By Hope Moses-Ashike, Businessday Online
At what expense?
Loan repayment has been a major problem in microfinance banking in the country and across the globe.
There is no doubt that some microfinance banks have closed shop because they were not able to recover the loans given to their customers.
For instance, the problem of one of the liquidated microfinance banks started when one of the markets in Lagos, where most of the bank’s customers were doing business, was demolished by the Lagos State for beautification exercise initiative.
Most customers, who took loan from the bank, disappeared and could not be located. Although the bank could not give the figure, it lost a huge amount of money as a result, and that gradually led to the demise of the bank.
In finding a lasting solution to the high level of non-repayment, some microfinance banks now employ the services of police and operatives of the Economic Crime and Financial Commission (EFCC) official to help them recover the loans.
Investigation reveals that these law enforcement agents charge 10 percent of the total loan recovered.
Consequently, customers who have defaulted are subjected to pay the 10 percent while repaying their loan.
One of the staff of a microfinance bank in Lagos who pleaded anonymity said the strategy has helped them a lot in recovering their loan. The staff noted that sometimes a large number of the bank’s staff will storm the business premises of a particular customer who refuses to repay its loan.
Reacting to the development, Olufemi Babajide, National Association of Microfinance Bank (NAMB) Lagos chapter, said in telephone interview that he is not aware of law enforcement agents charging 10 percent of the total loan recovered.
He explained that the police and the EFCC are not supposed to look into loan recovery because they are not recovery agents, adding that they can only exercise power on this when there is law passed to criminalise loan default.
“We are appealing to the Central Bank of Nigeria (CBN) and the other regulatory authorities to let us put in place a bill that will make it criminal offence,” he said.
According to the regulatory guideline for microfinance banks by the CBN, a microfinance loan is a facility granted to an individual or a group of borrowers whose principal source of income is derived from business activities involving the production or sale of goods and services.
The maximum principal amount shall not exceed N500, 000 or/ and as may be reviewed from time to time by the CBN. Generally, a microfinance loan is granted to the operators of micro-enterprises, such as peasant farmers, artisans, fishermen, women, senior citizens and non-salaried workers in the formal and informal sectors.
The said loans are usually unsecured, but typically granted on the basis of the applicant’s character and the combined cash flow of the business and household. Ordinarily, the tenure of microfinance loans is 180 days (6 months).
However, in the case of crops with longer gestation period, a maximum tenure of 12 months shall be permitted. Microfinance loans may require joint and several guarantees of one or more persons.
The repayment may be on a daily, weekly, bi-monthly or monthly basis in accordance with amortisation schedule in the loan contract.
It has been reported that in Lagos State alone, over N10 billion were being owed by these micro depositors who borrowed money form their various institutions.
In view of this, Babajide advocates for the establishment of special courts to try loan defaulters. According to him, various strategies had been employed to ensure that the loans owed by the microfinance institutions were repaid, but the effort had yielded no positive result.
By Bukola Amusan, The Nation
The Managing Director of Future Growth Microfinance Bank, Frances Bekey, has said the unwillingness of Nigerians to repay loan is one of the major constraints facing the growth of microfinance banks in the country.
Bekey, who spoke yesterday in Abuja at the opening ceremony of Abuja Trade Show, said women still constitute about 89 per cent of people that are prompt in repaying loans.
She said the bank is partnering with organisers of trade fairs to boost trade and enhance development.
The organisers of the show, said the concept was designed to discourage the habit of hawking, open display, or selling of goods from vehicles at public functions in the Federal Capital Territory (FCT).
Jokodola Osazee Jarikre, one of the organisers of the show, said the trade show is creating a market place where people could bring in their goods and services and sell to the public.
“You may have observed that at any gathering in Abuja, you see a lot of people who come around there and display their wares while some sell from their cars. The Abuja National Mosque used to be one of such places where people from all over Abuja and neighbouring towns come to sell their wares. So we felt there is a need to create a regular market place where this people can bring in their wares and sell from time to time,” he said.
The trade show which made its debut on April 28, will terminate on May 12. He said the fair would offer a unique platform for businesses, while there would also be an entertainment session where musicians, comedians and dancers would thrill visitors.
He described the business environment in Abuja as one that is fast growing and thus there is a need to encourage those doing business, especially young graduates who ventured into business after their national service.
Over at the Financial Access Initiative, Jonathan Bauchet has an interesting post up on a very different kind of microfinance called SafeSave. Here’s Bauchet:
At the heart of SafeSave’s methodology are the 66 collectors, who visit clients at their homes or workplaces every day and provide them with an opportunity to make savings deposits or withdrawals, and repay their loans (clients need to go to the branch for loan disbursement and large savings withdrawals). All collectors are women who come from the same neighborhoods that SafeSave serves. To match clients’ irregular income flows, savings and loan repayments are optional, and clients choose how much they want to save or repay on a given day. Loans therefore do not have a definite term. The collectors record all transactions on smartphones, to help in the accounting.
SafeSave collects savings and extends loans. Savings earn clients six percent interest per year, and interest on loans costs three percent per month. Quick repayment of loans is encouraged by conditioning the increase in the clients’ credit limit by how fast they repay their existing loan.
The SafeSave model differs notably in two ways from the paradigmatic microfinance model: joint liability and fixed loan repayments. By providing added flexibility to its clients, SafeSave is able to tailor financial services to the oftentimes-irregular income schedules of borrowers. At the same time, this flexibility is not always desirable: Bauchet points to the example of an individual who describes a need for rigid payment schedules. All of which goes back to the point made in earlier posts, that “one-size-fits-all” solutions are rarely the right way in which to think about issues in development. Bauchet’s conclusion is similar to Bill Easterly’s point that we need “functional problem-solving systems”, not blanket solutions, in order to facilitate development.
However, one unifying thread can be identified in both rigid and flexible microfinance repayment models: a relationship of trust that has been built up between loan officers and clients. The lack of a principal-agent separation is an intimate part of Grameen’s success and no doubt forms a crucial part of SafeSave’s initiative as well.
Finally, hat tip to David Roodman for the heads-up on Bauchet’s post. If you are even remotely interested in microfinance, Roodman’s blog is an indispensable read and well worth checking out.