Development Thrills Of Microfinance

Tuesday, April 1, 2008

Microfinance is often considered as one of the most effective and flexible strategies in the fight against global poverty. It is sustainable and can be implemented on a massive scale necessary to respond to the urgent needs of those living on less than N120 ($1) a day, i.e, the world’s poorest.

If we close our eyes to the cities for a while and go back to the villages and rural areas, the effect of poverty and the developmental roles of microfinance can be felt in its fullest force.

There are still hundreds of villages in Nigeria where people cannot afford to give their children eggs in many years, where rice is cooked only on Christmas or Ileya days, where children eating food with beef or chicken are still considered greedy or “longer throat,” where children manage to get clothes only once a year and where girl child cannot be sent to school but nurtured from birth to be given out in marriage on already agreed bride prices. For such villages, if a woman is given a loan of N5000 (less than $50) she may buy chickens so she can sell eggs. As the chickens multiply, she will have more eggs to sell. Soon she can sell the chicks. Each expansion pulls her further from the devastation of poverty.Microfinance therefore typically consists of making small loans, usually less than N25,000 , to individuals, mainly women, to establish or expand small, self-sustaining businesses. Microfinance also includes several support systems that contribute greatly to its success. This is why microfinance institutions offer business advice and counseling, while clients provide peer support for each other through solidarity groups and circles. Another aspect of microfinance (particularly in the village banking where every one knows every body) that is equally important is the recycling of funds. As loans are repaid, usually in six months to a year, they are re-loaned to group members. This continual reinvestment multiplies the impact of each naira credit by the microfinance institution.

Microfinance has a positive impact far beyond the individual client. A vast majority of global micro loans go to women. In 2005, a magazine article reported that “of Grameen Bank’s 6.39 million borrowers, 96 percent were women.” The vast majority of the loans go to women because studies have shown that women are more likely to reinvest their earnings in the business and in their families. “As families cross the poverty line and micro-businesses expand, their communities benefit. Jobs are created, knowledge is shared, civic participation increases, and women are recognized as valuable members of their families and communities all over the world.”

In Nigeria, however, because of the infancy of microfinance banking, women are yet to be drawn out. But I have every confidence that once they catch the fever, they would not be any different from the Asian women of Muhammad Yunis. Communication has been and still is an endemic problem in microfinance industry. This is why communication companies like The Guardian newspaper who would dedicate pages to educate the people are in themselves contributing to developmental process already. Other communication bodies and institutions including home video makers, play lets, story tellers, village headmasters etc, particularly those who can reach the local and village people in their own primary setting and in the language they would understand are expected to key into the movement. In the next issue, we shall be looking at the challenges of microfinance particularly in Nigeria, but for this week, emphasis is on the developmental thrills Nigeria as a whole would experience from effectively practicing micro financing. Very importantly too, our enlightened city dwellers should not allow this phenomenon to elude their villages. They should not only speak it in their city town meetings, they should carry the crusade home by ensuring their villages and town have at least a microfinance bank established as advocated by the Governor of Central Bank of Nigeria, Professor Chukwuma Soludo early this year.

Effective and efficient micro banking in any nation or society can generate economic and social thrills that may never be matched by any political or specialized gigantic projects.

These thrills could be more pronounced in Nigeria as an African country where international analysts have put the ratio of poor people at about 70 per cent.

Imagine, for instance, a Nigeria where all the productive (ages 18-65) are gainfully employed. This would mean more people working and catering for more unproductive people i.e. the minors and the aged. It would also ensure that hunger would be off the faces of many Nigerians (achievement of goal 1 of Millennium Development Agenda-MDG); it would ensure that millions of school-age children who were unable to go to school would attend school since their parents are effectively empowered (MDG goal 2). If all productive active people were gainfully employed in Nigeria, this would imply that women are also employed and hopefully, with effective enlightenment, equal opportunities thereby resulting in achievement of goal 3 of the MDG that is; “Promotion of gender equality and empowerment of women”

The thrills of microfinance manifest in the poor and the low income earners having access to loans (without bordering about the big banks who would “require their heads for security)” to enjoy the small goodies of life such as fridges, generators, colored TVs, school fees etc for their children, and good meals for their families. These little life luxuries make the hitherto poor people kings and queens in their domains and able to stand their own without going into robberies and other social ills. They also do not want to lose these little tit-bits of life; hence they conduct themselves well in the public and private places to avoid arrests by the law enforcement agencies.

Imagine a Nigeria where 50% of the Law enforcement personnel have to own their own farms, bakeries, tailoring, hairdressing, transportation business, cleaning services etc because they have no one on the road to “police” since the fully empowered Nigerians are law abiding and their kids are in schools rather than hawking or wiping glasses on the streets.

Think of a Nigeria where the street hawker in the major cities can go into a bank and have a loan approved for his/her business improvement. This hawker, rather than buy a “mudu” of groundnut, now buys two bags, gets a stall by the street corner and happily does his/her business without the risk of being run over by a vehicle or the girl hawker lured into negatively consequential sexual acts by some un employed macho men.

Nigeria has millions and millions of college and university graduates today who get pushed into social ills because they are unable to get jobs years after graduation. Gone are those days when jobs are gotten on merit after graduation from Nigerian universities. Class distinction is the only guarantee for jobs in our present Nigeria. My imagination takes me to our beloved country where all the college and university graduates have good businesses and good employment to wake up to every day. A Nigeria where banks and oil companies are marketing universities and enlisting graduates for employment before their final examinations because graduates shun employment and opt for being employers through microfinance empowerment.

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Source: The Guardian (link opens in a new window)