Butterflies are no birds
Butterflies are no birds, and no matter what they eat, they will not grow into birds and begin to rule the airwaves. And if they try to rule the airwaves, some big bird may show up to swallow them. A corollary to the above caption is what has been capsulated in an Igbo proverb to the effect that two singlets cannot make a shirt. So, it is foolhardy for a group of butterflies to aggregate and try to sing the son of birds. Even worse is for singlets, the sleeveless and neckless inner wear of men that is no longer trending, to aggregate and hope to replace a shirt. It is lack of wisdom.
The efficacy of microfinance, as a remedy to poverty, is coming under considerable fire. Its capacity to help curb poverty has been attacked and derided, such that people now wonder whether microfinance is a successful instrument of poverty reduction, or a promoter of poverty. A service provided unsustainably or in short supply may exacerbate the problem it sought to cure. My view is that microfinance remains an efficacious instrument of social welfare improvement, if properly provided. It depends on how the programme is delivered. The effectiveness and delivery of microfinance services is however, shaped by a number of factors, including culture, environment and leadership. If microfinancing fails to focus on the poor, then these doubts become germane. That is happening rapidly today.
In 2005, when Obasanjo solved the Paris Club debt riddle of this country, Nigeria also achieved another milestone in the finance sector – the introduction of the National Policy on Microfinance. The policy was a culmination of many years of public discourse on the need to adequately canalize financial resources to the informal sector. Such discourse had been most probably pioneered by the work of Dr Chu Okongwu, a Harvard-trained economist and former Finance and Petroleum Minister, of Nigeria. He had worked extensively with President Babangida, on the reform of the finance sector and they created many new financial institutions and instruments. Some of the reforms introduced by Babangida include the Value Added Tax, the Peoples Bank, licensing of finance and mortgage companies, and community banks, which were novel initiatives at the time because the informal sector was in need of funding.
It has become fashionable to go about feeling like a bank ad doing commercial banking, albeit at micro level. Micro commercial banking has got the better of most MFBs and they are getting carried away. Butterflies are no birds and two singlets will not make a shirt
The microfinance initiative in Nigeria was one of the most heralded and celebrated policy ideas of recent times, comparable only to the introduction of the Pension Reform Act and the Collateral Registry law. A number of reasons made the microfinance reform very popular and welcome. It was introduced when white collar jobs were getting scarcer and private enterprise was on the rise, partly because the economy was weakening and self-employment seemed to be the more viable option. Another impetus to the rise of microfinance was the fact the community banks, and finance companies, failed to deliver effective services to the poor and appeared destined not to improve.
In the midst of stagnant economic development and liquidity constraint among banks, credit to the informal sector had become much limited. The business of the economically active poor in the informal sector was hardly a priority to the formal banking institutions. Even if they tried, they could not finance micro and small businesses, which incidentally dominate the Nigerian landscape. Microfinance banks were therefore like a rescue team for the micro and small enterprises in need of support. They became the most welcome approach to poverty reduction.
Accordingly, many community banks metamorphosed into microfinance banks, reformed and recapitalised. The central bank policy of making sure they were widely, even if not evenly, distributed around the country, helped to bring financing to many local communities. The idea was to ensure that the active poor people in our communities had access to finance for their small economic activities. That’s how commercial microfinance took the driver’s seat in an industry that was originally predominated by NGO and donor financing. Unfortunately, the arrival of commercial microfinance brought its own problems. The microfinance banks (MFBs) have since run away with their new title – Bank. They are now feeling like commercial banks and acting like banks. They now focus their financing efforts on the same category of customers that took bank attention away from microenterprises. They now finance more medium, than small businesses.
Not only are the MFBs concentrating in the urban centres, they focus on financing the same segment of society that is getting the most support from deposit money banks – the middle and large enterprises. It has become fashionable to go about feeling like a bank ad doing commercial banking, albeit at micro level. Micro commercial banking has got the better of most MFBs and they are getting carried away. Butterflies are no birds and two singlets will not make a shirt.
Except for the big microfinance banks with national licenses, and a few of the state MFBs, the myriad of unit MFBs are merely busy running around urban centres and looking for a share of the business of the middle-class and their big businesses. The active poor in the rural areas remain where they are. A recent survey we carried out in parts of Lagos show that the attitude of microenterprises in Lagos towards banks has not changed much since 2005, when the policy was introduced. Most microentrepreneurs still rely on family and personal savings to start their businesses, and would rather go to friends than MFBs for additional capital.
Elsewhere, in this column in the past, I had drawn analogies from a comparative review of the Nigeria microfinance industry and that of South Africa, our nearest economic rival. I noted that when the later was at the stage where we currently are – the growth stage – they had over 3500 microfinance institutions. That provided them the room to remain robust after an unavoidable consolidation that always happens. At less than one thousand, despite out huge size relative to them, how are we going to serve our active poor when consolidation happens as I believe it will, before very long? The industry has grown and been fairly well structured to play a leading role as agents of development. However, there is room for improvement, which will propel the sector to maximally blossom. It begins when all animals accept their nature and be who they are.