MFIs, SMEs and financing challenges | The Guardian Nigeria News


Data from the microfinance barometer show that 139.9 million borrowers benefited from the services of microfinance institutions (MFIs) in 2018, compared to 98 million borrowers reported 10 years earlier (2009). This equates to a jump of about 43% in global MFI coverage in a decade.

Of these figures, 80% were women and 65% were rural residents. The activities of MFIs have increased considerably and their operational structures have changed over time. What has remained constant, however, are the proportions of borrowers. The mix between women and rural dwellers has remained consistently stable in the researcher’s annual surveys over the past 12 years as he has taken on the challenge of tracking the progress of global microcredit, a key variable in financial inclusion.

Women and rural people represent Nigeria’s unemployment and poverty rates, which Banker to the Poor author Muhammad Yunus said the system exists to address. “Money generates money. If you don’t have it, you wait to be hired by someone at the mercy of others. If you have this money in hand, you are desperately trying to make the most of it and move forward. And it generates income for yourself, ”Yunus, who is considered the founder of modern microfinance, told his global audience.

“Soon we saw that the money was going to the women, brought a lot more benefit to the family than the money going to the men. So we changed our policy and gave high priority to women. As a result, now 96% of our four million borrowers at Grameen Bank are women, ”the social investment expert explains in one of his teachings.

While the unemployment rate permeates the entire population, females and rural dwellers are the hardest hit. For example, the fourth quarter 2020 labor data that the National Bureau of Statistics (NBS) last released shows that female unemployment is 35.2% while male unemployment is 31.8%. is the same for underemployment where 24.2% are reported. for women versus 21.8 percent for men.

In addition, the unemployment rate for rural dwellers is estimated at 34.5%, while city dwellers reported an unemployment rate of 31.3%. Further analysis also shows that the unemployment rate is higher among young people who are generally economically deprived and unable to provide the collateral required for commercial loans.

The latest data shows that 37 percent of young people (24 to 35) are unemployed.

Needless to say, youth and female unemployment is not Nigeria but a global threat. According to the International Labor Organization (ILO), the global youth unemployment rate was 13.6 percent last year. The unemployment rate of women and rural dwellers in different parts of the world is also fueling social unrest. In particular, the world views the growing unemployment among women and other special groups as a falling knife – one reason why microcredit adoption has emerged in recent years is not seen as mere funding.

All over the world, microcredit has taken on the image of social investment as well as responsible financing schemes and issues related to the development of the type of business financing classified as development issues in the mold of health policies, education and environment.

As the world embraced the special financing option, Nigeria a few years ago also put in place a national MFI development policy and licensing process, leading to the approval of hundreds of MFIs. ‘operators. The operational style of the operators, who saw no difference between commercial loans and microcredit, sounded the death knell for what was supposed to mark Nigeria’s micro, small and medium enterprise (MSME) revolution.

The founder of LAPO Macrofinance Bank Limited, Dr Godwin Ehigiamusoe, who many described as the Yunus of Nigeria, warned that the systemic crisis was inevitable, except that operators retraced their steps and stopped competing with commercial banks.

During the weekend, Taiwo Oyedele, partner of PwC Nigeria, recalled that the misrepresentation and ignorance of the needs of small businesses by operators and regulators are fundamental to the inability of MFIs to rise to the challenge.

“The major challenge for MFIs was access to finance. The main reason SMEs cannot access commercial bank loans is that they cannot provide collateral. But MFIs were asking them for all kinds of things they couldn’t provide. You cannot treat SMEs like multinationals, ask them to provide finance, cash flow and projects, they will disappear. The truth is that when you give loans to SMEs, some will pay while others will not so that you compensate with those who pay, ”observed Oyedele.

The financial analyst stressed that the whole structure and protocols for accessing loans from banks was a major obstacle. He observed that the country hastened to propose a solution to the financing gap in SMEs without making a good diagnosis, adding that it is necessary to find a system that corresponds to the particularities.

In the years that followed, several microfinance banks went bankrupt. Last December, the Nigeria Deposit Insurance Bank (NDIC) published a list of 42 operators whose licenses it claims the Central Bank of Nigeria (CBN) were revoked effective November 12, 2020. On its websites can be found dozens of other microfinance banks closed at some point for failing to meet CBN statutory requirements, which Oyedele said could be onerous and over-regulated.

Despite this failure, the country still has around 916 MFIs, according to information from the CBN, in operation. But what is the credit worth of medley microfinance lenders to the economy? There is no data on the industry’s total credit, but stakeholders believe its performance falls short of the needs of SMEs.

As if that were not enough, the few dynamic establishments are still located in the metropolis where they compete with the commercial banks with an “omni” vocation, which are reluctant to finance rural businesses. As for Lagos State’s share in the whole bank, credit amounted to N15.13 trillion or 77.7% of total credit, while Yobe State has recorded the least with 19.38 billion naira (0.09%). These numbers underscore the city-centric nature of Nigeria’s banking business, and the effect of this is complicated by the absence of microcredit programs.

Nigeria’s micro and small enterprises are estimated at over 40 million. Oyedele said a policy that builds the capacity of companies, allowing them to employ an average of one employee each, would lower the country’s unemployment rate to an all-time high and address insecurity.

Technology has demystified the search for financial inclusion, which guided the creation of the micro-banking model. Thanks to technology, companies operating in Lagos meet the needs of entrepreneurs in different regions of the country. With their digital algorithm, a phone number is enough to determine the creditworthiness of credit applicants whose physical presence is not required to grant and disburse loans. Do the new lenders, who are seen as the financial vampires that dry out the brick and mortar banks. But are the new “banks” the solution sought in bankrupt MFIs?

Indeed, digital lenders have democratized access to finance – reduced the old maze of documentation, cured the headache of unavailable collateral, and made lending easier. But in terms of cost, their services are not viable as an MFI.

Last year, as the impact of COVID-19 drove up non-performing loans (NPLs), a few of the fintechs began to back down, became less liberal and began to put up barriers to lending. access hitherto promised. Once again, the traditional unbanked were the first victims of the revamped business processes, with major brands choosing to do business only with residents of Lagos, Abuja and Port Harcourt, while keeping rural dwellers away from credit. .

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