Every society has some social structures or composite demographics that help to keep it together. What we call the fabrics of society consist of its ethnic composition, wealth, its level of education and training as well as culture and values, traditions and norms of the people. The extended family system is an example of a positive element of the social fabrics of African societies. It plays vital roles in holding us together.
An essential feature of these social fabrics is that they have both cultural and economic dimensions. They provide the resilience and indeed the fibre that helps members of every society to survive the many storms that hit them now and again. Even the family, which is known to be the most important unit of society, owes its survival to these social fabrics. The sad results of damaged social fabrics are evident in the many ills plaguing the more advanced societies, including depression, suicide and unwarranted gun violence. Any society that allows its social fabrics to whither runs the risk of societal collapse.
The Nigerian society depends heavily on these composite demographics, which have helped us to survive some of the most horrible human experiences, such as war, terrorism and other forms of violence that hit the people regularly, including kidnapping and armed robbery. Some of the elements of our social fabrics that are noticeable in the country include cooperative societies, the town unions and a wide range of informal credit markets that dot the country. The town unions and cooperative societies are particularly vital in holding groups together both for economic and social reasons. Unfortunately, the benefits of these social groupings have not been maximally exploited by MFBs.
Financial inclusion is at the heart of the current drive to develop and expand the financial institutions and instruments available in Nigeria, including microfinancing. An inclusive society is one that consciously promotes the participation of its members in its economic, financial, human and social development engagements. The hallmark of such a society is the provision of equitable opportunities to its people by enabling them to take part and profit from the economic activities of the society. An inclusive society has the advantage of bringing to bear on its productive activities, the abundant energies of its citizen thereby increasing the national output, promoting unity and advancing nationhood. Economic inclusion is a process and not a destination or event. It is continuous and dynamic.
Analogously, economic exclusion hurts every society. First, it robs it of the burgeoning energies of its people, especially the energetic youth, with consequent negatively impact on national output, morale and commitment. When a group of people are forced not to participate in the economic activity of their society, they are robbed of the benefits of being members of that society. They are robbed of their national pride and sense of belonging. They are made angry against society. The negative consequences of such a state are huge, even if present leaders are not aware of them, and include possible resistance to constituted authority, which they rightly or wrongly blame for their plight. Economic exclusion, promoted by nepotism, tribalism, racism or whatever technology, is a disservice to nation building.
The promotion of microfinancing and, in particular, commercial microfinancing, has among its key objectives, the promotion of access to financial services among the economically active poor. This objective includes both deposit mobilization and risk assets creation. Essentially, it is hinged on financial intermediation role that is never complete until savers and borrowers are brought together. MFBs need to do more to connect these groups and rural cooperatives are an important link in the chain.
There are a number of differences between the old paradigm of microfinancing and the new financial system approach now in play. While the old approach focused on beneficiaries who were only borrowers, the new approach deals with clients who are both borrowers and depositors. It is this deposit mobilization part of their roles that microfinance banks need to deepen. There is one important and effective way of doing this, which has been neglected – tapping into cooperatives and community associations.
Most Nigerian communities, especially in the southern part of the country, have town unions and cooperatives. These unions are the umbrella organizations that provide a rallying point for people of common ancestry. They usually meet at agreed intervals and focus almost exclusively on the socio-economic well-being of their members. They are driven more by the need to provide some social insurance for members and help one another in times of need, than anything else. To promote their economic objective, these unions encourage members to save for the plethora of financial commitments they face at different times of the year, including Christmas, August Meeting, wedding and burial ceremonies. These savings can take different forms, including the Rotating Savings and Credit Schemes (ROSCAS) and the Accumulating Savings and Credit Schemes (ASCAS). They often patronize esusu groups to keep their savings, for lack of other formal opportunities to save. This is where the microfinance banks ought to come in forcefully.
To access the savings of these organisations the MFBs must come down from their high horses and learn how to deal with local organizations run on traditional analogue technologies. It means identifying, educating and marketing their leaders. It means getting invited to their meetings, both in the urban and rural areas, to address them and sell the savings/deposit product to them. It also means a lot more. It helps the MFB to kill two birds with one stone. First, tapping into any of these cooperatives has the advantage of helping an MFB to fulfil its outreach objective by extending its reach to a larger number of potential sub clients within the union or cooperative. This makes lending even much easier as the challenge of group formation prior to lending is practically solved. Second, this relationship helps the MFB in its pursuit of sustainability, as it gains access to more cheap deposits to help fund its risk assets.
Finally, tapping into these social groups has another benefit. It provides the much needed basis for collateral-free lending. While efforts are progressing on the launch of a collateral registry system in the county, we must not expect that it will solve all problems associated with lending to the poor. The basic nature of microfinance – lending on the basis of factors other than physical security – is not going away. Any opportunity to developed well-structured groups that would facilitate the group lending methodology should be regarded, adopted and promoted.
A lot remains to be done in this regard. Most operators do not see the treasure in cooperatives and town unions as veritable platforms for productive financial intermediation. They have neither penetrated the urban unions nor those in the rural areas, even with some directors being active in these unions. Community associations still save money with the local chief who takes it to esusu groups or other informal financial market operators for a fee – a selling point that could reroute all such savings to MFBs, if properly exploited. This is where board effectiveness comes to play. It is surprising how little some operators know about these groups even in their own domains. A lot can be achieved using cooperatives and town unions as platforms for effective financial intermediation.
Emeka Osuji
