Introduction
Nigeria is one of the fastest growing economies in the world. It is growing at a rate more than 8% for the last decade. But Nigeria also has one of the highest percentages of poor people in the world and the percentage of poor population is continuously increasing. The growth curve of Nigeria is unable to improve the lives of the poor and destitute. As it happens in many developing countries, the mainstream financial institutes in Nigeria completely exclude the poor population from having any access to the financial system. This makes their daily living a perpetual struggle with poverty as they are unable to fulfill their daily needs due to having little or no access to capital. Poor people do not need huge capital for fulfilling their needs. They need micro capital and a micro-financial system to support them. The concept of microfinance came into picture to support the financial needs of the have-nots. Microfinance institutions help fulfill the small loan, credit, savings and leasing requirements of those ignored by the established financial bodies. These microfinance institutions are often run by NGOs, cooperative banks, non-banking financial institutes and private financial institutions. One of the success stories of microfinance is Bangladesh. The implementation of microfinance schemes in Bangladesh by World Bank in the last decade not only improved the quality of life for the downtrodden but also mitigated the overall risk of the poor class to get affected by bigger financial turmoil in Bangladesh (World Bank, 2013). It improved the overall earning of the poor class and the overall expenditure by as much as 20%. In Nigeria, microfinance is not a new concept employed by the government with the help and support from the United Nations and World Bank almost a decade ago. Since then it has shown some promise despite Nigeria not having a well-structured social protection system to provide good implementation of any policy across the nation and among all classes of the society. This essay examines the success of microfinance in Nigeria and how microfinance along with social protection can help reduce poverty in Nigeria.
Definitions
Social protection is defined as a set of interventions designed to curb poverty, risk and vulnerability. Social protection consists of programs and policies structured to reduce poverty and diminish people’s exposure to risks. These programs and policies are undertaken by the state, the public or private sector, informal individual or community initiatives. Social protection involves all public and private initiatives aimed at improving the income of the poor, protecting the vulnerable section against livelihood risks and uplifting the social status of the downtrodden.
Microfinance can be defined as a tool to provide the poor with the provision of credit savings, loans, fund transfers, deposits and other financial and ancillary non-financial services in small amounts to help them increase their earnings and augment their standard of living. Three features distinguishing microfinance from others include "(i) smallness of loans and savings, (ii) absence or reduced emphasis on collateral, and (iii) simplicity of operations" (CBN, 2011). Microfinance is also defined as the provision for small loans used by people who have low income level and very few assets to use as collateral. Microfinance is further defined as a tool to provide financial help to the economically active poor, who are micro entrepreneurs of small industry such as farming, trading, craftsmanship, food catering and artisanship, and wage earning people who earn their livelihood in rural and urban areas (Idolor & Imhanlahimi, 2011). Microfinance provides financial services to those people who are ignored by the conventional financial institutions. Microfinance is often referred to as the financial movement for the poor. Many economists believe that microfinance help poor people out of poverty while others believe that it is only a way to promote employment and growth (Jegede, 2011).
Implementation of Social Protection
At present Nigeria has two types of social protection programs in place in both formal and informal sectors. Programs developed for formal sectors employees are based on contributions and do not reach the poorer section. Founded in 1999, the National Health Insurance System officially came up with three health insurance programs in 2005 for formal sector employees, urban self-employed people and the rural community (Holmes et al, 2012). Out of these three programs, only the formal sector program has shown some promise but due to the limited coverage at the state level, only 3.73% of the population avail this program.
In Nigeria, social assistance programs are mainly constituted of cash transfers, education, health waivers and nutrition programs. COPE is a conditional cash transfer program initiated in Nigeria in 2007. This program aims to reduce poverty and vulnerability of the poor people and improve their condition. It is designed for households with children of school going age run by poor females, aged, disabled, HIV and AIDS patients. The beneficiary of this program receives a monthly Basic Income Guarantee (BIG) for a year and then Poverty Reduction Accelerator Investment (PRAI) of up to $560. But due to the small coverage of the program, COPE is available only to 0.0001% of the poor population.
There are a number of school subsidies and fee waiver programs in Nigeria run by donors, NGOs and states. For example, a program called ADSUBEB gives away free uniforms to female students at the beginning of an academic year in primary schools. There is also AGSP which is a scholarship program for girls covering the fees for their schooling, books, bags, uniforms, socks and shoes (Holmes et al, 2012). Though malnutrition is an all-pervasive problem in Nigeria, there is no nutrition program led by the federal government. NGOs have few emergency nutrition programs such as ‘Save the Children’ which treats patients with severe malnutrition on an outpatient basis mainly. Although as part of the social protection policy in Nigeria employment and skills are identified as priority themes, there is no all-encompassing strategy in place addressing the issue. The National Jon Creation Scheme as announced by the President in 2010 was supposed to create thousands of new jobs in both urban and rural areas in 36 states across Nigeria, but there is no clear transparency on the status of the scheme currently.
The successful implementation of social protection programs and policies require involvement of the ministries, agencies and departments of different sectors in addition to the support from NGOs and donors. Also a strong coordination must exist between the state and federal governments, agencies and departments but due to the lack of clear infrastructure and lack of coordination between the various government sectors in Nigeria, all the social protection policies are short of fulfilling the objectives and largely ineffective.
Implementation of Microfinance
Microfinance policy framework was launched by Central Bank of Nigeria in 2005. As banking consolidation happened prior to 2005, many people were affected by that. Microfinance policy issued new licenses to Microfinance Banks (MFBs). Specifically 866 microfinance banks were issued new licenses during that time and were trained in microfinance. These MFBs made small capitals available to rural entrepreneurs at a low rate and offered savings facility and insurance for a small premium per month. Central Bank also ran an awareness program among the investors, banks, government regulatory authorities and technical assistance providers about microfinance. However, despite the awareness and support from Nigeria government and World Bank the microfinance model could not meet the intended results. By 2007 it was evident that the microfinance sector was only concentrated to areas of the country where the MFBs found higher business opportunities (Central Bank, 2011). Many parts of the country had no presence of MFBs at all. Even after 5 years of implementing microfinance the financial exclusion rate was one of the highest in Africa. Factors that contributed to the failure of microfinance policy in Nigeria include inefficiencies of the banking sector in microfinance, lack of knowledge about microfinance banking system, inadequate funds availability, inability to attract more capital from the commercial sector and non-creation of a microfinance fund. Central Bank realized these problems early in the implementation and tried to address some of the issues by more capacity building, awareness campaign and training during December 2007. However, immediately after those were implemented the financial crisis of 2007/2008 affected the whole financial market of Nigeria. MFBs were no exception. Credit lines and capital funding dried up for the MFBs. Also many clients of the MFBs were unable to repay the loans. In 2009, Central Bank of Nigeria made another banking sector reform to reduce the effects of financial crisis which created panic among the small investors in MFBs (Central Bank, 2011). Many withdrew their capital from the MFBs. During that period many MFBs were closed owing to the lack of capital. Lack of infrastructure and policy support from the government and other adverse macroeconomic parameters contributed to the weak implementation and poor outcome of microfinance in Nigeria.
Conclusion
Nigeria is one of the fastest growing economies in the world and also one of the fastest growing nations in terms of population. Despite being one of the highest producers of oil in the world and the highest producer of agricultural products in Africa 64% of the people live below the poverty line in the country. As we have seen above that Nigeria has social protection plans in the health care sector and educational sector for poor people. However, both the health care and educational social protection plans only reach a very small percentage of the poor population of the country. The scale of operation of these social protection plans is still very small to affect significant number of people. The implementation scale can only be increased with proper planning and policy from the government. Similarly for microfinance the MFBs are only interested in making profit from the microfinance system as well. Government first needs to ensure that the financial bodies involved in microfinance in rural areas should understand that the basic idea behind microfinance is not about making money but making capital available to all at a very affordable rate. Secondly government and the Central Bank need to ensure that commercial sector shows interest in microfinance. If commercial sector shows interest in microfinance, it will ease the pressure of availability of capital from government, making the microfinance market more financially efficient. Finally, government should implement a policy framework for MFBs and the investors to protect their interest and reduce the risk for all the parties involved. The process of reduction in poverty is a multi-step process. Implementing the social protection plans across the nation will ensure that the basic needs of the people are met. Once that is in place schemes like microfinance can help those poor people become financially more stable and self-sufficient, reducing the poverty level in Nigeria.
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