A note for microfinance providers in transition areas
The concept of transition economies is of fairly recent origin. It was a term used to characterize countries moving from the centrally planned economic system to the capitalist market system. When Communism collapsed in the late 1980s, the countries of the then Soviet Union of Russia and its allies, including Hungary, Poland and Bulgaria, abandoned their traditional Central Planning system and began to embrace the capitalist or market economic system. This change called for some kind of structural transformation to develop the requisite market structures, systems and institutions, particularly those driven by private initiative, necessary for the effective functioning of the market system. They were referred to as transition economies.The term has now taken wider meaning and dimension to include areas recovering from any kind of trauma.
Transition economies or areas now also refers to those economies or places in a country in which the existing social networks have broken down, due largely to conflicts, have need to be restored and actually being fixed. These areas pose additional problems to microfinance service providers, because they not only need physical and psychological rehabilitation, they also need the provision of financial support not just to the economically active poor, but also to practically all residents in the area.
Like joke, like joke, as they say in local parlance, Nigeria now has more transition areas than many countries in Africathat are prosecuting full-blown civil wars. While many areas in the country are engulfed in these undeclared civil wars, others face the threat of occupation by yet unidentified armed men, often referred to as armed bandits by the authorities. These areas have long since faced the challenge of rising poverty and destitution, which have now been compounded by armed unrest.
Microfinance institutions operating in these troubled areas are already hard put to help solve the problem of massive poverty in these places, which are now characterised by misery, hopelessness andlarge numbers of out-of-school children. With war and banditry now at high ebbs, especially in the north, and almost becoming a permanent feature of the country,microfinance providers must seek alternative strategies to continue to be relevant in the face of continuous nullification of their achievements by internal conflict.
The challenge in the Nigerian situation is that the dislodgement of the forces behind the mass destitution of the people does not appear to be the direct focus of public policy. At best it is tangential. We are forever producing research evidence on the sources of poverty in Nigeria but we continue to do the same things that breed poverty. As they say, we continue to do the same thing and expect a different result. For instance, there is abundant evidence that obscene income inequality is part of the causes of poverty in Nigeria. Now see how we solve income inequality – by “social investment” hand out of N5000 cash to each of a nepotically well selected few. Meanwhile, we know that Governors who stole their states dry get severance allowances of a house in “any part of Nigeria of their choice” plus a cash pension that can induce early labour in a healthy pregnant woman. This same ex-governor ends up in the Senate and will get another severance allowance when he leaves. Ostriches!
Who does not know that the salaries and allowances which the legislators doled out to themselves is part of the sources of poverty in Nigeria? You use the commonweal to massage the greed of a few and you expect elections to ever be free and fair, and poverty to abate when victory means access to obscene wealth. Ever since I began to focus my research on development and entrepreneurship, I have discovered that there is no intension to actually narrow the resource gap among our people here. Research in that area is for the use of the international development community and hardly for domestic use. But as intellectuals, our domain is not to be limited to our countries but transcends the entire world.
It is given unto man to always have the poor in his midst, according to the bible, but I do not think that what God meant was the abjectly poor, even if we interpret that Biblical passage in the most literal manner. We can eliminate extreme poverty if the greed of our leaders can be curtailed. Until those who feed on the public treasury are kind enough or are forced to give up just a little bit of the resources, to which they have equated their electoral victory, for the masses, poverty will continue to ravage the ordinary people who unfortunately own the resources. And microfinance will continues to lag behind the rate of destitution. Accordingly, here are some tips that could help enliven and redirect the activity trajectory of microfinance providers, improve service delivery and positively impact outreach in transitional environments like Nigeria.
Safety First: Minimum political-social stability
The first rule is safety. If an environment is not safe leave it for those charged with the protection of life and property. They know how to get in their partners in the area of aids. The aid agencies will cover the important needs of the time. There are no economically active poor people in war fronts. Operators must understand that microfinance is not a conflict resolution tool. Programme areas must be such that a reasonable degree of safety and security is offered for clients and microfinance institutions to function. This is a best practice standard applied everywhere. In the Democratic Republic of Congo, for example, the USAID and other aid agencies limited their microfinance efforts to areas considered safe pockets of stability.
We cannot expect successful loan repayment if we are dealing with migrants and people of no fixed addresses. It is difficult to maintain timely loan recovery with mobile populations. You may test this hypothesis by making a loan to one of the herdsmen in your area. You will then understand why the parliament recently passed a law on the use of movable assets as collateral for bank lending (the Collateral Registry Law, 2017). One thing about movable assets is that they will surely move and that is where the trouble starts. With the advent of the Collateral Registry law, movable asset can still move but it is going no anywhere. So until we have a movable herdsman law to tract migrants, there should be no need for financial rascality in the form of lending on the security of moving cows.
Microfinance does not create economic activity but follows it
It is better for to focus on residents, internally displaced people, and returnees, rather than refugees, when we know that refugee communities are temporary. Sierra Leonean refugees wereprovided quick access to credit upon their return by the American Refugee Committee by certifying qualified entrepreneurs in the semi-permanent refugee camps in Guinea. This is possible when where the camp is semi-permanent and there is economic activity and a stable cash economy.
The direction of causation between economic activity and microfinance is that microfinance follows economic activity and not the other way round. It enables the clientto take advantage of economic opportunities. Microfinance does not create economic opportunities.
Maintain Standards even in Crisis
The challenge of commercial microfinance is quite simply that it is commercial. Being funded with risk capital, commercial microfinance is wired to the profit motive and highly risk averse. It is therefore likely that some operators would feel that the business will not make sense in troubled areas. They could imagine that the only way to operate in such areas is to lower standards to accommodate the clients’ worsening conditions. That is the wrong idea. Operators should not compromise. They must continue to maintain standards of practice that ensure sound institutional health. These standards include applying market interest rates, maintaining high portfolio quality and focusing on full cost recover.
Sustaining the credit culture
The correct dividing line must be drawn between charity and commercial credit services. Microfinance institutions in conflict areas must avoid taking on the image of donors. Those of them that are not-for-profit organizations should be seen to be so and partnerwith the right kind of relief agencies to help them to reach out to the poor.
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