Microfinance as a panacea to Nigeria’s unemployment challenge
Despite Nigeria’s relatively strong economic growth over the years, the country has been weighed down by several economic challenges such as insecurity, corruption, poor infrastructure, poverty and unemployment. The implication of this trend is that economic growth in Nigeria has not resulted in the desired structural changes that would make manufacturing the engine of growth, create employment, promote technological development and induce poverty alleviation. Available data has put the national poverty level at over 50 per cent and rising unemployment put at 25 per cent.
The importance of financial services in the economic growth and development of any society is well known. These services provide businesses with access to credit and a means for saving and investing money. The concept of microcredit was first introduced in Bangladesh by Nobel Peace Prize winner, Professor Muhammad Yunus more than 30 years ago with the aim of reducing poverty by providing small loans to the country’s rural poor. Hence, microcredit has evolved over the years and does not only provide credit to the poor, but also now spans numerous other services including savings, insurance, remittances and non-financial services such as financial literacy training and skills development programmes. Microfinance is a holistic approach that has been used in different countries to alleviate the plight of micro and small scale enterprises (MSSE) both in the rural and urban areas in accessing fund as at when needed which was not possible from the conventional banks. The is why the N220 billion Micro Small and Medium Enterprises Development fund just flagged off by the Central Bank of Nigeria (CBN) to catalyze financing to Nigeria’s MSMEs sector and facilitate commercial and microfinance banks to lend to the sector is a good development.
As credit plays vital role in start-up and expansion of businesses, microfinance has been treated as an important tool for economic development. Microfinance lenders offer small loans to aspiring as well as current business owners. These loans assist benefactors who may reside in some of the remote and most deprived areas to create jobs. It also provides people an opportunity to create extra income so that they can pay for their extreme necessities. Poor access to credit markets is the key reason why most economies cannot expand rapidly. A durable microfinance system with well-equipped resources can help to stimulate the economic growth even from very basic level.
The practice of microfinance is not new in Nigeria. Nigerians have always tried to provide themselves with needed finances through informal microfinance approaches like self-help groups (SHGs), rotating savings and credit associations, (ROSCAs), accumulating credit and savings associations (ASCAs) and direct borrowings from friends and relations. These approaches may have sufficed in the traditional society but the growth in the sophistication of the economy and the increasing incidence of poverty among citizens has revealed the shortcomings of this approach. The CBN alluded to this when it pointed out that the informal financial institutions that attempt to provide microfinance services generally have limited outreach due primarily to lack of ‘loanable’ funds. It was in a bid to resolve this identified deficiency of the informal microfinance sector that the CBN in 2005 introduced a microfinance policy a prelude to the licensing of microfinance banks in Nigeria.
Microfinance banks were therefore established because of the failure of the existing microfinance institutions to adequately address the financing needs of the poor and low income groups. However, it was obvious from the beginning that the framework for microcredit for microfinance banking was faulty and cannot achieve its set objectives. This realism was made more obvious by Professor Mohammad Yunus, the founder of the first microfinance bank at a presentation in Lagos not too long ago. From his keynote address delivered at the first FirstBank Impact conference series, he informed the gathering that what we have in Nigeria is not microfinance banking but micro commercial banks.
In fact, the Nigerian microfinance banks are not for the poor or the poorest poor; rather they are for traders, suppliers and importers and this explains the cut throat interest rates Nigerian MFBs charge. Microfinance is banking for the poor; because they are for commerce, microfinance banks in Nigeria are predominantly in the cities and urban areas, a sharp contrast to the rural based nature of the first microfinance bank; they insist on collateral and they don’t lend to start a new business which is not microfinance; microfinance is women oriented and focussed, but not the case in Nigeria, it is for whoever can pay the interest rate; and they are profit oriented.
Therefore, we believe that the CBN intervention is in realisation of the flaws of the microfinance banks, hence, they must monitor the microfinance banks that access this fund meant for MSMEs;
Furthermore, conscious effort should be made to ensure that the loans are targeted at entrepreneurial youths including those in the rural areas of the country; and that the framework for disbursement of micro credits should be similar to the Grameen Bank in Bangladesh,so that the successes achieved especially in the Asian countries can be replicated in Nigeria in the shortest possible time.