Weak policy responses understate microfinance success
Microfinance institutions are a strong link in the overall chain of activities that target poverty reduction in any economy. Other links in this chain include the many social safety nets that government could invoke, and the public policy actions it could take, to help the weaker members of the society to cope with their condition. Successive Nigerian governments have pledged to fight poverty, and there is positive evidence of their effort. However, poverty alleviation will be hard to achieve in an environment in which almost every other event or policy action drives in the opposite direction to poverty alleviation, rather, fuelling poverty.
The protection of life and property of all citizens is the reason for the existence of government. That is why a government fails the moment it cannot stop the destitution of its people. The rate at which Nigerians are looping into the poverty ring is far higher than the rate of their exit. And the rate will worsen as we continue to tolerate the idea of having some of our citizens live in bondage either in camps as internally displaced persons – new word in our national lexicon that is gradually gaining acceptance –or peaceful communities swarmed by security agencies, pretending to be chasing kidnappers and other criminals but imposing levies on the motorists.
My recent trip to Owerri, the Imo State capital, to see one of the wonders of our time, the statue of Jacob Zuma, one of the state’s illustrious citizens, showed that our fight against poverty will be hard to win. The number of checkpoints mounted by security agencies, openly collecting tolls from the misery-stricken people in a state where new jobs are a rarity, is a disgrace to Nigeria. In some cases, people on one checkpoint could actually hear the voices of those on another – so closely placed and collecting tolls from jobless, hapless citizens. Commercial vehicles are now afraid to ply most of the roads for fear of this extortion. If they have to go to certain places they charge higher fares from the people already dehumanized by many years of public policy fraud.
Poverty is a complex ailment. It is hard to define and even harder to locate and manage. Sometimes we focus on such factors as unemployment and lack of access to economic opportunities, as causes of poverty; and there is nothing wrong in identifying those elements. However, there are other more dangerous but much diffused causes of poverty, including loss of hope and psychological defeat of individuals. Those sad-faced citizens I saw between Aba and Owerri, haggling with security men over money, is a big national shame. And the biggest sources of psychological defeat are anti-people policies, injustice, inconsistency and the mixed negative signals they emit. We should not allow government agencies to continue to damage the image of the government they claim to serve.
Microfinance institutions in Nigeria appear to have found themselves in the terrible situation in which every good step they take to curb poverty is eroded by several steps taken by poverty-generating agents, like those mounting illegal toll-gates; and even legal ones that are overpriced or who increase their tolls without providing any additional service. That way, MFIs’ achievements may not be evident because they are dimmed as anti-people policies erode the gains. The danger is that under such circumstances, the operators may be facing serious challenges, which nobody is ready to discuss because their contributions are not obvious. They may even begin to look like parasites on society.
The current microfinance industry structure in Nigeria was born in 2005, following the launch of a Microfinance Policy Framework crafted by the Central Bank of Nigeria under Prof Charles Soludo. It coincided with the branding of that year as the International Year of Microcredit, by the United Nations (UN). In that year, countries were encouraged to pay attention to the financing needs of Micro, Small and Medium Enterprises (MSMEs), and in particular the economically active poor members of society, by promoting the flow of credit to them.
Nigeria, having achieved a major feat by introducing the Value Added Tax (VAT), was eager to find ways not only to mitigate the difficulties faced by citizens, and particularly operators in the informal sector occasioned by the Structural Adjustment Programme (SAP), notably with regard to access to finance, but to boost the economy. What came to mind quite readily was how to canalize finance to MSMEs through new institutions and instruments government created – the Peoples Bank, the Community Banks, the Mortgage banks and licensed finance companies. That is well over a decade ago, and may be considered as a distant time in our history. It is therefore worthwhile, to review both policy and operational strategies as we go along.
The CBN has long since 2011, revised the policy framework to bring it into conformity with the changing financial landscape of the country. They have also published the Revised Regulatory and Supervisory Guidelines. Undoubtedly, much success has been achieved in the microfinance sector, both in terms of creating a viable industry employing large numbers of people and supporting the MSME sector with both credit and savings facilities. There are at least one thousand microfinance banks and forty-two primary mortgage banks in Nigeria today. An even larger number of legally recognised finance companies are also present. This is a lot, even by the standards of more entrepreneur-friendly domains. We commend the regulators, NDIC and the CBN for a good job.
We may not feel the impact of the activities of the MFIs on the streets. This is partly so, because of the sheer number of people in Nigeria in need of the kind of financial assistance they provide. Moreover, the rank of the poor in Nigeria appears to be increasing geometrically when everything else increases arithmetically. This is because, certain kindred evils have coalesced their forces to ensure that the ranks of the poor grow faster than every effort we are making to reduce poverty. Above all, the MFIs do not appear to be doing enough to as it were, “cover the field”. They are still mostly poorly capitalized and staffed.
With the activities of Boko Haram still serious in some communities, to the extent that certain places may not be safely traversed without military escort, coupled with the rampant killing and sacking of communities by Fulani herdsmen, it may be wishful thinking to expect the MFIs to significantly impact on our poverty situation. The reason is that, more people get pushed into the poverty basket than are removed at any point in time and the effort of those working in this area are being neutralised by poor policy action against the agents of poverty, including rising insecurity and hopelessness. There is need to review our policy responses, both in the public sector and among the MFIs, to combat the poverty-inducing agents in our midst.
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