Nigeria: The Hidden Merits of Microfinance

microfinance policy in nigeria

Are you interested to receive weekly mailings to our microfinance news selection. Subscribe for our weekly NewsWatch service

Abuja, Nigeria, April, 05 2010 - In Nigeria, only about 35% of the economically active population has access to formal financial services, according to the Microfinance Policy, Regulatory and Supervisory Framework for Nigeria, published 2005.

The remaining 65% is often served by informal financial institutions such as moneylenders, friends, relatives, cooperatives, etc. Ignoring to regulate the activities of these informal sources does not create a vibrant financial system that promotes micro, small and medium enterprises growth and development. This is because their activities are not monitored by official regulatory organs, such as the Central Bank of Nigeria (CBN), to enhance stability and promote a sound financial system. In recent times, the activities of cooperative societies and self-help groups have called to question the unethical practices they engage in, like defrauding customers and engaging in pseudo-banking services. Unlike the microfinance banks, such informal organizations are not licensed to carry out the business of micro financing and are not regulated by the Central Bank of Nigeria and other key agencies like the Nigerian Deposit Insurance Corporation (NDIC), Economic and Financial Crimes Commission (EFCC) and the Nigerian Drug Law Enforcement Agency (NDLEA).

Nigeria is a country that has enormous potentials in the microfinance market, as it accounts for 93.79 percent micro credit demand to the tune of $19.2 billion (N2.82 trillion), according to a research report by Intellectual Capital Advisory Services (Intellecap). It is important to state that despite the current issues in the Nation's financial terrain, Microfinance Banks have held their own by stimulating economic growth through promoting savings, and access to credit for micro small and medium entrepreneurs. A robust economic growth cannot be achieved in any economy without a framework or strategy that focuses on poverty alleviation, empowerment, and promoting access to credit, which microfinance banks are in a unique position to promote. Such specialised financial institutions have made their mark in enabling access to economic activities, promoting entrepreneurship, increasing employment opportunities, self reliance, enhancing household income and also creating wealth.

The reality is that poor people are excluded from formal

financial systems due to their unique saving needs, their need for small loans, and lack of collateral for credit. However, the rise of microfinance in Nigeria represents a remarkable accomplishment that demonstrates that it is possible to provide cost-effective financial services to the poor. There are over 900 Microfinance Banks in existence; with at least 30 operating in Abuja. Average loan sizes range from as little as N 5,000 to amounts higher for organizations and groups. Over N50 Billion has been given out already to target audiences like micro, small and medium entrepreneurs (MSMEs), formal and informal self-help groups, individuals, cooperatives, associations and low-income groups who are also provided other services such as business advisory, managerial, marketing, technical ,administrative support and proper loan usage monitoring. Many countries in Asia have due to their success stories on microfinance expanded opportunities on promoting wealth creation, employment generation and poverty reduction. India and China are excellent examples of countries that were also able to apply home grown microfinance strategies to position their economies to stay afloat despite the global economic recession that has affected a lot of countries all over the world. Lessons and examples from best practices like Bangladesh is lauded. The microfinance industry in Bangladesh has been able to provide microcredit to about 13 million poor households. There are also around 1,200 microfinance institutions in Bangladesh with four notable ones--Grameen Bank, Bangladesh Rural Advancement Committee (BRAC), Association for Social Advancement (ASA) and Proskika that cover about 90% of all clients.

It is imperative that the Central Bank of Nigeria ensures that only professionals are permitted to practice. The ongoing Central Bank of Nigeria (CBN) target examination of microfinance banks in the country and the certification programme will go a long way towards ensuring that this sector has the technical capacity needed to accomplish the goals the Microfinance Policy in 2005 envisages. Financial support such as funds and grants should also be provided to this sector, which is a major vehicle for promoting the growth of micro small and medium enterprises (MSMEs) that have been verified as important for poverty reduction and rapidly growing the economy of any nation. Nigeria should not be left behind.

Source: www.syminvest.com

Category: Payday loans

Similar articles: