Emerging microfinance industry in Nigeria

The success of microcredit programme depends on such factors as design, effective structure, clients friendly saving and credit methodology, policy, innovativeness, cost effectiveness, fast growth, professional human resources. But experience suggests that without institutional capacity, none of the target programmes can be achieved and be cost effective.

The development objective of the UNDP micro-start project is to contribute to the achievement of the Millennium Development Goals, by increasing sustainable access to financial services of the poor from Nigerian microfinance institutions through building local capacities to design, manage and operate microfinance activities in an effective and sustainable manner.

The immediate objectives of the project are: To reach periodically targeted active clients served by sustainable MFIs; strengthen the local capacity in terms of institutional, organisational and technical aspects in managing and implementing microfinance activities of local technical service provider (LTSP) and participating microfinance institutes (MFIs); participate in the coordination and collaboration between the different actors in the microfinance sector as deemed appropriate and necessary.

ASA-MSP teams are actively involved to move forward the institutional capacity building instead of cost effective, sustainable, transparent system installations. These activities and technical assistance are to develop good governance, help MFIs to maintain high portfolio quality, effective fund management, increase high fund revolving rate, develop commitment to the employee, develop the capacity on ratio analysis, ensure transparent and acceptable facts and figures. Inputs addressed the scientific and systematic expansion plan of action, fastest growth; ensured accountability, chain of command, in-depth monitoring, and quick identification of the problematic areas and also created favourable environment for the microcredit sector. ASA technical services contributed to the overall micro credit management and maintained high portfolio quality in microfinance industry in Nigeria.

Country context, poverty scenario and microcredit market
The population of Nigeria is 140 million and GDP/capita 319 (2001). Nigeria has the third highest number of the poor in the world. Two thirds of the population belongs below the poverty line. UNDP human development report 2003 (HDI) ranks Nigeria 152 (low human development country) among 175 countries. As per UNDP statistics population below the poverty line is 34.9 per cent and the population living below $1 a day is 70.2 per cent. The growth trend is very poor. From 1975 to 2001 i.e. in 26 years it was raised only by 0.139. Annual growth is also lower i.e. 2.9 per cent only. The richest 20 per cent consumed 55.7 per cent of income and the 50 per cent lowest poor consumed only 14.2 per cent of total income. This picture clearly shows the discrimination of wealth distribution and consumption. This shows that more than 50 million (8 million families) are living below the poverty line. All of the NGOs' microfinance cover not more than 200,000 families. So there is no doubt to say that Nigeria is one of the biggest and potential markets for microcredit.

Microfinance is contributing a lot to eradication of poverty in Nigeria. After successful completion of phase I (project No. NIR/03/015) micro-start Nigeria, phase II (project No. NIR/03/001/99) started functioning from 1st of July 2003. This phase was especially designed to develop and build the institutional capacity of the MFIs. ASA has successfully installed the simple, standard, cost effective, decentralised effective microfinance services and system.

The eight MFIs operating with 75 branches, achieved (as of September-03), 53757 active borrowers, 97 per cent of them female. The total principal loan outstanding is N 319.3 million, the number of active savers 69265, while a total saving is N 129.6 million. The portfolio in arrears is >1 day 3.42 per cent and portfolio at risk >30 days 7.38 per cent. In general the eight MFIs' operational sufficiency is 139 per cent and financial self-sufficiency 101 per cent. The MFIs lacked this capacity at the beginning of the project. None of the MFIs had a cost-effective methodology that would have allowed them to achieve operational self-sufficiency and financial self-sufficiency thus sustainability. On average the MFIs had cost per unit of money lent of .30 when they entered the programme in 2000 but now it has been reduced to an average of 17.

MFIs are now commercially oriented, they are searching commercial source of fund. LAPO and SEAP already borrowed fund from Growing Business Foundation (GBF) and other MFIs are in the process of borrowing loan capital from commercial sources.

MFIs have shortened the time lag for management to receive key reports from branches. At the beginning of the project it was between 3-4 weeks but now it is between 2-4 days.

ASA established standard branch structure i.e. 3-4 Credit Officers led by one Branch Manager. One credit office is now covering 350-400 clients. Through this effective structure viz. central, mid level and grassroots level, ASA ensured discipline, internal control, on-time work and efficiency.

The impact on poverty reduction is being felt to client's satisfaction. By this time huge amounts of savings have been mobilised by clients; day by day their standard of living is rising, now they are more empowered at family and society level. Now they have capacity to build up permanent assets. After a careful review of phase I progress and achievement, the stakeholders decided that the project should be extended to build the institutional capacity.

Md Enamul Haque is working as a team leader in UNDP Micro-Start Project in Nigeria.