In spite of the visibility of microfinance banks in some parts of the country, the reality is that there still exists a large untapped gap in the Nigerian economy for finance institutions serving small and medium enterprises (SMEs) especially in rural, underbankedand unbanked communities. Despite the existence of over one thousand microfinance banks (MFBs) that aim to provide these services, over 80% are not adequately capitalized. These banks have been unable to provide easier access to credit and other financial services for SMEs, with many facing liquidity and operational challenges.
The recently licensed NIRSAL Microfinance Bank (NMFB), an institution midwifed by the Bankers Committee of Nigeria, the Nigerian Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL) and the Nigerian Postal Service (NIPOST) is set to transform the nation’s development finance sector and make a measurable difference in small businesses across the country and in the lives of the millions of Nigerians dependent on them. The bankwill leave significant positive impact on the nation’s overall economy. It is positioned to be a game changer in the microfinance banking sub-sector and MSME financing in Nigeria. It will offer from inception,transformative financial and non-financial services across the country. It will provide access to more affordable funds for small business owners than currently exists in the banking sector, thereby improving wealth creation, enhancing employment, and reducing poverty and ultimately contributing to the growth of the economy. In line with its mandate, The MFB’s capabilities to finance MSMEs will be greatly supported asit will leverage on NIRSAL’s credit de-risking facility.
The shareholding of the MFB which reflects the foundational tripartite role of the three institutions is a source of confidence. The Bankers Committee has 50% ownership, NIRSAL 40% and NIPOST whose widespread network of offices will provide the necessary infrastructure for reaching far flung areas in the 774 Local Government Areas of the country has 10%. TheMFB will benefit from a professional and institutional synergy of the investing institutions. All theinstitutions are represented on the board of the bank, to provide the needed strategic and institutional guidance. Given the proposed spread of the MFB in all the 774 LGAs. it will be well suited as a wheel for the disbursement of the various CBN’s intervention funds for lending to MSMEs.
SMEs remain a critical component of the Nigerian economy and creating deliberate ventures to support their growth has been at the core of NIRSAL’s existence. There are currently around 37million MSMEs scattered across the country which account for 84% of its labour force. The agricultural sector in particular has the largest propensity for growth, projected at 8.37% in real terms by 2020.Agriculture remains the most significant economic sector in Nigeria, employing about 36.55% of the population, and making it the principal employer of labour. In 2017, the sector grew by 3.45% at a real value of N17.2 trillion, contributing 25% to real GDP. Agribusiness MSMEs span across segments of various agricultural value chains, and account for around 97% of the agricultural GDP of Nigeria.
Despite their important contributions and potential for growth, MSMEs continue to face an array of momentous challenges. These include poor infrastructure; limited access to markets; technology constraints; unskilled workforce; multiple taxation and an arduous regulatory environment. These challenges have led this large segment of the economy to contribute just 7% of export earnings, with low propensity for development.
As numerous as these constraints are, inadequate access to finance remains the most critical for entrepreneurs and the biggest constraint to their economic growth. The NIRSAL MFB will fill this gap by providing MSMEs with easy access to finance. The MFB will soften the various impediments that militate against access to finance by MSMEs. With an average adult population of 99 million, out of which 63.3% work in the rural areas and 20% have no formal education, this population has an enormous unmet financial need.
In these underserved communities, 68.9% of people have access to a mobile phone, and 56% are under the age of 35, creating enormous opportunities for the provision of digital financial solutions. The addition of these services to the financial system will set the country forward in meeting the United Nations Sustainable Development Goals (SDGs) and improving other macroeconomic indicators, making the MFB a timely and well thought out solution in the development finance sector.
Recent findings have highlighted an intense national need to drive financial inclusion for the unbanked and underbanked communities. The newly released State of the Market Report on Digital Financial Services published by the Lagos Business School revealed that the current financial inclusion rate stands at 49% after eight years of interventions, which means the country still has a steep journey to attaining the 80% goal by 2020.The report also showed that poverty levels are higher in under-banked and unbanked households, making it imperative to link micro-credit and financial services to the poorest regions. With a mission to efficiently provide affordable products and services to the rural and urban populations using technology and professionalism, the MFB will be well positioned to drive financial inclusion as a national imperative.
The NMFB will provide stability, reliability and trust for people who do not otherwise have access to institutions that prioritise their financial needs. NIRSAL’s Managing Director Aliyu Abbati Abdulhameed, has been instrumental in enhancing a robust risk management framework which has significantly improved the loan performance rate that will be built upon in the management of the MFB. This strong base will drive a solid new wave of nationwide financial empowerment that is desperately needed to breathe new life into MSMEs in the country and boost the economy. The activities to be financed include agricultural value chain, services, cottage industries, artisans, trade and commerce and other prescribed income generating businesses.
The bank will also achieve progressive growth driven by partnership, teamwork, technology and solutions centred around meeting the needs of its consumers. It will boost job creation by empowering these enterprises with the funds and capacity to hire more staff. In addition, it will provide the desperately needed liquidity for SMEs resulting in an overall improvement of the financial system stability.
Cletus A. Adole
Adole is a policy analyst writing from Abuja