BACKGROUND
The Nigeria microfinance should be a source of financial
services for entrepreneurs and small businesses lacking access to banking and
related services, changing their stories from insufficient finance to abundant
financial capacity.
But like the 1980s and early 1990s, a new canker-worm is
creeping into the financial sector in Nigeria. Unlike then when it tried to
swallow the whole banking industry, now, it is the microfinance sector.
In the last 9 months, microfinance banks are witnessing
rising non-performing credit portfolios which are gradually spreading distress
into the sector. From investigation, these grief are due, mainly, to predatory
debtors in the banking system whose motives involved the abandonment of their
debt obligations in some banks only to contract new debts in other banks. Their
tactics varies but include using several individuals to contract (front) new
loans from several banks only for these ‘fronters’ to disappear after handing
over the loans.
MY RECENT EXPERIENCE
The street was
reclaimed from water with clog of wastes; it was not solid but hard enough to
carry our weights, three of us, as we made our way to Mrs Adebayo’s house.
In my heart, I wish
every house we left behind is the one we are going but it wasn’t. Soon, we’ve
left the street and made our way on connecting wooden bridge across the lagoon.
The journey was made more unbearable by the heat from the afternoon
evaporation. It is here that Mrs Adebayo’s plank house floats.
I sarcastically asked,
“What number is your house?” to which Mrs Adebayo replied, “Just tell anyone
you are going to end of Sawmill Street”.
“Yes” I replied, “I
know it’s the end of Sawmill Street, but what number is this house?”
No reply
“Okay, I believe the
appropriate number is 1, Water Street, by End of Sawmill Street, Oworonsoki”.
This is my first time here but is sure will be the last.
Mrs Adebayo sells merchandise at the popular Lagos market and to
finance her business, she joined, not one or two but FOUR MICROFINANCE BANKS.
Among these mfbs, only one, Microfinance ABC is giving loans above two hundred
thousand naira. Her first loan with Microfinance ABC was 50,000, her second
cycle was 100,000, in her third cycle, she got 150,000 and not long ago, she
secured a two 200,000 loan.
To anyone monitoring her loan repayment, the pattern looks okay on
paper, even to her account officers, she, like other members of Superstar
Business Group Oworonsoki, the are the typical good customers.
Underneath, the business engineering taking place was alarming, unlike
microfinance ABC, other microfinance dealing with Mrs Adebayo were giving her
30,000 during her 1st cycle, 40,000 in her second cycle, 60,000 for
her 3rd cycle.
Having run aground with the other microfinance outfits, she secured
150,000 from Microfinance ABC to pay off her debt from the three other
microfinance banks. With this she was able to secure her 4th cycle
of 50,000 from them (which equals a total 150,000). At this state, repaying the
single 150,000 from Microfinance ABC was becoming impossible. She however made
up her mind to face microfinance ABC alone henceforth, to nail it home, she
secured the help of Mrs Manila who ought to be in her 2nd cycle
(100,000) with Microfinance ABC and she secure a 100,000 loan for her while she
got 200,000 for herself.
By the time she repaid the other three mfbs’ loans, she was left with
25,000 (from her loan of 200,000). She joined this with Mrs Manila’s 100,000
and hit the market. A week later, Mr Adebayo was arrested and bailed with
40,000, with more than 6 months payment arrears; Mrs Adebayo’s landlord has had
enough. The family secured their new shelter, 1 Water Street, with 100,000 and
Mrs Adebayo was left with nothing; no goods, no food and no money to repay her
loan of 300,000.
She is one of 943 customers Microfinance ABC is now working on so that
they can repay their loans… something in the region of 36,000,000 Naira or $225,000.
****
With 76.2 per cent of the rural population
still unbanked and only 32.5 per cent of the adult population currently owns a
bank account, an equivalent of 28.6 million people;
the Nigeria microfinance sector is either a fertile ground for investors or
poverty depending on your perspective.
In straight expression, many microfinance banks are needed to go round the
unbanked population.
The Nigeria microfinance sector has 794 microfinance banks
nationwide, 165 in Lagos state. Add the cooperative, savings and loans, traditional
loan institutions, it can be said that to a large extent, the unbanked
population in Nigeria can have a new lease of life yet a fundamental flaw is
hampering this breakthrough.
Due to complex challenges, many of these microfinance
outfits are concentrated in semi-urban areas which give birth to over-marketing
of the same clients by these banks.
It is not startling when a woman with goods worth 35,000
Naira ($218.75) is doing business with 3, 4, or 5 microfinance banks whose
first loan are between 40,000-50,000 Naira ($250 - $312.5)... Doing a quick
math, such woman suddenly finds 200,000 Naira ($1250) on her palm. With only
1/4th of the total needed, the remaining is mostly squandered with the hope
that she will somehow repay irrespective of the difficulties.
The Nigeria microfinance environment, choked with many mfbs
who cramp themselves in semi-urban areas of cities across the country fights
over the little over-marketed customers with different strategies.
The most common among them is Loan Volume
The idea of microfinance has been making available small
loans to active poor so that their fortunes can change for the better thus
giving out 10,000 Naira ($62) or 20,000 Naira ($125) for 6 months or 9 months,
as practiced by Yinus Mohammed in Bangladesh was what was sold to the world.
Over-market customers and mfbs choice of not operating is
rural areas means limited customers to do business with... the only strategy,
used by some, remain loan volume.
To attract customers, mfbs in Nigeria are giving out, as
first loans to micro-business owners 50,000 ($315.5) hoping this will deter
such customer to continue business relationship with his/her previous mfb(s).
It is one thing to be a business man or woman; it is another
to be skilled in money management and a different thing entirely to be
discipline. In my many years in the microfinance sector, I have observed that
the effect of poverty on active poor drives them to 'take all that you can'
when the opportunity of changing levels present itself to them. Rather than see
their new environment as a lasting one hence they can gradually change their
status, majority of these active poor prefer to 'grab' as much as they can
thereby abusing the privilege that was design specifically for them.
Rather than choose one among these mfbs, many active poor
approach these new mfbs in town, register and collect loans from all of them.
When it becomes impossible to repay, such individual simply register with
another mfb that gives bigger first loan, repay his/her debts with other
microfinance banks while he/she battle with the new big loan.
With no goods in store and no other option, such individual
start defaulting in repayments. When the mfb(s) start mounting pressure, the
customer either relocate or fall sick while I have seen one attempted suicide.
HELPING THE POOR
The regulating agencies as well as the microfinance banks
need to outline the reason for their existence.
Nigeria active poor are exploiting lack of credit data gap
to ‘defraud’ financial institutions with 100% success. A Credit Bureau will
provide comprehensive credit history nationwide which will help financial
outfits as to who to give loans to or not.
Checking credit report is the first major step in taking
control of financial situation. With detailed information about a client’s
credit history, financial institutions can increase their chances of reducing
risk by giving loans to those who have genuine reason for it.
Credit information Report is a statement of a client’s loan history
and it includes, among others:-
- Credit/Loans clients have enjoyed or currently enjoy from any institution
- Credit/Loan service history
- Overall status of client’s credit to date
To strengthen the industry, the Central Bank of Nigeria (CBN) has threatened to sanction
banks that fail to comply with its directive on the use of credit information
from credit bureaus before granting any loans.
In circular to banks and financial
institutions signed by the Director, Banking Supervision, Mr. Samuel Oni, the
CBN said “in its effort to provide a platform for financial institutions to
strengthen their credit appraisal procedures with a view to enhancing credit
quality and responsive credit behaviour in the national financial system, the
CBN recently licensed 3 private credit bureau to provide credit history on
borrowers”.
The directives, among others, include:
Have data exchange agreement with at
least 2 credit bureaus and obtain credit report from, at least, 2 credit
bureaus before granting any facility to their customers; and obtain quarterly
credit report from, at least, 2 credit bureaus for all previous
loans/facilities granted to enable the determination of the borrowers’ current
exposure to the financial system.
*****
Non-performing loans need monitoring, enforcement/harassment,
characteristics that are fast disappearing from many microfinance institutions
due to unrealistic targets set by managements to their marketers. In other to perform,
loan marketers are scrambling around so hard that they forget two key features
of loan management:
Monitoring: this key aspect is lacking in loan portfolio
management today. Marketers whose fear of not loosing their job trust customers
to repay as at when due thus they concentrate on others who are interested on
securing loans. Before they realize their error, the risk rating would have shot
the moon with many of these customers nowhere to be found.
Business evaluation: for a customer who access a loan of
100,000 with 5 defaults within a period of 6 months, proper explanations is
needed to know the reason why the customer default during his/her previous
repayment term. Either the business cannot repay such loan or personal
challenges are clashing with the client’s business. Why the thought of target
fills the mind of the account officer, he/she overlook this critical aspect and
proceed to approve a similar or higher loan for such customer.
CONCLUSION
The near-death Credit bureau in Nigeria need to come alive
and function with development capabilities that will give comprehensive and
accurate information about each and individual’s credit history.
In the area of development, integration of software is also
paramount such that photograph identification, signature detection etc can be embedded
in Credit Bureau.
Government’s developmental policies need to put micro
business owners into consideration. The micro business owners mostly sell by
the road sides, drive motorcycle for commercial purpose, live in shanties etc…
they are the same people whose business are being confiscated by environmental
agencies, whose means of livelihood (commercial motorcycle) is now illegal, and
who are being driven away from shanties, who are the first to be slam with higher
public utility bills etc. These are the same people the microfinance banks are
said to serve.
These issues above are enough for them to become fraudulent
and their loans becoming non-performing overnight.
Lastly, the problem of non-performing loan is the result of
different issues and is gradually becoming a culture, how we change this is
left for not only the government but the financial outfits as well as policy
makers who set up Credit Bureau but made no efforts at monitoring it usage.
Don Abiodun is business consultant,
a radio host, cinematographer and a blogger. Follow him on
twitter @donabiodun
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