I do hope my audience, particularly those interested in microfinancing, will find time in this most unpredictable election season, to read this stuff. Elections have sadly become a dangerous ritual in Nigeria, spinning out sadness and pain to many as they listen to promises that die on election day. Elections have become one of the “poverty generators” in Nigeria that need to be curbed. Everything stops so that we can spend billions to hold elections that bring no real benefits to the needy people of our country. If we do execute this one successfully, then it would be time to seek alternative ways of managing our country for the benefit of all. Those at privileged positions, who are using the commonweal to terrorize the rest of us, should look around and see how erstwhile powerful men, who ran things in Nigeria, are now begging for help and none seems to come. What goes around comes around!
Now to the issue of the day – the apparent loss of focus, technically called mission drift, in the microfinance industry. The microfinance industry in Nigeria has, no doubt, arrived at the inevitable stage of consolidation – one of the four stages all microfinance industries must pass through. Others are the pioneer stage of the industry, which is characterised by a few early not-for-profit and commercial lenders who book microloans for the poorer members of society, especially women. At this stage, most of these lenders often operate illegally, charging interest rates that are higher than those permitted by the existing laws. There is also the Expansion or Breakout stage, which is essentially the growth stage. Here, players come in to take advantage of the opportunities perceived to exist in the sector. The number of players increases very rapidly at this stage. This stage is usually followed by the consolidation stage when a number of forces limit the expansion of the industry and impose a process of consolidation. The final stage is the maturity stage. The Nigerian industry has not reached maturity.
A number of factors have coalesced to drive the development of the microfinance industry in Nigeria. The first is the fact that growth cannot continue indefinitely in a market with finite number of clients. The number of creditworthy borrowers is not infinite. This puts a break on the rapid growth that characterises the breakout stage. The reason for the slowdown is that competition, which heightens with the influx of operators, thins out margins and cost control becomes a major focus while service delivery suffers. At this point also, consolidation may proceed naturally but quite often, it is compelled by government to restore sanity in the industry. This probably explains the recent directive of the Central Bank of Nigeria on the recapitalization of microfinance bank. A mild threat to consolidate.
We have experienced consolidation in other industries in Nigeria. The banking industry was forcefully consolidated by the Central Bank under Governor Soludo. Our experience was that consolidation is not a tea party. Most Nigerians want to do their own thing and so there will be lethargy to consolidate. Besides, the microfinance industry is populated by very weak institutions that can hardly attract any consolidation partner. So we expect some level of voluntary liquidation and attrition of some sort.
I had indicated in an early contribution in this column that the Nigerian microfinance industry suffered a somewhat stunted growth during its growth stage. It didn’t grow as fast as it ought to grow. There has really never been more than 1,000 active microfinance banks in Nigeria at any time, despite the names and numbers reported. The CBN and NDIC will tell you that they often relicense an operator only to get there and discover that the operator had closed shop long before the CBN hammer. Yet their name was in the books till the policy action. The number has hovered around this 1,000 but often actually below it.
Compared to the South African microfinance sector, which at its breakout stage, had over 3,500 operators in the scene. By the time they consolidated in 2000, only 1,330 microlenders were registered and in operation. With about 1,000 largely weak operators currently in the Nigerian space, it is doubtful that Nigeria will boast of much more than one hundred operators at the end of the current consolidation process. Given our population size and the large numbers of poor people that have made us the poverty headquarters of mankind and the laughing stock of even poor nations, we should have had so many more microlenders before consolidation begins.
It does appear that the Nigerian microfinance sector has suffered from the destructive illness called Mission Drift, an ailment that has prevented many Nigerian institutions from fulfilling their mandates. Every organization, private or public, for-profit or not-for-profit, has a mission. This is the reason for their existence. It is often, but not necessarily always, captured in a Mission Statement – the clear and concise statement that says what the organization does or intends to do, for whom it intends to do it and, in many cases, where. Even whole industries or economic sectors and agents, have or ought to have clear missions, whether stated in writing or not. The mission is that guiding light that helps an organization to keep its feet within the box.
Mission drift occurs when an organization finds that it has moved unconsciously away from its stated mission or that it has, by its own design, ventured away from its mission into new areas that were not originally in its plan. Although some studies have found evidence to suggest that sustainable microfinance banks in the country tend to be more focused on poor clients, which implies increase in the depth of outreach, they were unable to conclude that the microfinance industry in Nigeria does experience mission drift. This finding by some scholars may appear contrary to observed reality. By mere observation, there is evidence to show that many operators, especially the unit microfinance banks, have long since moved away from the original mission of financing the very poor, especially women. They have tended to focus on the commercial rather than the social aspects of their mission. Commercial microfinance actually has a limited interest in the social aspects of microfinance. Thus, its impact on poverty may be limited, just as its focus on the poor is diluted. The impact of the evident mission drift among operators may have been doused by the influence of the big operators, which actually do real microfinancing. They control the larger market share and may have impacted the studies that found no mission drift in our microfinance sector. This drift has made their impact not to be felt as it ought to be.
Evidently, poverty has worsened over the past few years irrespective of the efforts of the microfinance industry. Indeed, there seems to have been no dent on poverty in the country since the introduction of microfinance. Although we must note that there are so many reasons why poverty has multiplied in Nigeria, including the misfortune of successive, anti-people governments and policies. During the past several years, many small operators have simply become micro commercial banks, mimicking the failed strategies adopted by commercial banks to fund the poor. I must add that it is not completely their fault. The economy stopped expanding long ago and so the pool of economically viable active poor dried up. Commercial microfinance is not charity. I believe this why the CBN is going back to the Peoples Bank idea – to provide the social dimension to microfinancing.
Emeka Osuji
