State-owned microfinance banks fail to exploit captive markets

Over privileged underachievers! That was the term we used to designate the more privileged children of the rich, who allowed us, their poorer and less privileged counterparts to beat them in class and other endeavours at school. It was a most derogatory term, probably vengeful and spurred by resentment, we used as if to get back at them for being born into rich homes while the rest of us were not. That was “bad belle” at work during those youthful days. That term seems to still be appropriate today, not only for rich kids who fail to hold their own, despite all their family endowments, but also for certain institutions in our polity – the state-owned microfinance banks that are underperforming in the midst of privileges entailed by their state ownership.

There are not many states in Nigeria that have truly seriously focused on the microfinance strategy of poverty reduction, to any news-making extent. Of course there are several poverty reduction efforts going on in the states. At one point or the other, most subnational governments have made public spectacle of their poverty reduction efforts, most of which are anchored on cash hand-outs given to the people. But they are typically short term in nature; hardly consistent, and generally lacking in the staying power required of any potent remedy for a multi-dimensional problem like poverty. What we find is that microfinance programmes are lunched by subnational governments, sometimes with much fanfare, and huge sums are named as seed fund for the programme. Shortly afterwards, and typically after the first wave of publicity accompanied most probably by a few cash hand-outs, the curtain falls. Quite often also, this wave of cash hand-out is creatively choreographed to fall on party loyalists and other collaborators. Thereafter, everything will die down – not just the noise but the entire programme. The funds handed out to loyalists, which should not have been so in the first place, is never recovered talk less of being recycled to other needy people. It is often a one-off event aimed at a particular group of people, and once they are served the programme vaporises. Evidently, such programmes lack the integrity and transparency, which are critical ingredients of enduring public programmes and good governance.

The more difficult part to understand is that some state governments had the wisdom and vision to set up their own microfinance banks but do not appear to know what to do with them, as though their vision was not accompanied with mission. Their wisdom appears to have ended with the launch of the banks. Strangely, they do not seem to understand the power they could wield over poverty if those banks were used according to the time-tested principles of microfinancing, and particularly in combination with the Law of large Numbers. They seem to be unable to relate poverty to lack of economic activity, mostly occasioned by lack of finance. If they did, they would have seen that if there was any microfinance institutions in Nigeria that would succeed, it would be those owned by state governments. They would have seen the power in numbers and how to use them to tackle poverty.

Sadly, these states appear to have cut short their wisdom and vision limiting them to the establishment of the banks. They are unable to see the huge captive market that is entailed in the large number of civil servants paid by the states. They do not see the instant success, which the banks would become if they attempted to harness the resources in the states. If they did, every state would own and operate a successful microfinance institution. Instead, what we have is that some state governments make a spectacle of cash hand-outs done without the input of their microfinance banks.

Imagine that the salaries of all workers are paid into the state microfinance bank. Imagine also that this bank finances all the household requirements of all state government worker.It is actually hard to contemplate that a microfinance bank owned by a state government does not control the home appliance finance and utility payments that constitute much of the activity on the accounts of the workers.They fail so woefully to see the opportunities entailed in this captive market and in harnessing it. For commercial banks to stoop so low to round off workers in the states, with all the problems associated with their very low pay, and still make tons of money, is a major indictment of the microfinance banks owed by state governments.How could they be so unimpactful that commercial banks would come in to provide workers of the state with home equipment leases, hire purchase facilities and all manner of microfinance services while the state-owned banks wither?

Part of the problem is that those in government are intolerant of critical opinion, especially when it comes from non-party members. As a result, much wisdom is shut out from the affairs of government. At the same time, those that are part of government are careful not to hold contrary view, even if superior, so as not to be seen to criticise a government of which they are a part. Consequently, government often becomes impervious to good ideas, creating the impression that they are less intelligent than those outside government. There is no such thing as lower intellect among government officials. What you have is a system in which political expediency and correctness limit the ability of the intelligent to apply his intellect.

Besides, there is so much arrogance associated with power in our present system of government, which makes the ruling class, often quickly, reject good advice and counsel from anybody except those who are subject to them and invariably have little or no innovative opinions to contribute. This arrogance of power is often put to work as a ploy to ward off critical reviews and opinions. That way, we are able to significantly mask the deep gullies of error and incompetencethat are often at the base of many political, economic and social decisions. This also helps to chip away on the good will of the leadership. As a result, despite efforts to achieve success, the system lags behind because it is fraught with error. This leaves the people in frustration as thing that ordinarily work elsewhere seem not to work for us.

When, in 2005, the Central Bank of Nigeria introduced the microfinance programme as a poverty reduction strategy, there was wild excitement. It was felt that at last, some formal strategic direction was established to drive the war against poverty. It was felt that for once, since the failed Rural Banking Programme of 1977, something very deep was being done to bring banking services to the grassroots. And it was expected that enclaves such as the civil servants of states naturally fitted the requirement for microfinance services. They are already a block, akin to the Groups that microfinance institutionshelp to form for ease of dealing with clients. Sadly, the state-owned microfinance banks have failed to profit from the inherent advantages the captive markets of civil servants offeredfor effective and profitable microfinancing.

Emeka Osuji