Banking the Unbanked: Microfinance Access to the Poor Using Technology

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THE NIGERIA MICROFINANCE TECHNOLOGY
CONFERENCE
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Microfinance, Technology, the Attainment of the
MDGs and the Race to 2020
By Barrister Ayo Adebusoye Secretary General N
igeria Network of NGOs (NNNGO)
25 Ogunlana Drive, Surulere, Lagos Email ayo_at_nn
ngo.org Tel [phone]

• By
• Barrister Ayo Adebusoye
• Secretary General
• Nigeria Network of NGOs (NNNGO)
• 25 Ogunlana Drive,
• Surulere, Lagos
• Email ayo_at_nnngo.org
• Tel [phone]

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• There has been mixed reports on the progress of
  Nigeria towards achieving the MDGS, meeting the
  MDGS is critically important for us as a Nation
  and people. With a population of over 140 million
  one quantifiable result of achieving the MDGS
  translates into over 100 million people lifted
  out of poverty by the year 2015.

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• The past Government of Chief Olusegun Obasanjo
  signed the millennium declaration and worked over
  the past 8 years to put in place structures and
  institutions capable of ensuring that the nation
  meets the millennium development goals by the
  year 2015, however 8 years after the millennium
  declaration 53.6 Nigerians still go to bed
  hungry - ActionAid

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• Statistically what does the picture look like?
• Goal 1 Eradicate Extreme Poverty and Hunger
  53.6 of Nigerians are still leaving in abject
  poverty.
  
• Goal 2 Achieve Universal Primary Education 8
  million school aged children are not in school.
  
• Goal 3 Promote Gender Equality and Empower
  Women Over 43 Nigerians cannot read or write
  (60 are women).(Only 34 and 10 of girls are
  enrolled in primary and secondary school in the
  north)
• Goal 4 Reduce Child Mortality One out of every
  five Nigerian Children die before the age of five.

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• Goal 5 Improve Maternal Health 800 out of
  100,000 Nigerian women die during child birth.
  
• Goal 6 Combat HIV/AIDS, Malaria and other
  Diseases 75 million people in Nigeria have at
  least one episode of malaria annually. There were
  300,000 deaths related to HIV in 2003/4
• Goal 7 Ensure Environmental Sustainability 72
  million Nigerians have no access to safe drinking
  water.It is estimated that Nigeria is currently
  losing about 30sq km to desert encroachment
  annually.
• Goal 8 Develop Global Partnership for
  Development Nigeria paid back 1.7bn to UK
  Government in the debt cancellation deal. This is
  twice the total amount aid from UK to the whole
  of Africa.
• Source GCAP/MDGS Nigeria Working Group.

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• Also going by the figures of UNDPs Human
  Development Index, Nigerias score deteriorated
  from the 142nd position out of 174 countries in
  1998, to the 158th position out of 177 countries
  in 2007. Indeed, Nigeria occupied 80th position
  out of the 108 developing countries covered in
  the surveying 2007.

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• Although Nigeria is signatory to the Millennium
  Development Goals (MDGs), the goal of reducing
  poverty by half might be hampered unless a
  combination of strategies are adopted and
  vigorously pursued in an optimal manner for the
  achievement of the goal. This situation poses a
  big challenge to Nigeria in meeting the MDGs and
  the desire to join the league of the 20 largest
  economies of the world by 2020.

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Conditions necessary for 2020 to be a reality

• GDP should grow from about US210 billion in 2008
  to US900 billion by 2020
  
• Average per annum GDP growth rate from 2009
  should be 13 per cent plus
  

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• Distinguished ladies and gentlemen, governments
  have a key role to play in creating an enabling
  environment for the eradication of poverty
  through the SMEs initiative by strengthening
  private investments, creative and innovative
  entrepreneurship and economic growth.
• This requires implementing sound and consistent
  macroeconomic policies and programmes.

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• The micro-finance institutions must be innovative
  and operate with a mind-set different from the
  conventional banks.
  
• They must strive to revolutionise the
  micro-finance landscape in Nigeria by aligning
  their services and products to the needs,
  aspirations and the special circumstances of the
  people and enterprises they serve.
• Their services must not only be urban-based but
  extended to rural areas, where majority at the
  bottom of the pyramid live. In the way, the
  Nation will be able to address the problems of
  poverty, unemployment and wealth creation.

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Stimulus Package Needed in Nigeria

• Example from India
• The Government of India passed the National
  Rural Employment Guarantee Act 2005 in September
  2005. The Act provides enhancement of livelihood
  security, giving at least 100 days of guaranteed
  wage employment in every financial year to every
  household, whose adult members volunteer to do
  unskilled manual work.

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Self-employment or Wage employment

• Both need access to credit and many financial
  services which are best enabled through a bank
  account.
  
• Payment of wages by workers employed on NREGA
  works can be done with speed, reliability, low
  transaction costs and leakages, if each worker
  has a bank account in which wages are transferred
  periodically. Payments are to be made issuing
  biometric smart cards to each worker.

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• A no-frills account in which NREGA wages and
  payments like maternity and old age support are
  credited periodically becomes the gateway for
  financial inclusion
• example of poor landless woman Ashadevi drawing
  cash from the mobile, more accessible staff of a
  Business Correspondent MFI BASIX appointed by
  Axis Bank.

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• With the technology package using mobile phones
  and smart cards she can get money within half
  an hour of her husband sending it from Delhi.
  
• She gradually accumulates a small savings in her
  account, joins a Self Help Group and qualifies
  for a micro credit loan to start a small business
  at home.

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• 47 million institutional accounts of NREGA have
  been opened in banks. 26 million accounts of
  NREGA workers are with banks.
  
• During the year 2007-08, Rs 10,738.47 crore
  (approx 2,147,694,000) was paid as wages under
  NREGA to more than 33 million households through
  the banking and postal system.
• Other Financial services - Life and Health
  Insurance are also used under NREGA
  

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• Any deliberate effort to eradicate poverty in
  the country must be addressed through the
  development of the SMEs because it has enormous
  potential to jump-start the economy while forging
  ahead in the direction of rapid industrial
  growth.

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• Prof Yunnus, the Nobel laureate founder of
  Grameen Bank points out that, Delivering
  microcredit to the poor and the poorest still is
  basically an NGO activity. That's probably the
  reason why we see all the dynamism around it.
  We'll not be too far off the mark if we guess
  that globally at least three-fourth of the
  borrowers receive microcredit from NGOs. For
  quick expansion of outreach of microcredit, NGOs
  proved to be the best vehicle.

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• Most critical problem faced by NGOs in Nigeria
  today is finding money to lend out to the poor.
  Existing microcredit programmes are coming to
  virtual halt in their expansion programme, and
  finding it difficult to continue their present
  programme because of lack of funds.

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• One solution that Bangladesh found to this
  problem is to create a national wholesale fund ?
  PKSF. Government and the World Bank put their
  money into PKSF, which in turn makes this money
  available to the NGOs. The reason NGOs in
  Bangladesh demonstrated a hefty growth rate is
  because of this existence of the wholesale fund.

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What Has Been the Impact of Microfinance / credit
on the Poor ?

• Independent studies show that microcredit has a
  host of positive impacts on families that receive
  it. A World Bank study in 1998 reported that 5
  of Grameen Bank, BRAC, and RD 12 of BRDB
  borrowers move out of poverty each year.

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• According to Grameen Bank's own internal survey,
  42 of its borrower families have crossed the
  poverty line by 2001, judging this on the basis
  of ten indicators (size of loan, amount of
  savings, housing condition, furniture in the
  house, provision of warm clothing, education of
  the children, etc.) set by Grameen Bank to track
  impact of its program on the poor families that
  it serves.

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• To prepare the next generation to stay out of
  poverty, Grameen Bank encourages the children of
  Grameen families to enroll in school, stay in
  school and do well in school. Grameen Bank
  offers scholarships to top students of each
  branch, and gives student loans to all students
  who are going to universities, medical schools,
  engineering schools or other professional
  schools.

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How to Expand the Outreach

• Although the growth of microcredit to the poor is
  encouraging, there is still a number of
  constraints to the expansion of microcredit.
  Bangladesh is still the only country where
  microcredit outreach is over 75 of the poor
  families. In most of the countries it has not
  even reached 10 of the poor families.

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• To reach MDG 1, Nigeria must reach out to 50 of
  the poor families within that country.
  Therefore, there is a lot of catching up to do.
  Why this is not happening yet ?

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• Donors explain that there is not enough capacity
  on the ground to build a higher outreach.
  
• Microcredit organizations often complain that
  they are stuck with unutilized capacity, but no
  money, grant money or soft loan or market money,
  is available to them.

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• If we can clarify what we exactly mean by the
  word "microcredit" when we use it in our dialogue
  with donor officials we may help them to take
  appropriate decisions for each category of
  "microcredit".

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• Let me suggest a broad classification of
  microcredit
  
• A) Traditional informal microcredit (such as,
  moneylender's credit, pawn shops, loans from
  friends and relatives, consumer credit in
  informal market, etc.)
• B) Microcredit based on traditional informal
  groups (such as, tontin, su su, ROSCA, etc.)
  
• C) Activity-based microcredit through
  conventional or specialised banks (such as,
  agricultural credit, livestock credit, fisheries
  credit, handloom credit, etc.)

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• D) Rural credit through specialised banks.
• E) Cooperative microcredit (cooperative credit,
  credit union, savings and loan associations,
  savings banks, etc.)
  
• F) Consumer microcredit.
• G) Bank-NGO partnership based microcredit.
• H) Grameen type microcredit or Grameencredit.
• I) Other types of NGO microcredit.
• J) Other types of non-NGO non-collateralized
  microcredit

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• General features of Grameen type credit are
• (a) It's mission is to help the poor families to
  help themselves to overcome poverty. It is
  targeted to the poor, particularly poor women.
  Reaching the poor is its non-negotiable mission.
  Reaching sustainability is a directional goal.
  It must reach sustainability as soon as possible,
  so that it can expand its outreach without fund
  constraints.

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• (b) It is offered for creating self-employment
  for income-generating activities and housing for
  the poor, as opposed to consumption.
  

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• (c) Most distinctive feature of Grameencredit is
  that it is not based on any collateral, or
  legally enforceable contracts. It is based on
  "trust", not on legal procedures and system.
• (d) All loans are to be paid back in installments
  (weekly, or bi-weekly).

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• (e) In order to obtain loans a borrower must join
  a group of borrowers.
  
• (f) Loans can be received in a continuous
  sequence. New loan becomes available to a
  borrower if her previous loan is repaid.
  
• (g) Simultaneously more than one loan can be
  received by a borrower.
  
• (h) It comes with both obligatory and voluntary
  savings programmes for the borrowers.
  

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• (i) Generally these loans are given through
  non-profit organizations or through institutions
  owned primarily by the borrowers. If it is done
  through for-profit institutions not owned by the
  borrowers, efforts are made to keep the interest
  rate at a level which is close to a level
  commensurate with sustainability of the programme
  rather than bringing attractive return for the
  investors.

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• (j) It was initiated as a challenge to the
  conventional banking which rejected the poor by
  classifying them to be "not creditworthy". As a
  result it rejected the basic methodology of the
  conventional banking and created its own
  methodology.

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• (k) High priority on building social capital. It
  is promoted through formation of groups and
  centres, developing leadership quality through
  annual election of group and centre leaders,
  electing board members when the institution is
  owned by the borrowers.
• It monitors children's education, provides
  scholarships and student loans for higher
  education.
  
• For formation of human capital it makes
  efforts to bring technology, like mobile phones,
  solar power, and promote mechanical power to
  replace manual power.

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• (l) It provides service at the door-step of the
  poor based on the principle that the people
  should not go to the bank, bank should go to the
  people.
• (m) It promotes credit as a human right.

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• Conclusion
• This present time is very critical in terms of
  making adequate institutional, financial, and
  policy preparations for reaching the MDG of
  reducing the number of poor people in Nigeria by
  half by 2015.
• We have only six more years to go on the time
  span allocated for reaching the goal. The Federal
  and State Governments must act now.
  
• Microfinance /Microcredit has an extremely vital
  role in Nigeria attaining the MDGs and the dream
  of Vision 2020
  

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• Thank You