The importance of financial services in the economic growth and development of any society is well known. These services provide businesses with access to credit and a means for saving and investing money.
For micro and small scale enterprises, microfinance is a holistic approach that has been used in different countries and over the years to provide financing, which is not usually possible from the commercial banks.
The concept of microcredit was first introduced in Bangladesh over three decades ago by Muhammad Yunus, a professor and Nobel Peace Prize winner, with the aim of reducing poverty by providing small loans to the country’s rural poor. But microcredit has evolved over the years and does not only provide credit to the poor, but also now spans numerous other services including savings, insurance, remittances and non-financial services, such as financial literacy training and skills development programmes.
In Nigeria, despite its relatively strong economic growth in recent years, access to micro credit remains a big problem. This and several other economic challenges have ensured that growth in the country has not resulted in the desired structural changes that would create employment, make manufacturing the engine of growth, promote technological development and induce poverty alleviation.
The Central Bank of Nigeria (CBN) in 2005 introduced a microfinance policy, a prelude to the licensing of microfinance banks in the country. Before then, many Nigerian small businesses had used informal microfinance approaches like self-help groups, rotating savings and credit associations, accumulating credit and savings associations, and direct borrowings from friends and relations. But these informal approaches were insufficient due primarily to lack of ‘loanable’ funds. Microfinance banks were therefore established to adequately address the financing needs of the poor and low-income groups.
We observe, sadly, that the MFBs in the country seem not to have adequately played this role. In spite of their existence, access to finance for many small businesses remains a tall order. Yunus, in a keynote address delivered at the first FirstBank Impact conference series in Lagos not long ago, had said that what Nigeria has were micro commercial banks, not microfinance banks. The country’s MFBs served traders, suppliers and importers more than they served the poor.
As commendable as the recent N220 billion Micro Small and Medium Enterprises Development fund launched by the CBN is, it is sad to note that only about seven microfinance banks have so far been able to access it for on-lending to MSMEs, with others lamenting that the conditions are not friendly. The fund is meant to catalyse financing to Nigeria’s MSME sector and facilitate commercial and microfinance banks to lend to the sector.
We believe that since some MFBs have been able to access the fund, the complaints of stringent conditions by some others may not be a valid argument. Perhaps there is something those MFBs who are not able to access the fund are not doing right. However, for the CBN intervention to achieve its objective, perhaps there is a need to take a second look at the conditions, just as it is imperative to monitor the MFBs who have accessed the fund to ensure that the loans are targeted at entrepreneurial youths, including those in the rural areas of the country.
More importantly, Nigeria needs to build a strong and vibrant microfinance system. While poor access to credit markets is the key reason most economies cannot expand rapidly, a durable microfinance system with well-equipped resources can help to stimulate economic growth even from very basic level.
SOURCE: Businessday Online (Nigeria)
Apr 23, 2010 26
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