19 affected our vulnerable population. In your experience working with these groups what measures would have helped to mitigate the effects?
We saw how quickly governments across the world moved to cushion the effects of the pandemic on their citizens, especially vulnerable groups through several social interventions that provided access to credit, stimulus checks/packages and government-funded furloughs. The private sector, social enterprises and individuals also delivered some support here in Nigeria, but we still recorded devastating effects most especially among micro-business owners in the informal economy. We will continue to see these effects long after we have curtailed the pandemic. Mitigating the continued impact will require a multi-pronged approach that constitutes structures to help in the event there are future economic shocks.
There are many systems and structures that help build resilience in businesses – and I will take one of those structures. Access to affordable credit and loans can often determine whether a business survives during an economic downturn. Access to credit also helps businesses scale and grow- making them less vulnerable to these downturns in the first place. The financial services industry needs to revisit the way in which it builds credit products for this segment of the population. The risks associated with giving loans to the informal sector cannot be evaluated with the same matrices as with advantaged groups and criteria like high-value collateral form barriers many are unable to meet. Any financial product or service should first consider its audience, if we are determined to go beyond lip service and truly support the informal economy- then we need to walk the walk when designing facilities targeted at them.
How does access to credit improve the outcomes of vulnerable groups and improve their resilience?
A simple definition of resilience is how well individuals are able to withstand shocks and how easily and quickly they are able to recover after a setback. For many in the informal sector, resilience levels are low. This is so because even at the best of times, they have limited access to resources and struggle to make ends meet- this is exacerbated by downturns. This forces them to adopt risky coping mechanisms like lending from loan sharks making a dire situation considerably worse. Access to credit and loans, that considers their circumstances, presents one of the most sustainable ways to improve their resilience. They are able to start businesses and can scale to generate income for themselves, create jobs and contribute to society.
Take the example of one of our beneficiaries who lost her source of income following the outbreak of COVID-19 in Nigeria. Our low interest rate and grant provided a lifeline to withstand the challenges. The resilience driven by access to credit, combined with skills and capacity building, create a ripple effect of growth and improved wellbeing across these micro-businesses, their families and wider communities.
What are some of the factors that serve as barriers preventing vulnerable groups from accessing credit?
The lack of accurate identification data is a major barrier to financial inclusion, without it, the task of allocating support or access to credit becomes increasingly difficult and inefficient. Systems that don’t seek to understand consumer peculiarities and behavior exclude them. From my experience working with low-income women, these groups would rather explore unconventional forms of credit than take loans with repayment almost double the amount borrowed. There is also a lack of trust in financial institutions. High-interest rates, hidden charges and a system that has historically failed the bottom of the pyramid discourage vulnerable groups from accessing credit. High-value collateral requirements are deterrents – many of the low-income and vulnerable groups simply cannot meet the requirements. If a vulnerable individual had access to that type of collateral, they would not be vulnerable in the first place. Other barriers include limited education, limited financial experiences and in some cases, an outright refusal of financial institutions to support vulnerable groups with loans due to perceived risks to their businesses.
What can be done to deepen access to credit for Nigeria’s working poor and in turn improve their ability to withstand shocks?
Creating better systems of identification and leveraging digital technology to create access in rural communities that are usually not catered to by traditional financial service providers is mandatory. Extensive public-private partnerships are needed to fill these gaps. There is a need to redefine how we evaluate risk and target this demographic. Highly collateralized loans or loans that require extensive financial records provide barriers that are impossible for many within the informal economy. Policies and the way they are rolled out need to be inclusive. Things like Bank Verification National Identity Numbers drives have not been implemented in a way that makes it easy for people in hard-to-reach areas to register. Interest rates are still high and do not serve this group. If we are serious about deepening resilience in our informal sector, credit access solutions need to be tailored to their needs. Lastly, the willingness of players to design solutions that serve vulnerable groups. Ultimately, it is the duty of the government to champion this through incentives that encourage the private sector to provide appropriately designed loans.
Finally, I understand that @mamamoninigeria provides grants and loans to low-income women as a support for starting a business. How effective has this been and what lessons have you learned that can be applied to how financial products like loans are tailored for the people operating within our informal economy?
Through the work we do at Mamamoni, I have seen many issues that have helped me better appreciate the challenges of vulnerable groups. I remember one of our beneficiaries, Mrs Mary, whom we met during one of our training outreaches in Mushin. I had encouraged her to get further training in the production of used tire tables. I later discovered that she had completed the training but was unable to scale due to a lack of funds. We gave her a loan and I am happy to share that she is doing very well. One of the major lessons from this experience is the need to empower vulnerable groups with the right skills-set to run their businesses so that loans provided can be invested into businesses to yield results. This is why at Mamamoni we provide interest-free loans and have built trust with the women we work with. I have seen the economic outcomes of our women improve as a result. We also now provided a platform to help more low-income women learn skills for free through our recently launched She Sabi app.