The Bravado of Microfinance without Microinsurance
Bravado is overbearing arrogance. It almost always comes from the assumption that one is powerful. Bravado is that daring act that bothers on recklessness and often unsupported by good sense. The success of an act of bravado wins a great applause, because the performer takes an extraordinary personality in the eyes of observers. However, when it fails, it becomes difficult to see the reason why anyone would take such an action. A stunt is an act of bravado that may end in a disaster.This is why matters involving money should not be removed as far as possible from the realms of stunts.
It rained heavily in some parts of Lagos last week. That was the first rainfall in some areas this year. It was fun sitting through the time of the rain and listening to the clatter produced by rain drops on dehydrated leaves. Going by the way they twisted up and down while dancing in the wind, the plants were expectant and very happy to be drenched in the rain that was coming. I believe the grass in the gardens were also glad. The vapour that rose as the first rain drops fell indicated an extremely dehydrated earth in need of water. The plants would soon show their appreciation with the sprouting of new shoots and the greening of the almost all grey gardens. Then came the rain in a down pour.
While listening to the rain and watching the flood waters fill the street, something crossed my mind and took away the peace that had surrounded me. It replaced the peace I had in my mind with hard thoughts – thoughts of a technical nature and far removed from the environment of my relaxation. I thought of the stories of flood disasters that often follow such rain storms, especially in the poorer neighbourhoods, not just in Lagos but elsewhere in the country.I thought of what the floods could do to different people in our society – farmers, gardeners, school children and all. More particularly, I thought of farmers who may have borrowed money to clear the bush, buy seedlings planted in their farms. I thought of some microfinance institutions that have shifted emphasis to agriculture. What could happen to their clients if they are unlucky to have their farms in the way of this racing flood?
Some people love the rainy season because it cools temperature and makes life better, especially now that electricity supply is going further south. Farmers love the rains because they need to have their plants watered. The rains do this at no cost. But sometimes the rains bring so much pain comparable to drought. Many farmers have been ruined by rains, which began gently and were welcomed to regenerate the farms. Often times and sadly, these rains end up ruining the farmers’ livelihood. The rain that fell last week reminded me of the flood disaster that took place in Bangladesh in the late 1990s, the worst in that country’s entire history. It caused untold human and material damage. The floods not only damaged farms and killed farmers; they also ruined the organizations that had been providing finance to the poor farmers in the country – microfinance institutions, specialized banks and government-sponsored microcredit providers. Many were obliterated.
A similar event happened in the South Indian States of Andhra Pradesh, Karnataka and Maharashtra about the same time. There was an infestation of pests and the crops failed. Although this was not flood-related, it had the same devastating impact on both farmers and the institutions financing them. About 200 farmers in these states were reported to have committed suicide, in order to escape from their creditors, mostly money lenders. They were poor cotton farmers who obtained loans from moneylenders and could not pay back as their crops failed. In both cases, lenders and clients suffered greatly.
In thinking through situations like these, which could happen anywhere at any time, certain questions come to mind. Could this disaster happen here? The answer is yes. Nigeria has actually had a few cases of flood disaster, including Ogunpa and Nwangoro flood disasters in the South West and South East zones of the country, respectively. Apart from the evidently weak physical disaster response and management capacity of the country, there is hardly any protection for lenders in these circumstances. What happens to a microfinance institution whose funds are tied up with this kind of farmers? How much insurance are we deploying as we grow the assets of microfinance institutions?
The insurance industry in Nigeria is undoubtedly beleaguered. It has taken so many years trying to convince, even the most enlightened members of our society, that the pooling of risk is vital to business survival. It cannot be said to have succeeded greatly, as most people still do not consider insurance as very important investment. Against that background, it is wishful thinking to believe that much insurance is being affected in the MSME sector. A review of the risks associated with planting, nurturing, harvesting and transporting produce from the farms to the market brings to the fore the very deep lacuna we need to fill in the MSME value chain. The stories of motor accidents and the destruction of produce in transit from the farms to the cities is saddening.
Microinsurance has received much publicity lately but it has not been much embraced by a substantial population of our mostly illiterate citizens. The coming rainy season should not take us unawares with regard to hedging against the risk of flooding. Nigerian enterprises have suffered so much in the last several months of recession. They are just managing to keep their doors open. Most of them have debts they cannot pay and receivables that have overaged and may never be collected. We cannot hope to find them standing if exposed to such disasters as flooding and crop failures this faming season. We must therefore stop paying lip service to the promotion of insurance protection, particularly in the microfinance industry. We should actually consider enforcing some level of insurance for all microfinancing transactions, without negatively impacting the progress being made. The insurance companies should be challenged to fine cost-effective but attractive micro insurance packages for the sector. I am aware some companies are doing a lot in this regard but much can still be done.
We should avoid the bravado entailed in criss-crossing the risky world of microlending to the economically active poor, sharing their hopes, aspirations and risks, without an effective strategy to hedge against natural disasters and some other eventualities. It is good that deposit insurance has been emplaced by the NDIC for microfinance banks but the lender should be encouraged to also be protected. The cover provided by NDIC could bring succour to depositors in the event of failure of an operator. How about the operator itself? Looking to providemicro insurance for all credit transaction, as a matter of regulation may not be exactly utopian. We only need to see who takes the extra cost. In a country where social security is a pipe dream, having government share in this cost may not be asking too much.
Emeka Osuji