MICROCAPITAL PAPER WRAP-UP: Much Ado About Nothing: The Case of the Nigerian, Microfinance Policy Measures, Institutions and Operations, By B.O. Iganiga

Much Ado About Nothing: The Case of the Nigerian, Microfinance Policy Measures, Institutions and Operations; By B. O. Iganiga and published in The Journal of Social Science. The original paper is 13 pages and available here.

What follows is a summary of the original article.

INTRODUCTION

In Nigeria microfinance has been a part of cultural economic activities historically, including ‘Esusu’, ‘Adashi’, and ‘Otataje’, initiatives that provided funds for rural producers within communities. A change to these rural microfinancing initiatives has become evident through attempts by governments to modernize microfinancing in order to improve to productive capacity of the poor and increase economic activity on a national level. After a number of recent failures to modernize this area, the Federal Government established legislation for the creation of community banks, now called microfinance institutions. Since the legislation has been established, a number of NGOs have become licensed MFIs and commercial banks began engaging in microfinance. This paper documents and examines Nigerian microfinance policy measures and evaluates the effectiveness of these.

A REVIEW OF MICROFINANCE POLICY MEASURES AND INSTITUTIONS IN NIGERIA

Microfinance Policy Measures

The formal financial system in Nigeria provides services to approximately 35 percent of the economically active population, while the other 65 percent are often served by the unregulated informal financial sector, creating implications for the Central bank of Nigeria (CBN) in its ability to promote monetary stability. Various policies which enhance monetary stability and expand the financial infrastructure of the country to meet the financial requirements of micro, small and medium enterprises (MSMEs) have been formulated by the CBN.

Nigeria Microfinance Policy Strategies

The strategies that have been formulated include the licensing and regulation of MFIs, the promotion of establishing NGO-based MFIs, the encouragement of local governments to devote one percent of their budget to microfinance initiatives, the mobilization of domestic savings and promotion of a banking culture among low-income groups, strengthening the capital base of existing MFIs and broadening the scope of activities of MFIs. The targets of these policies include:

  • Covering the majority of the poor but economically active population by 2020 creating millions of job and reducing poverty.

  • Increasing the share of microcredit as a percentage of total credit to the economy from 0.9 percent in 2005 to at least 20 percent in 2020; and the share of micro-credit as a percentage of GDP from 0.2 percent in 2005 to at least 15 percent in 2020.

  • Promoting the participation of at least two thirds of the states and local governments in micro-credit financing by 2015.

  • Eliminating gender disparity by improving women’s access to financial services by 5% annually;

  • Increasing the number of linkages among universal banks, development banks, specialized finance institutions and microfinance banks by 10% annually.

Participating Institutions In Microfinance Activities In Nigeria

MFIs in Nigeria are categorized into informal or traditional MFIs and formal or modern MFIs. Informal MFIs include self-help groups (SHGs) or Savings and Credit Associations (ROSCAS), as well as cooperative societies and savings collectors. These generally have limited outreach. Formal MFIs include universal banks and community banks or microfinance banks (MFBs). MFBs are either licensed to operate as a unit, in which case the minimum paid-up capital required is N20 million per branch, or MFBs licensed to operate in state where the minimum paid-up capital is N1 billion. The difference is determined by how the MFB is allowed to branch throughout the community and state. Additionally, NGO-base MFIs, public sector poverty alleviation agencies, special microfinance schemes and donor agencies are also recognized by the CBN as having an important role in microfinance, although they are not all supervised or regulated by the CBN.

STYLIZED FACTORS ON THE OPERATION OF MICROFINANCE PROGRAMMES IN NIGERIA

The report conducts an assessment of performance which is based on the outreach of major microfinance institutions and schemes. The following institutions were assessed: the Nigerian Agricultural and Cooperative Bank Ltd. (NACB/NACRDB); Nigerian Bank for Commerce and Industry (BOI); People’s Bank of Nigeria (PBN now NACRDB); and Community Banks/Microfinance Banks. From this analysis, it was observed that most institutions and programmes have at best recorded limited success in securing wide access to sustainable microfinance. High operational costs, repayment problems, weak access to re-financing facilities, client apathy and internal control problems are highlighted as the main challenges for microfinance in Nigeria. The author sees a variety of imperatives that must be implemented properly if microfinance is to be successful. They include: group delivery methodology, an efficient management information system, intensive monitoring, increased involvement of clients, real or market interest rates need to be charged, the development of innovative products and an intensive use of Microfin.

By Lori Curtis, Research Assistant

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