Nigeria’s policy on microfinance is already 10 years old. How time flies! Indeed, time really flies very fast these days. So many factors are helping to quicken the flight of time in today’s world. For instance, with a good phone handset loaded with apps, passengers at our airports no longer scream so loud when they hear announcements that their flights are delayed. That is if they even hear the announcement at all. With these facilities at our disposal, it is easy to lose time without knowing it.
Ten years ago, in 2005, the Central Bank launched the country’s first policy framework on microfinance. This policy actually heralded the proper regulation of microfinancing in Nigeria and was very well received. Although many people considered it to have come many years late, they were glad it came at all. Those who thought it came late argued that government became aware of the urgent need to canalize resources to the poor in the early 1990s, when it created a number of people-oriented institutions and launched policy initiatives aimed at improving financial access of the poor. Those institutions included the National Economic Reconstruction Fund (NERFUND) and the Peoples Bank. Leading policy initiatives in this direction included the formal recognition of the activities of money lenders, licensing of finance and mortgage companies, and such.
Rather than review their structure and reposition them, when they became weak, government allowed the institutions to die. That, they argued, was the time to have launched a policy like the one in question to cushion the impact of growing income inequality on the poor. Nonetheless, the arrival of the microfinance policy was welcome. The timing was also great, as it coincided with the declaration of the year 2005 as the International Year of Microcredit by the United Nations. So a great policy idea was birthed in an auspicious year.
As a result of this policy, which prescribed the way microfinance institutions would be recognised and supervised by the regulatory agencies in Nigeria, the subsector experienced a boom. Many ailing community banks headed for extinction suddenly acquired new leases of life, as they got the opportunity to convert to microfinance banks. This conversion did not come so smoothly. Speaking to the leaders of the community banks, as facilitator at some of the transition seminars organized by the CBN for the community banks, I was struck by the lack of direction and depth of confusion that existed in that segment of the finance sector. This was partly attributed to the near absence of effective supervision and regulatory control. Evidently, the CBN at the time had too much in its plate. Suffice it to say that subsequent role reorganization and the collaboration with the NDIC turned things around for the better. The opportunity to convert to microfinance banks enabled the community banks to survive and reposition.
This policy framework has been strengthened over the years, through the implementation of various circulars issued to operators by the CBN. Indeed, the whole document was revised in April 2011, to give it more fibre. However, the general objectives remain to promote the provision of timely, efficient and affordable microfinance services to the poor; to create jobs and enhance household incomes; to mobilize savings, and to deploy greater financial intermediation across the country. It is sad, however, that several of the original licensees have exited the sector. In 2013 alone, the Central Bank revoked the licences of 83 microfinance banks for various reasons. Many are still weak and unable to fully deliver on their mandate, for both endogenous and exogenous factors. As at December 2013, we had 930 microfinance banks operating and at different stages of functionality. The sector is therefore growing.
Perhaps, after 10 years, it is time to ask a few questions regarding our accomplishments in this direction. For instance, it might be good to know if the large number of microfinance operators has translated into improved financial access for the poor. Or has the industry materially supported government’s objective of job creation in the informal sector? The canalization of financial resources to the rural population is one of the cardinal objectives of microfinancing. It might also be wise to find out how well the MFBs have delivered on this score. My off-the-cuff take on this is that a lot still needs to be done.
Microfinance, which differs from microcredit by the fact that it offers much more than credit facility to the poor, is seen as a recipe for fighting the massive poverty in the country. And this is not a major discovery, because it has worked elsewhere. So microfinance could be a veritable antidote to poverty, if operated in accordance with the policy framework. If properly implemented, microfinancing could do for us what banking has failed to do since the days of the Bank of British West Africa – to bank the poor. Banks are a pitiable lot when it comes to MSME financing. The wise ones among them are treating this kind of banking as a separate business with its own rules, procedures and attitudes. This is because they have realized that banks, as a habit, prefer big ticket transactions to micro transactions. This is not exactly their fault. In reality, there is little or no difference in the resources expended in executing both kinds of transactions. The same appraisal procedures, for example, apply to both. Meanwhile the rewards are incomparable.
For the MFBs to help in achieving the objectives of the policy framework, there is need for some review or overhaul. This review should not focus only on the operators but also on the regulators. Sometimes we see policy review as a way for policy-makers to make life harder for operators. This should not be the case. In fact, policy reviews should aim at simplifying complex procedures and removing ambiguities. Any review of the microfinance policy should aim to enhance the capacity of operators for compliance and hence, to deliver while ensuring they focus on their mandate.
The reality is that in Nigeria of today, with limited social overhead capital for MSMEs to depend on, it is hard for them to always do the right things, even if they wanted to. For instance, we know that it is an act of civic irresponsibility not to pay one’s tax as and when due. Indeed, all citizens should pay their taxes “with a smile”, knowing that government cannot function without funds. But that is the end of that moralization, because it may also be insensitive of us to expect a taxpayer who also provides his own security, power, water and environmental sanitation to rush to the tax office “with a smile”. This is more so when they have been subjected to exploitative multiple taxation now rampant in Nigeria about which something must be done urgently. While we note the challenges facing MFBs, they need to be reminded of their raison d’etre – focus on the poor, bank the unbanked.
Emeka Osuji
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