Sustaining microfinance services in election season

It is about one year to the conduct of the 2019 general elections in Nigeria but the election fever is already here. Most political office-holders have gone to the field – their homes and constituencies – as they do every four years, to remobilize the people they claim to represent, and get their votes again. Elections are very important in Nigeria (well they may be everywhere else), not much for what they do for the people but more for what they do not do. Elections, except beginning from 2019, do not bring positive changes to the lives of the people. Perhaps it does to those of the politicians, their friends and families but certainly not to the lives of the masses. Elections drain everything, sometimes including blood, from the masses in Nigeria. It is said that once electioneering begins here, everything, including even governance, stops.

Elections do not positively affect the state of infrastructure nor the performance of the public utilities. Some say what we have are actually not elections in the real sense because most votes do not count and only a tiny proportion of the population even bothers to vote. In the last election, for instance, only 15 per cent of the entire population elected the government in power. As 2019 draws close, almost all attention has shifted to elections in which probably less than 20 per cent of us will vote, while other aspects of life of the 100 per cent will be on stop. And this includes the lives of the mostly immiserated bulk of the population living on life support offered my microfinance institutions,

Governments are very important all over the world but they are more important in countries like Nigeria. Again, not for what they provide for the people but for what they do not provide, and those things are plenty. They do not provide security and they do not provide functional infrastructure. Because of the absence of accountability, merit and justice, everybody cringes to government for the little crumbs that may fall from their members’ tables. So government and elections are as important to the politicians as they are to businesses and individuals. We have created a system in which everyone is hungry and looking for what to eat, which only government has.  This may also be the state of affairs everywhere in the world but where public utilities and positions are distributed according to those who voted for the government in power, and where abject poverty and destitution are rife, then most people would naturally be drawn to that one party that promises their want – sudden wealth. This is why elections are not just a political event in Nigeria but an all-embracing economic do- or-die battle.

My concern is what happens to those who live from hand-to-mouth and struggle daily to write their own pay cheques of less than one dollar a day and how those who support them with finance will ply their trade at this election time to ensure that those they service are not left in the lurch as election “war” rages. More so when we know that their problems may at best get tangential attention when the winners emerge in 2019. Already, the security challenges confronting the country have brought much pressure on microfinance institutions. Some have made loans to clients only to return and find the village square where they used to meet totally burnt. They had to look for their client among refugees. Some have come back to find that the farms they financed have been wiped out by cattle and the farmers killed. They have been struggling with all kinds of problems and their contributions neutralised by widespread violence, which began in the north but has crossed over to the south in the last few years. Microfinance must be a nightmare in today’s Nigeria, as its target beneficiaries have become the targets of violence.

The ranks of the economically active poor have dwindled while the inactive ones have multiplied. Microfinance does not apply to economically inactive people. These ones are candidates for outright charity. The result is that the contributions of the nearly one thousand microfinance banks and an equally large number of non-profit organizations offering the service are like a drop in the ocean. Equally important is the impact, which the recent recession had on the loanable funds available to the MFBs. They have had a hard time growing their deposits because their small savers were wiped out in the recession, which sadly has officially ended in the data bank of the National Bureau of Statistics without any sign of respite on the streets of the poor. The poor now hardly have enough to eat before talking about savings. So, MFBs rely almost completely on purchased funds, which are naturally more expensive and quite unstable. They now resort more to their own capital and shareholders’ funds, to make much of their loans, thereby worsening their Loans/Deposit Ratios. This has reflected in a deterioration of over 26 per cent in 2017 over 2015 numbers. One of the preliminary outcomes of this trend is that the shareholders’ funds of MFBs decreased significantly from N93.4 billion in 2015 to N77 billion in 2016, a trend that is likely to continue if the current state of uncertainty continues.

Although the overall liquidity position of the sector remained strong through 2016, eliminating the need to be afraid, average liquidity has been declining since 2015 when it fell from 119 per cent to 90 per cent in 2016. Besides, we have already seen considerable decline in deposits of nearly 10 per cent observed in 2016, which was definitely a better year in Nigeria, in terms of peace and security, than 2017.Other financial indicators also show the impact of the current unfriendly environment of the business of microfinancing. For instance, high cost of operation, sometimes blamed on the business model of operators but actually reflective of the hostility of the business environment, continues to weigh heavily on their earnings. It jumped from N6 billion in 2015 to a whopping N62 billion in 2016. Why the sudden jump? Does this tell us something about the nature of the transactions finance by MFBs or what? Considered jointly with the equally rapid jump in non-interest income and the fact that nearly 400 of the 978 operator is 2016 failed to make requisite returns, then it is time to look kindly at the operating and regulatory environment of MFBs to give them more support during these hard times. A situation where most operators are skipping returns says something ominous.

Evidently, we should sympathise with all non-bank financial intermediaries in Nigeria, but more especially, the MFBs that must make loans standing on quick sand. They need our empathy. Rather than wield the big stick, I suggest regulators should begin to rejig the criteria for judging performance in the sector. We probably also need to redefine certain indices to make them more appropriate for capturing the present predicaments and internal circumstances in Nigeria. My earlier comparison of the Nigerian and South African microfinance industries shows that ours, which is still at growth stage is not growing fast enough at about 1000 operators today. What will happen during consolidation stage? This is not to suggest that Regulation and supervision should slack or be timid. My readers may recall my Theory of Regulatory Timidity. Regulation should continue to be dynamic as it presently is.

Emeka Osuji