Post-recession microlending should target savings growth

The theoretical relationship between income and savings is a direct one, according to economists. That is to say that as incomes increases savings will also increase. This happens because as income increases, the proportion of it saved also increases because the proportion consumed decreases. This is what economists mean when they say that the relationship between savings and income is a positive one. Some people have interpreted this relationship erroneously by thinking that only the rich can save money and the poor have nothing to save. This could impair the national savings habit.

One of our low points in Nigeria, which is widespread and not peculiar to us, is the lack of a deep-rooted savings culture. It took a whopping 44 years after independence for Nigeria to formulate a proper pension scheme, which is evidently the only serious form of long-term savings the country has developed. Prior to this, we operated a corrupt, inefficient and non-inclusive pay-as –you-go pension system that neither built the national savings stock nor provided effective relief to the intended beneficiaries. Our Sovereign Wealth Fund is a recent creation and still totters. Long after the introduction of the Pension Reform Act in 2004, the need for individuals to put away some of their incomes to finance future occurrences is still a burning one. The evident profligacy among all levels of government speaks to our faint understanding and acceptance of the principles of thrift and effective resource management.

In any country where individuals do not understand the value of savings, it is wishful thinking to expect leaders to be prudent in managing state finances. This is probably part of the reason we struggle to use state resources prudently. It is also behind some of the evidently disgraceful conduct of some leaders now rampant. The erection of a statue in Imo State for a president already disgraced in his own country, especially at a time Nigerians are being murdered there is classic 15th century leadership. It was therefore a sorry sight to see Chris Ngige (“Igbo leader”) on television at the APC rally in Awka, proudly describing Rochas Okorocha, the APC governor of Imo state, as the younger brother of Zuma, while asking Anambrans to vote APC. Many wondered what message the minister wanted to convey.

Add this to the Maina Saga and one sees that truly, there is sorrow in this land as agents of government continue to embarrass the president and his party, left right and centre. We are sitting idly watching nitwits in government chisel off big chunks of the president’s integrity and almost destroying him, just because they are in his party. You don’t have to be an APC member to feel the pain this man has endured from those he loves and trusts. I know the risk in saying things like this at times like this but patriots will know that this is an honest service to my country. Since it is a truism that people cannot give what they do not have, we should begin to consciously inculcate the right culture in our people, including savings habit. We need to build a critical mass of savings-conscious leaders for the future and thereby reduce profligacy and ultimately corruption.

Microfinance institutions should lead this campaign. Nigeria has an adult population, estimated at about 96.4 million. That number is larger than the population of many successful countries, including the United Kingdom, Germany and South Africa. Unfortunately, an equally large number of this number is not using formal financial services. This category of our citizens do not save their money in banks but in other places.  By saving in such informal locations, they deprive the economy of the effective mobilization and use of savings for economic activity.

It may well be that there is a natural tendency in man to save for the rainy day. It may also be true that most people would like to save some of their earnings for the future. However, the extent to which the savings culture is spread among the population is critical to savings mobilization. If the idea of keeping something away as defence in the future is limited to those who have surplus funds, then it is not a savings habit. In reality, it is not easy to save. If the rich could muster several reasons to justify their inability to save from their large earnings, it becomes difficult to expect more from the poor. It is therefore not uncommon to hear some people argue that they need to feed well before embarking on any savings. This argument is flawed and a sure way to kill the savings spirit. The truth is that the poor can save because while the volume of savings may depend on income, there are other important factors that come to play in savings. A sustainable savings function therefore includes a number of factors of which income may be a major part.

This is why we need to consciously create opportunities for economic agents to make savings for national development. As the customers and clients of financial institutions need loans to grow their businesses, so also they need opportunities to build up savings for future eventualities. They should therefore be encouraged to save. There are many good reasons why microfinance banks (MFBs) are in a very strong position to better drive the savings habit of the economically active poor and small business entities in general.

First, they are closer to the grassroots and indeed, small business operators. Being close to their clients allows them to understand their business cycles and cash flow realities. They know the planting and the harvesting seasons. This could be translated into a savings advantage to financial institutions like banks, and by extension, the whole economy. Second, microfinance, as a subject matter of global interest, has led to the accumulation of massive data on various aspects of the economy and provides an opportunity for MFBs to formulate appropriate policy frameworks to promote the savings culture. Third, the recent recession has further increased the demand for microloans and should provide the needed opportunity for operators to deepen their drive for savings. Savings should now be a standard part of the transaction dynamics of current microloans. This will serve multiple purposes, including boosting the savings habit.

Emeka Osuji