Microfinance banks: Helping or killing SMEs? | Independent Newspapers Limited
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Microfinance banks: Helping or killing SMEs?

Posted: Apr 29, 2015 at 2:00 am   /   by   /   comments (0)



By Nkasiobi Oluikpe



To say that the Small, Medium Enterprises is the engine room for economic development is to state the least, especially, in the third world countries, where the degree of unemployment is high and where there are so many qualified applicants chasing few and sometimes not available white collar jobs.

The economic situation in the country is such that has forced lots of people to look inwards, and think outside the box on how best to sustain themselves. But this only works out, if they have their own personal capital with which to set up something of their own, no matter how small.

Hence, no matter the kind of excellent idea that some of these people have, on how best to sustain themselves, without the required capital, their ideas are as good as dead, and poverty continues to stare them in the face.

That is where the microfinance banks are supposed to come in, to bridge the gap and provide financial services to the poor who are traditionally not served by the conventional financial institutions.

But to what extent are these microfinance banks living up to their biddings, since the funds are supposed to be made available for people to start up new businesses or to revamp an already existing one? Today, there are so many microfinance and microcredit banks spread across the country. It would have been expected that based on that the standard of living of the average Nigerian would have improved immensely.

But the reverse is the case, as findings show that there is no significant difference between people who use the microfinance banks and those who do not. In other words, there is no significant effect of microfinance on poverty alleviation or sustainable economic activities.

For instance, an analyst explained that at the initial stage, depending on whether they were the ones that came to you or you went to them for loans, the whole process appear appealing. He noted that they will tell you they are there to reach out to the poor and to eradicate poverty in the country, but said as time goes by, the story would change, noting that after collecting the loan with its attendant interest, people would start to complain that they are no better off than when they never collected the loan.

He explained that an artisan vulcaniser who just finished his apprenticeship course and has never worked all his life and looking for a way of buying a few machines to start up might not need the kind of loan that might necessarily attract a collateral. He said the most that will be required of him is the presentation of two guarantors.

He explained that life would be tough for such a person if after collecting about N100, 000, with the usual condition of paying back from the very first month after collecting the loan and as a starter, business didn’t boom as expected.

Saheed Afolabi, a dealer in foot wears, collected a loan from one of the micro finance banks on the Island, payment of which was spread across 13 months. He was on the fifth month of the payment, when according to him, the election process crept in and affected his sales. Afolabi said that throughout the period of the elections, he was not able to make any significant sales. He said that did not stop the microfinance people from coming to his shop after the expiration of the date he was supposed to pay the agreed monthly sum.

He lamented that despite having not defaulted in the previous payments, the credit officer almost brought the roof of the shop down, threatening fire and brimstone, saying that even the intervention of people around did not appease the lady.

He said the lady had threatened to come back the following day with the police.

He said his neighbours at the shop had to put money together to help him go to the microfinance bank to remit the agreed monthly sum the following day to avert any embarrassment from the lady. The fear of the visit of the credit officer to his shop, became the beginning of wisdom for him. As sales did not improve, he was forced to start selling off his goods at give away prices just to meet up his monthly obligation with the microfinance bank. By the end of the day, after having paid an interest of 15 per cent, he was back to square zero.

“Madam, that money I collected from those people, did not add any value to my life. Rather, it almost reduced my life span. I stopped sleeping with my two eyes closed. My blood pressure rose. Every morning when I head to my shop, the thought of the credit officer occupies my mind. In fact, every lady I see on the road, looked like her. Now, even though, presently, my shop is almost empty, I have peace of mind.

“I will never advice even my enemy to go and collect that money. It is very useless. That money cannot help anybody. The money you will collect and they will not give you space to pay back. And the way they go about collecting the money is another thing. It is better to stay off them,” he said.

The story of Nkiruka Amangwu is no different.  In her own case, her husband, Joel had a challenge of an initial capital with which to register as a supplier to a particular firm and at the same time restocking his shop along Omole area of Lagos. He needed about N500, 000.

He approached a microfinance not too far from where he does his business. No collateral was requested, but his wife and another businessman had to sign on his behalf as guarantors.

Since the wife was a civil servant, they insisted that the second guarantor must be a business person with a good financial standing, so that in the event of a default in payment, they can always see things to cart away worth the borrowed amount.

They didn’t stop at that, they followed the Amangwus to their place of abode to assess their apartment. After all said and done, the loan was granted on 15 per cent interest rate and payment spread across nine months.

This family said they were diligently and honestly abided by the tenets of the agreement of the loan contract until on the eight month when the economic situation in the country stretched them beyond their limits. The husband was forced to travel home to attend to some family issues, leaving the wife and her two kids behind.

According to her, the day after they were supposed to remit the agreed amount to the microfinance, she got a call from them, asking why they were not seen at the bank the previous day. She had to explain to them that there were some family issues that forced her husband to travel to the East. That since she and her husband have not defaulted all these while, they should show understanding until the husband comes back from his trip, which was supposed to be some four days after.

The credit officer blatantly told her that her accounting officer does not understand that kind of language. That agreement is agreement. That if she doesn’t understand what she and her husband signed, she should retrieve and take a second look at the content of the agreement.

Narrating further, Mrs. Amangwu said: “I was surprised the next day when I was woken up by a knock at the door with the accounting officer and two other men right in front of me. They said, Madam, we have come to collect our money.

“I asked them which money, I thought I explained everything to you yesterday, which other money are you talking about? My question infuriated them. They started shouting at the top of their voices. People who didn’t know how my husband and I have been managing our lives, got to find out we collected a loan from the microfinance. It was a big disgrace. I tried to put a call across to my husband, the network was bad, so I could not reach him. I started crying, my two kids also started crying because the shouting was much.

“They told me, they were not interested in my tears as that will not solve the problem. That they came here to collect the money we borrowed. I started making calls to different people. By the end of the day, I had to talk my younger brother into remitting part of his school fees into my account. In less than two hours, we were all at the ATM to retrieve the money and I handed it over to them. It was like a nightmare.

“I remember asking my husband at the initial stage if he thinks we will be able to meet up with the payment of this money and he said yes. Since, we collected this money, I don’t want to mention that the business it was invested into has not yielded any returns, but we have been living in hell. Towards the end of every month, I won’t be able to sleep. Presently, we have just a month to go and I can’t wait to wake up from this nightmare.”

Many are of the view that if the loan cannot be paid back in a smooth conducive atmosphere, then the purpose is defeated. The situation they say is even worse than when the commercial banks were the ones saddled with the responsibility, even though then, it was difficult to get loans without adequate collateral.

Responding to why the modalities for payment of loans are so difficult for collectors, Abiodun Babalola, the principal partner of Duality Microcredit Services, Alakuko, Ogun State, stated that, the reason behind not giving them a breathing space is to discourage the tendency for them to use the money for something else.

“You will always make them understand that they have an obligation to the bank. If you don’t go after them on the stipulated date, they might not pay again or even abscond.”

“But we are different from the microfinance banks in the sense that we understand the plight of the clients. As I am talking to you, we have a client who is owing us for 90 days due to a fire disaster that gutted her shop. We even went ahead to give her another extra 60 days.

“We visit our clients to know what they are feeling. We also know that out of a hundred about 70 per cent are willing to pay back monies collected. Our duty is to spot out those ones who have the willingness to pay back and know how we can be of assistance to them. Though, we are not microfinance, we are similar in the sense that we offer almost the same kind of services.

“If after collecting loan from us, you fall into a challenge, you can always come back to us and we discuss in a language that both parties understand. In the case of most microfinance banks, when there is a default, you will be surprised that the head of the bank might be the one to come over and lock up the client’s shops. We don’t do that, we look at situations critically before acting. We also offer trainings to our clients on how they can improve on their businesses.”

Keziah Udoh, who has worked as a credit officer in one of the micro finance banks in Ikeja, before working with a popular micro finance bank at Agege bus stop, threw some light as to reasons why some credit officer had to chase funds given out vigorously. The fault, she admitted, isn’t theirs. The bank you are working for does not listen to excuses; they are only interested in you returning the money and the accruing interest, nothing more, nothing less.

“For four months now, I have not received a dime from my salary. Not because the company has not been paying but because it is being withdrawn from N150, 000 I gave as a loan to a client that used the money to buy wears for sales. Unfortunately, a heavy down pour flooded and eroded the shop, destroying everything therein.

“Not knowing what to do, the woman just sent me a text message and disappeared into thin air.  I had to go to her shop, and I saw with my eyes that the shop had been flooded. I didn’t see any trace of anybody around there. My accounting officer told me I should stop the story and tell her how the money can be refunded. The next thing I saw was that my salary is being withheld.

“There are several of such experiences. I have a client who abandoned her children with her husband and ran away. When we came after her husband, he promised to pay, only for him too to disappear with the children, thereafter,” she explained.

Udoh remarked that some of the collectors even see the money as ‘awoof,’ saying that right from the day they collect the money, they know they will not pay. She said the only option is to lock up their shops, disgrace them publicly and even use police to chase them and their guarantors.

“But in all honesty, I will not advice anybody to collect money from the microfinance banks because it does not pay. I have worked with them for some time and I hear peoples complain. Since the banks don’t allow your businesses enough time to mature before running after you, then it doesn’t make any sense,” she advised.

With all the complaints and many more, and no significant improvement in the performances of the SMEs to the economic development of the country, many would want the government to look into the laws governing the operations of the microfinance banks and other microcredit service organization.