THE Nigeria economy is characterized by a large informal sector. Only about 35% of economically active population has access to financial services while about 65% rely on the informal sector. In fact, less than 2% of rural households have access to formal financial/banking services. The aggregate micro-credit facilities account for about 0.2% of the Gross Domestic Product (GDP) and less than 1% of total credit to the economy.
In response to the foregoing, successive administrations in Nigeria had intervened through supply-led subsidized credit strategy. Notable among such programmes were the Rural Banking Programme, sectoral allocation of credits, concessionary interest rate, and the Agricultural Credit Guarantee (ACGS). Other institutional arrangements were the establishment of the Nigerian Agricultural and Cooperative Bank Limited (NACB), the
National Directorate of Employment (NDE), the Nigerian Agricultural Insurance Corporation (NAIC), the People Bank of Nigeria (PBN), the Community Banks (CBs), and the Family Economic Advancement Programme (FEAP). In year 2000, Government merged the NACB with the PBN and FEAP to form the Nigerian Agricultural Co-operative and Rural Development Bank Limited (NACRDB), to enhance the provision
of finance to the agricultural sector. It also created the National Poverty Eradication Programme (NAPEP) with the mandate of providing financial services to alleviate poverty. Most of the intervention agencies had no sustainable sources of funding, hence, virtually all the initiatives could not be sustained.
The ineffectiveness of the government economic inclusion strategies obviously left a huge gap which the non-governmental organizations (NGOs) sought to fill. For instance, since the 1980s, NGOs have emerged in Nigeria to champion the cause of the micro and rural entrepreneurs, with a shift from the supply-led approach to demand-driven strategy. Most of the NGOs are charity, capital lending and credit-only membership based institution. They are generally registered under the Trusteeship act as the sole package or part of their charity and social programmes of poverty alleviation.The NGOs obtain their funds from grants, fees, interest on loans and contributions from their members. However, they have limited outreach due, largely, to unsustainable sources of funds. To a large extent, the NGOs’ initiatives through demand-driven strategy had generated little impact on economic inclusion just like the government supply-led credit strategies.
The observed ineffectiveness of both supply-led and demand-driven credit strategies in broadening economic inclusion on the one hand, and the existence of huge unserved and savings opportunities in the country, on the other hand, largely informed the introduction of the micro-finance policy in 2005. The policy was introduced to complement the banking sector reforms introduced in 2004 with a view to enhancing economic/financial inclusion in the country.
According to the micro-finance policy framework, MFBs were promoted to provide financial services to the economically active poor in the society. The policy was targeted at creating an environment of financial inclusion to boost capacity of micro, small and medium enterprises (MSMEs) to contribute to economic growth and development through job creation that would lead to improved standard of living and poverty reduction.
The specific objectives of microfinance policy are as follows:
Make financial services accessible to a large segment of the potentially productive Nigerian population which otherwise would have little or no access to financial services; Promote synergy and mainstreaming of the informal sub-sector into the national financial system;
Enhance service delivery by microfinance institutions to micro, small and medium entrepreneurs;
Contribute to rural transformation; and Promote linkage programmes between Universal/Development banks, specialized institutions and microfinance banks.
The Microfinance Policy permits the establishment of two categories of MFBs, namely:
MFB operating as a unit bank with a minimum capital requirement of N20 million; and
MFB operating in a State with a minimum capital requirement of Nl.0 billion.
The policy framework also specifies the objectives of the creation of microfinanee banks as:
Providing diversified, affordable and dependable financial services to the active poor, in a timely and competitive manner, that would enable them to undertake and develop long-term, sustainable entrepreneurial activities;
Mobilizing savings for intermediation;
Creating employment opportunities and increase the productivity of the active poor in the country, thereby increasing their individual household income and uplifting their standard of living;
Enhancing organized, systematic and focused participation of the poor in the socio-economic development and resource allocation process;
Providing veritable avenues for the administration of the micro credit programmes of government and high net worth individuals on a non-recourse basis. In particular, this policy ensures that state governments shall dedicate an amount of not less than 1% of their annual budgets for the on-lending activities of microfmance banks in favour of their residents; and
Rendering payment services, such as salaries, gratuities, and pensions for various tiers of government.
Community Banks (CBs) hitherto in existence were allowed to convert to MFBs provided they met the licensing requirements. Of the 1,259 CBs in operation as at December 31, 2007, the total number that met the minimum capital requirement of N20 million Shareholders’ Funds, unimpaired by losses, and converted to MFBs were 607 as at the end of 2008. An analysis of the CBs that convened to MFBs showed that 308 CBs had completed the process and obtained final licence, while 299 were still carrying provisional approval as at December 31, 2008. Delays in registering increases in capital,
change of name and registration of new directors at the Corporate Affairs Commission (CAC), due to non-payment of penal charges for non-submission of statutory returns by the institutions (despite the concessions granted by the CAC), were largely responsible for the slow conversion of their provisional approvals to final licence during the year.
In addition to the 607 CBs converted to MFBs, a total of 138 new micro-finance banking licences were granted, while 95 approvals-in- principle (AlPs) had been granted as at December 31, 2008. With that development, the total number of approved MFBs as at the end of year 2008 were 840. Presented in Table 11.1 is the distribution of the 840 MFBs on a state-by-state basis, including the Federal Capital Territory, Abuja.
Godwin Emefiele, CBN Governor
