In December 2020, the Nigeria Deposit Insurance Corporation announced the closure of forty-two (42) microfinance banks across the country. That would be earth-shaking anywhere else in the world but Nigeria. That announcement did not send as much shockwave as it ought to, perhaps because something worse was going on – the pandemic. Under normal circumstances, that sad event would shake any community and significantly alter the course of many actions. It went very quietly and many people, except perhaps the depositors and shareholders, took note.
Clearly, many depositors were caught in the web of the events, and some of their funds may still be trapped in the closed institutions, despite the effort of the NDIC in protecting such deposits by way of insurance. Perhaps, the fear of Covid 19 and the lockdown of the period provided a good diversion of attention. In the same way, we must remember that those MFBs were owned by people who had dreams of great institutions. It is not likely that anyone set out to form those banks with a view to having them shut down. Undoubtedly, two categories of people – the depositors and the shareholders of the closed firms, in addition to some partners, had wounds to lick from the closures. The point that needs to be seriously made is that the days are still evil. The circumstances that led to the closure of the forty-two firms in one fell swoop must be grave and not likely to go away in a flash. The question to ask is whether those events that precipitated the failure of those MFB have disappeared or whether they have worsened.
Nigeria has been going through a major bumpy patch. Of course, she is not alone in her travails. The pandemic is global, and the consequences, both negative and positive, are shared by all countries. The recession, which it precipitated for Nigeria, was also not completely unique to her. However, its economic impact has varied among nations, largely in accordance with their prior political, economic and social conditions and preparedness, and the quality of response they individually mustered.
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Nigeria is among the countries that acquitted themselves creditably in regard to their responses to the pandemic. In fact, one of the lead players in Nigeria’s team of Covid 19 disaster control, Dr. Chikwe Ihekweazu who was Director General of the Nigeria Centre for Disease Control, has gone on to get a top job in the global health organization, as an Assistant Director-General of the global health body- World Health Organization (WHO). We commend him for the great performance he delivered on that job, complete with humility and respect for the public in the midst of the pressure under which he had to work.
The microfinance industry is currently struggling under the new capitalization requirement, which most observers agree is timely and needful. It is hoped that the players in the sector would work hard to achieve the current deadline, given that a number of forbearances had been given to them by way of time extension. Indeed, the operators in the industry agree that they need capital to replenish what has been denuded by the increased risks arising from the devastation of the economy by the pandemic.
However, while they are at it, the national currency has plummeted in value and is still falling. Will the current capital requirement, if met by operators, see them through for some years in the future or are they likely to find themselves unable to fund their clients because of the loss of value of the naira? Given the current exchange rate and the likelihood of a worse scenario, as that the animal pursuing the naira, in the form of excessive import dependence, has not been caged or even tamed in any way, are we seriously hoping that the MFBs will be strong enough to fund the active poor?
The truth is that capital is important. It is indeed, very important, but it is just a small part of the problem facing the microfinance industry. The failure of the war against terrorism and the rapidly spreading gale of killings will guarantee one thing; enhanced credit risk and low risk appetite among lenders, particularly those in the risky informal credit markets, of which microfinance is associated. It is doubtful if there is really any serious lending going on in that industry now.
Perhaps, NISRAL is the only member of the industry that has the capacity and capability to lend in this situation where every business is at risk of closure either due to terrorist attacks or the global economic crisis. The faulty structure of the economy, which makes the federal government the determinant of economic direction in every hamlet, has been doubly faulted and fingered by every honest observer, except perhaps those who are supposed to help correct the anomaly. There may have been some investment in infrastructure, with the hope that they are not driven by the parochial interests of civil servants, that may begin to yield positive results in the future.
For now, there is no sign of improvement in power, water, health and education – the core elements of human development. Most of the critical roads in the states are still death traps. It is therefore important that we take steps to resolve key public utilities and services that have serious impact on the economic performance of the active poor to who MFBs give their capital for trade. Needless to tell operators that the days of credit rascality are over.
