Govts, micro-finance banks’ partnership: How it works

By Biodun Akinyemi

Biodun Akinyemi, MD, Crest
Micro-finance BankMicro-credit is about poverty reduction and leaders that have passion for the poor always share this. Records have it that President Umaru Yar’adua allocated over N1 billion to micro-finance activities while serving as the then Katsina State Governor.

Micro-credit creates jobs and promotes self-employment. It can also become an important part of the social safety net for the active poor. Given the unemployed the opportunity to create their own business, supported with enabling environment, the survival rates of such enterprises are always very tremendous.

France, Romania, Bangladesh, Philippines and others have had significant positive experience with micro-finance when the programme was put in place. It is a known fact that providing loans to the unemployed will not finance consumption alone, but for pyramid schemes of employment generation, a significant instrument for economic development.

Micro-finance
It has long been identified that the poor have skills, which remain under-utilised and that the poor do not create poverty; institutions and policies that surround them create it. Micro-finace banks has come to address the above areas of identification and ready to inculcate banking habit and provide necessary financial and entrepreneurship skill for the active poor. In line with the on-going economic reform in the country, all licenced micro-finance banks are equipped to meet the challenges the scheme will post.

As an institution that provides financial services to the poor who are traditionally not served by the conventional financial institutions, special methodologies to sustain absence of asset-based collateral under simplicity of operations will be introduced. The methodologies that will be put in use will adhere to basic micro-lending principles, which will adapt to and fit the customers’ preferences; this will give opportunities for the institutions to manage their products and services. With this, the poor and low-income people can use available financial services through the MFBs. It will form a ladder to economic opportunities by investing in the future and protect themselves against economic shocks to their households and enterprises.

Micro-finance banks’ partnership with Oyo State
Existing micro-finance banks (MFBs) in Oyo State are much aware of the untiring efforts of the state government, under the able leadership of Chief Adebayo Alao-Akala to bring smiles to all and sundry in Oyo state especially the active poor. Many rural roads have been opened up, towns and villages were provided with electricity to reduce urban migration and make life more meaningful for both urban and rural dwellers. Records of various government achievements were acknowledged within and outside the state.

While appreciating the effort of Oyo State government in this direction, approach to sustainable growth and development lies in the financial empowerment of the rural economy. When a large segment of the people who are rural dwellers are sufficiently stimulated and sustained, the precipitated positive multipliers will be felt throughout the whole state.

There should be a meeting point where MFBs and state governments can partner to integrate micro-credit to the active poor, majority of whom were rural dwellers. The facilitating body can be tagged as Micro-credit Funding Bureau. The bureau shall be saddled with the responsibilities of managing a pool of fund to be set aside for micro-finacing. Licensed micro-finance banks will be directly involved in managing the fund (in trust) accrued to this bureau through provision of micro-credit to the active poor.

Channel of funding micro-credit bureau
The major stakeholders that are to provide fund to run this bureau are the state government, local governments, donor agencies and the micro-finance banks spread all over Oyo State

Duties of micro-credit bureau
Under the rolled out Micro-finance policy, regulatory and supervisory framework for Nigeria, various stakeholders were identified. Government as a stakeholder is to:

•Ensure a stable macro-economic environment, providing basic infrastructure (electricity, water, roads, telecommunications, etc), political and social stability.

•Fostering adequate land titling and other property rights sufficient to serve the collateral needs of borrowers and financial institutions.

•Instituting and enforcing donor and foreign aid guidelines on micro-finance institutions to streamline their activities in line with the policy; and

•Setting aside an amount of not less than one per cent of the annual budgets of state governments for on-lending activities of micro-finance banks in favour of their residents.
The bureau will therefore translate the above into reality by:

• Disseminating information on the scheme to the beneficiaries.

•Organising various training programme in collaboration with organised private/public institutions on entrepreneurship development for would-be beneficiaries of the micro-credit.

•Issuing certificates to participants which can be used as part of assessing credit facility
• Mobilising fund in support of the scheme by liaising with the state, local governments and donor agencies.

• Registering all operating approved micro-finance banks in each local government areas of the state.

• Working out the fund allocation formula among the listed micro-finance banks.

• Distributing such fund to licensed and performing micro-finance banks within the state for onward disbursement to clients.

• Recycling and regulating the distribution of the fund to encourage larger coverage.

•In local government areas were there is no licensed micro-finance bank, the bureau should sensitise and mobilise people within the local government area to have one.

•Periodically requesting from benefiting micro-finance banks their performance level.
•Submit necessary progress report to the state on the activities of the bureau periodically.

•Reviewing the scheme after specific period.

•Charging handling/service charge like three per cent as running cost for the bureau.

Microfinance Bank as fund distribution channel
Most government poverty alleviation programmes usually suffer setback because of people’s attitude to such programmes. They see loans from governments as a share of the national cake. With such notion, beneficiaries usually fail to pay back as scheduled. In most cases, influential people within the society usually hijack such fund and it will not get to the target groups. This scenario has accounted for either outright failure of various poverty alleviation programmes or their partial success.

While the bureau will serves as a central pool, the registered micro-finance banks within the state will serve as distributing channels into all the nooks and crannies of the state. The onus is on the participating micro-finance banks to apply their expertise and banking principles towards sustainability of the scheme.

The fund so disbursed to various micro-finance banks shall be supported by counterpart funding to enlarge this scheme. The multiplier effect must be real and physical on the lives of the clients. Where it is observed that funds disbursed to licensed micro-finance banks were not targeted on the perceived clients, defiant banks may be blacklisted and suspend from enjoying such grant.

The Microcredit Loan Clients For anybody to assess the fund, various operational procedures of each participating banks must be adhere to. Essentially, the principle of Know Your Customers (KYC) must be emphasis. Evidence of competency must be established before credit will be administered on the perceived client. Certificate issued by the Bureau to respective clients after completing a mandatory entrepreneurship courses will further attest to the competent level of the prospective credit clients.

While it is agreeable that less emphasis should be placed on collateral, cross guarantee and group formation can be encourage to safeguard various lending. The beneficiaries of these schemes will commence operating their account under regular repayment through approved Microfinance banks. The operator will to enjoy special arrangement, which may include interest ceiling of single digit as specified by the governor during one of his television programme. A wide spread repayment arrangement that can will ease possible default will also be put in place.

Together we shall banish poverty in our State.

Oshin promises to reconcile insurers

Ayeleso Oladele, Lagos

AS the erstwhile Deputy Chairman, Nigerian Insurers Association (NIA), Mr. Wole Oshin assumes office as the Association’s chairman for a two-year tenure, he has identified the need to reconcile the differences in different arms of the industry caused by the last recapitalisation exercise.

Mr. Oshin while reading his acceptance speech at the 37th Annual General Meeting of the association where he was installed as the 18th Chairman express optimism in the fact that the association could achieve much desired unity that would enable it reposition the industry for greatness and set it on the path of unprecedented growth.

The 27-month long recapitalization exercise in the insurance sector, he said has no doubt, had its own casualties. “Although the Association maintained constant dialogue with the National Insurance Commission throughout the period of the exercise, same cannot possibly be said of other arms of the industry and other stakeholders. Egos may have been bruised, while paths may also have been crossed. I hope to reconcile all arms of the industry so that together we can forge a common front and tackle all the problems facing the industry as one united, indivisible entity” he said.

There are indications that the insurance sector will receive more attention of the federal government as Mr. Oshin has also promised that one other area that would receive attention during his tenure would be the issue of forging closer relationship with the government especially at the federal level.

“I intend to initiate a series of meetings with the legislators as a way of bringing them closer, to make them appreciate the value of insurance and give issues that concern insurance adequate attention in their legislative duties”.

“I would also like to forge a strong alliance with the National Insurance Commission so that together, we can take insurance to the next level by placing insurance in the front burner of national discourse. “It is not in the interest of our industry to be perpetually at loggerheads with our regulator. As much as it is within my power all outstanding legal matters will be resolved.

As part of his agenda for the association, base on the recapitalisation exercise that has changed the face of insurance business in the country with more capital to do business with sophisticated technology innovation, Mr. Oshin said that within his two years tenure, he would empower and restructure the Association to be able to cope with the challenges of the post- consolidated insurance market.

He assured his colleagues that he would strengthen the Information Technology platform to make online, real-time access to information on the industry easy and also strengthen the human capacity pool by attracting young and highly qualified talents.

According to him, he would strengthen the Research and Statistics department to be able to generate up-to-date statistical data required for informed business and investment decisions.

“This is in a bid to make NIA the first point of call for local and foreign investors and financial analysts. No longer will we use 2005 statistical data to make decisions in 2007”.