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Improving lives with microfinance
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The practice has become a vital component of financial landscape in most developing countries. As expected by stakeholders in the micro finance sector in Nigeria, 2007 lapsed with the practice of community banking. In response to the micro finance policy, regulatory and regulatory guidelines of the Central Bank of Nigeria, community banks have taken on new identity with the generic name of "micro finance bank". New entrants into the sector have arrived with various skills and conducts reflecting their professional and business background.
While micro finance practice, especially community based savings or 'contribution' variants have always been with us in Africa, the modern micro finance or what has come to be known, as 'microfinance revolution' is a creation of not- too- distant deliberate efforts at addressing poverty. The current form of practice grew out of development support agencies and governments' desire to improve productivity and conditions of living of farmers. This was the era, when national development enterprise equated poverty with rural areas and farmers. Micro finance to these practitioners was rural financing. It was reasoned that rural dwellers or farmers were poor because they lacked access to funds from banks. Banks' disinclination to support small farmers has always been there. Under these government-sponsored schemes, loans were disbursed to farmers in farmers' cooperative societies. Rates of repayment were for several reasons very poor. This is understandable. The intention and approaches of the loan giving institutions tilted more towards charity and several borrowers never considered loan repayment obligatory.
The experiment of Muhammad Yunus, the 2006 Nobel Peace Prize winner for his work in credit-for-the -poor and other initiatives across the world have taken microfinance from the realm of charity. Microfinance banks and institutions today are not in business of charity. From fabricators on the streets of Nairobi, Kenya to the food vendors in La Paz, Bolivia, micro entrepreneurs are increasingly turning to microfinance institutions for their financial needs. In response, a number of microfinance institutions are emerging to meet the rising demand.
However, the original intention of poverty reduction of early experiment with microfinance remains. The underlying reason for poverty lending or microfinance, is simple and obvious, that is, the poor or owners of small businesses remained poor because they lacked access to affordable institutional credit to support their rudimentary skills and efforts. . We know that it will be easier for the proverbial camel head to pass through the eye of a needle than for the assetless person to obtain loans from commercial banks. This illustrates one of the weightiest ironies of economic relations and development. Those desperately in need of financial support to grow are denied just for the reason of their poverty!
It has been demonstrated that little loans make impact. On a general note, injection of new funds on appropriate conditions into small businesses takes them from the vicious cycle of small investment - little returns -small investment to the virtuous cycle of prosperity of little capital-injection of funds (credit)-greater output -greater investment. With financial services, poor households have recorded improvement in access to what matter most to them, that is, better nutrition and education for their children. An improvement in the economic condition of the poor, especially women invariably reflect on the nutritional status of members of their households. They are anxious about the future of their children. They want to put and sustain their children at school. Microfinance creates self-employment, which obviously is the most sustainable form of employment. Several beneficiaries start or manage their businesses no matter how small. In an economy where microfinance has been sufficiently developed, the informal sector depends mainly on microfinance institutions for financial support. Micro, small and medium enterprises, which are regarded as the bedrock of any economy, depend on microfinance for start up and working capital requirements. The rapid spread of microfinance in developing countries is attributed to its capacity to impact positively on poverty. Most development initiatives in agriculture, health, and women empowerment enhance their impact with integration of credit programmes. The improving condition of living in Bangladesh is a good example of how to develop with small loans. The South East Asian nation was in mid-1970s branded a 'basket case' by Henry Kissinger, then US Secretary of State, on account of the nation's hopeless development prospects. Today millions of poor Bangladeshis are daily crossing the poverty line with the aid of a range of financial services. Jute has been displaced as the country's main export product by microfinance skills. Nigeria has a good lesson here.
While micro finance practice, especially community based savings or 'contribution' variants have always been with us in Africa, the modern micro finance or what has come to be known, as 'microfinance revolution' is a creation of not- too- distant deliberate efforts at addressing poverty. The current form of practice grew out of development support agencies and governments' desire to improve productivity and conditions of living of farmers. This was the era, when national development enterprise equated poverty with rural areas and farmers. Micro finance to these practitioners was rural financing. It was reasoned that rural dwellers or farmers were poor because they lacked access to funds from banks. Banks' disinclination to support small farmers has always been there. Under these government-sponsored schemes, loans were disbursed to farmers in farmers' cooperative societies. Rates of repayment were for several reasons very poor. This is understandable. The intention and approaches of the loan giving institutions tilted more towards charity and several borrowers never considered loan repayment obligatory.
The experiment of Muhammad Yunus, the 2006 Nobel Peace Prize winner for his work in credit-for-the -poor and other initiatives across the world have taken microfinance from the realm of charity. Microfinance banks and institutions today are not in business of charity. From fabricators on the streets of Nairobi, Kenya to the food vendors in La Paz, Bolivia, micro entrepreneurs are increasingly turning to microfinance institutions for their financial needs. In response, a number of microfinance institutions are emerging to meet the rising demand.
However, the original intention of poverty reduction of early experiment with microfinance remains. The underlying reason for poverty lending or microfinance, is simple and obvious, that is, the poor or owners of small businesses remained poor because they lacked access to affordable institutional credit to support their rudimentary skills and efforts. . We know that it will be easier for the proverbial camel head to pass through the eye of a needle than for the assetless person to obtain loans from commercial banks. This illustrates one of the weightiest ironies of economic relations and development. Those desperately in need of financial support to grow are denied just for the reason of their poverty!
It has been demonstrated that little loans make impact. On a general note, injection of new funds on appropriate conditions into small businesses takes them from the vicious cycle of small investment - little returns -small investment to the virtuous cycle of prosperity of little capital-injection of funds (credit)-greater output -greater investment. With financial services, poor households have recorded improvement in access to what matter most to them, that is, better nutrition and education for their children. An improvement in the economic condition of the poor, especially women invariably reflect on the nutritional status of members of their households. They are anxious about the future of their children. They want to put and sustain their children at school. Microfinance creates self-employment, which obviously is the most sustainable form of employment. Several beneficiaries start or manage their businesses no matter how small. In an economy where microfinance has been sufficiently developed, the informal sector depends mainly on microfinance institutions for financial support. Micro, small and medium enterprises, which are regarded as the bedrock of any economy, depend on microfinance for start up and working capital requirements. The rapid spread of microfinance in developing countries is attributed to its capacity to impact positively on poverty. Most development initiatives in agriculture, health, and women empowerment enhance their impact with integration of credit programmes. The improving condition of living in Bangladesh is a good example of how to develop with small loans. The South East Asian nation was in mid-1970s branded a 'basket case' by Henry Kissinger, then US Secretary of State, on account of the nation's hopeless development prospects. Today millions of poor Bangladeshis are daily crossing the poverty line with the aid of a range of financial services. Jute has been displaced as the country's main export product by microfinance skills. Nigeria has a good lesson here.
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