Insecurity, rural credit and poverty reduction

Over the past several years, Nigeria has been hot on the hills of poverty, using various means to fight it. The use of microfinance as a strategy of poverty reduction was made manifest in 2005, the International Year of Microcredit, when the country launched its National Framework for Microfinance. Since then, a lot of things have been done to reduce poverty. These efforts came alongside the financial inclusion programme, which seeks to integrate many of Nigeria’s unbanked communities into the financial system.

The Central Bank has, in its now increasingly activist role as banker to the government and its chief economic adviser, introduced many funds for the benefit of the Micro, Small and Medium Enterprises (MSME) sector of the economy. Indeed, it is difficult to argue that the Nigerian Governments of the past decade have not taken poverty reduction seriously. Instead, one can state with significant degree of confidence, that the government has done a lot to reduce poverty among the citizens.

Unfortunately, the results of its efforts have been disappointing to say the least. Not only did Nigeria fail to reduce the headcount of poor people among its citizens, she took over the leadership of poverty-stricken people from India. Now its among the most dangerous places to live. By implication, either India stood still (they held poverty on the spot) of we were producing more poor people than they were, despite the huge difference in the population of the two countries. That could not possibly be the source of the differential in the performance of these countries. Perhaps, we need to look a bit harder inwards. I have some phenomena that I believe make nonsense of our poverty reduction efforts, and will hold us down until we resolve them.

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The first is insecurity. Our inability to protect our people from death. This has stalled their economic pursuits and our desire to invest, even in our villages. How many of us are ready to stake our finances in an environment in which we are afraid to live? We have been reading some stories about capital inflows to Nigeria, over the past few months or in the lasts one year. It’s all paper statistics. In any case, the numbers have not been anything to write home about. We have blamed the pandemic for everything, including the increase in divorce rate among married couples. We have insisted that if not for the pandemic, foreign investment, both direct and portfolio, coming into Nigeria would have been much higher. Well, it may be true or false but we cannot say with any significant level of confidence that it would have been higher. Foreigners are now looking for the highest return to warrant the risk of investing in Nigeria. The same situation applies to local investment. How many of us have invested a kobo of their own troubled sections of the Northeast, North Central or even the new kid on the insecurity block, Southeast, over the past several years. Although capital may be a seeker of high returns,it is also a shameless coward. Capital is not emotional. It loves life and will never exchange its life for high returns.

Prior to this insecurity debacle, rural credit was a factor in agriculture, especially peasant farming. People borrowed money to prepare the farms, plant and harvest. They paid back when harvest is done. Indeed, an increase in credit used to translate to increase in agricultural output. Now, it is not even sensible, both for the lender and borrower, to talk of putting borrowed funds into the farms nowadays. Microfinance, as an instrument of poverty reduction, thrives when it provides solutions to the key features of the informal credit market. One such feature is high interest rate. As Aryeetey and Udry note in their work on the subject, a loan involves the exchange of current resources for future resources. It therefore involves a promise. If a loan transaction occurs in a risky environment, and if repayment cannot be guaranteed to some extent, then the promised transfer of futureresources may not be certain.

We are told that bandits are harvesting our farms and making money thereby destroying the promise in the underlying credits. This, alone makes lending in unstable areas, which the whole country is fast becoming, at least in the rural areas that can be attacked freely, very difficult. The money lender may be unserious and a lover of money but not when his life is at risk. Those lending money to rural farmers and poor households in the Northeast will tell you that it is not possible to finance people whose farms are under the threat of occupation.