326nigeria -innovative approaches to rural finance

8/12/2019 326nigeria -Innovative Approaches to Rural Finance

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CENTRAL BANK OF NIGERIAS

EXPERIENCE ON

INNOVATIVE APPROACHES TO THE PROVISION OFRURAL FINANCIAL SERVICES

(WITH EMPHASIS ON SMALL HOLDER PRODUCERS)

BY MR. TUNDE LEMODEPUTY GOVERNOR, FINANCIAL SECTOR

SURVEILLANCE

AFRACAWACRACT-WEST AFRICA II

SUB-REGIONAL WORKSHOP,

JOHANNESBURG, SOUTH AFRICA

MARCH 24TH

26TH

, 2004


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1.0 INTRODUCTION

NIGERIA:

A chequered history of economic development:Agricultural exports, import-substitution, oil

boom/doom, regulation, SAP, deregulation, Re-regulation, Non-oil Export Bias, etc.

65%-70% of economically active population live in therural/peri-urban areas; engaged in agriculture/relatedactivities.

This segment of the population account for about 70%on non-oil exports and 40% of nations GDP.

A great majority of the rural producers are smallholders.

Most lack access to formal credit for operations.


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2.0 NIGERIA - SOCIO-ECONOMIC

INDICATORS (YEAR 2003)

POPULATION (1991 CENSUS) 88.5 MILLION LAND AREA 923,778.64 SQ. KM

GROSS DOMESTIC PRODUCT (1984 FACTOR COST, =N=129.83bn(current =N=5726.19bn)

CONTRIBUTION OF PRIMARY SECTOR TO GDP (%) 54

INDEX OF AGRICULTURAL PRODUCTION (1984 = 100) 329.2 (2002) NATIONAL SAVINGS (=N= BILLION) 694.9bn

INFLATION RATE (end Dec - %) 13.80

MAXIMUM LENDING RATE (end Dec - %) 21.61

SAVINGS: LENDING RATE SPREAD (end Dec - %) 18.41

MRR (200216.5%) 15%

TREASURY BILL RATE (199917%) 14.5%

OFFICIAL (DAS) =N=:$ Parallel = 150.34 136.12

PARALLEL MARKET PREMIUM (=N=:$) 13.41


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3.0 DEFINITIONS

3.1 RURAL FINANCIAL SERVICES

Micro-financial offerings to rural and

semi-urban clients in the form of savings,credit, micro-insurance, micro-leasing,

micro-funds transfer (courier) and

technical service provision relating

thereto.


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3.2 MICRO-FINANCE CLIENTS/SMALL

HOLDER PRODUCERS Beneficiaries,recipients, customers or targets of micro-financial services whose scale are muchsmaller than typical sizes normally reached

by formal intermediaries. Their status isconstrained with respect to location (rural),agricultural holdings, number of employees,capital investment, income generation,socio-political isolation and informationasymmetry.


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3.3 FINANCIAL SERVICE INTERMEDIATION

Service offering between a fund-surplus unit and a

fund-deficit unit through an intermediary

(individual or institutional), using facilities,

instruments and conditionalities. Intermediationcomponents include:

Denomination

Maturity

Risk

Liquidity


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3.4 INNOVATIVE APPROACHES

Models, channels or methods of delivery

that are positively different from or

improve upon existing or known ones.

Technological

Product

Marketing

Institutional/Schemes/Models

Emphasis/Orientation/Realism


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INNOVATIVE APPROACHES TO FINANCIAL

SERVICES DELIVERY SHOULD IMPACT ON:

Access to Service Price of Service

Volume of Service

Stakes: Define, Protect

Collaterals/Lenders Comfort Sustainability and Outreach

Intermediation Costs

Delinquency Rates

Client Retention/Drop-out Rates

Competition/Efficiency


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4. CHARACTERISTICS OF SMALL-

HOLDER SECTOR IN NIGERIA

Large number; Small, Spatial distribution, GenerallyPoor

Small-Sized/fragmented Holdings; Small-Scale in allsenses

Ease of Entry and Exit from the Sector

Illiterate or Semi-illiterate entrepreneurs but business-wise

Poverty-drag, Marginalisation/Isolation, Weak UrbanLinkages

Co-exists with Affluent, Exploitative Urban Sector(Dualism)

.. contdnext page


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..4 Characteristics .. (Contd) Operations Subsistent, Small, Seasonal, Erratic

Output/Fluctuating Incomes Vulnerable to Middlemen Exploitation and Urban-

Induced Shocks

Extended Family and Social Dependency Pressures

Constrained Access to Non-Personal Capital andFormal Credit

Aid/Subsidy Dependent; Target of Poverty Alleviationand Rural Welfare or Donor Schemes

Able to Save, Active in Schemes of informal Osusu-type ROSCAS/Microfinance; Voluntary Savings -Emergencies, Social Obligation, Education, Rites.

.. contd next page


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..4 Characteristics .. (Contd) Geographic Isolation: rural areas - poor infrastructure,

power, social amenities and communication networks

Victim of Information and Knowledge Asymmetry

Victim of Poor Producer Prices; Urban-OrientedInflationInput Prices, Interest Rate, House Rents,Exchange Rate

Weak Managerial Capacity but Desirous of Growth-Enhancing Innovations

Prefers low credit interest rate, but able to pay market

rates if credit is appropriate (non-political, timely,adequate and closely monitored).

Theatre of Vibrant Informal Entrepreneurship andSkills Incubation.


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5.0 CHRONOLOGY OF FINANCIAL SERVICE

ENHANCEMENT/DELIVERY SCHEMES FOR

SMALL HOLDERS IN NIGERIA

5.1 DIRECT SCHEMES

1962 Commercial Bill Financing Scheme

1972 Nigerian Agricultural and Cooperative Bank

(now Nigerian Agricultural Cooperative and

Rural Development BankNACRDB)

1978 to dateAgricultural Credit Guarantee Scheme

Fund (ACGSF)

1980 to 1986Concessionary interest rate for

agricultural credit facilities

1985 to dateAppropriate Grace period for agricultural

loans

.. contdnext page


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..5 Chronology of .. (Contd)

1987 Export Financing and RediscountingFacility (NEXIM)

1987 to date Nigerian Agricultural Insurance

Company (NAIC)

1989 to 1999PeoplesBank (PB)

1990 to date Community Banks (CBs)

19941999 Family Economic Advancement

Programme (FEAP)

1999 to date National Poverty Eradication

Programme (NAPEP)


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5.2 ANCILLARY SCHEMES

1970 TO 1975 Accelerated, National Food

Production Programme 19771986 Rural Banking Programme

19771986 National Commodity Boards

1986 Directorate of Food, Roads and

Rural Infrastructure (DFRRI) 1986 National Agricultural Land

Development Authority (NALDA)

1977; 1996 Specified Percentage of banks

total deposits mobilised to beinvested in rural areas; sectoral

allocation of credit to agricultureas priority sector


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6.0 INNOVATIVE APPROACHES TO FINANCIAL

SERVICES/INTERVENTIONS DELIVERY

6.1 INSTITUTIONAL

RATIONALISATION/RESTRUCTURING

6.1.1. NIGERIAN AGRICULTURAL, COOPERATIVEAND RURAL DEVELOPMENT BANK

Re-Engineered from Rationalisation of NACB, PB andFEAP

Expanded MandateCovers other Rural DevelopmentActivities. 200 branches: 158 rural/semi-rural

Enhanced Capital Base (from =N=500m - =N=50b)

Freedom to mobilise Deposits from Savers/Customers Transparency in Board Composition/Proceedings

Freedom to Recruit Quality Professionals

2002: =N=2.13b loans to 26,942 clients

.. contdnext page


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6.1.1.1 NACRDB CONSTRAINTS

REGULATED LENDING INTEREST RATEVERSUS DEREGULATED COST OF FUNDS

LIMITED SAVINGS MOBILISATION

COMPETITIVE FUNDS MARKET

CARRY-OVER BOGUS STAFF COMPLEMENTNACB, PB, FEAP

CONFLICT: SUPPLY-LED WELFARE (POVERTYREDUCTION) Vs DEMAND-BASEDINTERMEDIATION (PROFITABLE LENDING)

BACKLOG (NACB) OF BAD LOANS/DECLININGDONOR LOANS/SUPPORT.

SOCIO-POLITICAL CLAIMANTS. CONNECTEDLENDING


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6.1.2 CBN(AGRICULTURAL)

DEVELOPMENT FINANCE DEPARTMENT

MODIFICATION OF NOMENCLATURE

EXPANSION OF MANDATE PURVIEW INCLUDING

NON-AGRICULTURAL AND RURAL ACTIVITIES

ENHANCEMENT OF GUARANTEE FUND BASE (FROM

=N=100M (1977) TO =N=3B)

RE-CONSTITUTION OF SUSPENDED BOARD

.. contdnext page


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6.1.2 .. Dev. Fin Dept .. (Contd)

AMENDMENT BILL TO EXCISE OBSELETE/LIMITING

LEGISLATION

CAPITAL BASE

LIMITS OF GUARANTEE

EXPEDITE CLAIM SETTLEMENT PROCESS

RETENTION AND REINFORCEMENT OF

TRADITIONAL GUARANTEE

REVIEW OF GUARANTEE APPEAL AND

STAKEHOLDERS ASSESSMENT/FEEDBACK

PROACTIVE BOARD SURVEILLANCE. IMPACT

ASSESSMENT


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6.1.2.1 SELF-HELP GROUP (LINKAGE)

BANKING

PACKAGED LENDING TO UNCOLLATERIZED GROUPS

GROUPSCOMMUNITY/MEMBER-BASED

GROUPS SAVE REGULARLY WITH PARTNER BANKS

CREDIT IS SAVINGS-LINKED: 2-4 TIMES AMOUNT SAVED BY

GROUP

LENDER HAS LIEN ON SAVINGS: FIRST RECOURSE IN DEFAULT PROVISION FOR REPEAT/ENHANCED BORROWING (INCENTIVE)

PERFORMANCE IS BOOSTED BY PEER PRESSURE (JOINT AND

SEVERAL GUARANTEE/LIABILITY OF MEMBERS)

IMPROVES SAVINGS/BORROWING HABITS/RURAL INVESTMENT

DEEPENS RURAL FINANCIAL SERVICES INTERMEDIATION

CIRCUMVENTS TANGIBLE COLLATERALS CONSTRAINTS

YIELDS ADDITIONALITY


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6.1.2.1b PERFORMANCE OF ACGSF IN LOAN TO

SMALL HOLDER SECTOR (=N=5,000 - =N=100,000)

1978 - 2002

(=N=) NUMBER

% OF

TOTAL VALUE

% OF

TOTAL

5,000 & BELOW 225,333 66.7 747,766 17.20

5,00120,000 68,913 20.4 892,209 20.50

20,00150,000 29,619 8.8 1,094175 25.10

50,001100,000 10,532 3.1 837,105 19.2

TOTAL SMALL HOLDER 334,397 99.0 3,571,255 82.0

TOTAL ACGSF 338,084 100 4,354,653.1 100


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6.1.2. 2aTRUST FUND (GUARANTEE)

MODEL

PROMINENT STAKEHOLDERS IN A STATE, LOCAL

GOVERNMENT, HOST COMMUNITY ARE

SENSITIZED/MOBILIZED TO COMMIT FUNDS IN TRUST TO

BACK ENVISAGED CREDIT DELIVERY TO SMALL-HOLDER

PRODUCERS.

TRUST FUND DONOR/DEPOSITOR COULD BE STATE

GOVERNMENT, LOCAL GOVERNMENT, MULTINATIONALS

(OIL COMPANIES, PROCESSORS, MANUFACTURERS OR

RETAIL CHAIN OR PROMINENT INDIVIDUAL

DISCUSSIONS ARE HELD BY CBN AND STAKEHOLDERS ON

SCOPE, PACE, PATTERN, TARGET CLIENTELLE AND MODUS

OPERANDI

STAKEHOLDERS: PARTNER BANK; TRUST DONOR. ADP;

NAIC; CBN; BENEFICIARIES

.. contdnext page


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.. 6.1.2. 2a TRUST FUND .. (Contd)

PARTNER (INTERMEDIARY) BANKS AREIDENTIFIED AND ENLISTED FOR THE TRUSTFUND PROGRAM

AGREEMENTS ARE REACHED ON VARIOUSISSUES: INITIAL VOLUME OF TRUST FUND, LOAN,NO. OF BENEFICIARY GROUPS, MARKET

INTEREST, TENOR AND OTHER TERMS. A MEMORANDUM OF UNDERSTANDING (MOU) IS

SIGNED

TRUST FUND BENEFICIARY GROUP MUST SAVE25% OF THE AMOUNT TO BE BORROWED

ALSO 25% OF THE AMOUNT TO BE BORROWED BYSCREENED SMALL HOLDER GROUPS DEEMED TOBE GUARANTEED BY THE TRUST FUND

.. contdnext page


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.. 6.1.2. 2a TRUST FUND .. (Contd)

PARTNER BANK STILL RETAINS RECOURSE TO

TRADITIONAL ACGSF GUARANTEE REPEAT BORROWING IS PERMITTED;

PROGRESSIVE GROUP MEMBERS CAN OPT FORSTAND-ALONE ARRANGEMENTS

PARTNER BANK CHARGES MARKET INTEREST

RATE; PERFORMING GROUPS ARE ENTITLEDTO INTEREST DRAWBACK (40%)

TRUST FUND ENJOYS PREVAILING SAVINGSINTEREST WHICH ACCRUES TO BOOST THE

FUND CBN AND TRUST FUND DONOR MONITOR

PROGRESS/REVIEW


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CBN: 75% Guarantee, Terminal Default.Monitoring. Advocacy. Mentoring.Advice. IDP

PARTNER BANK: Credit. Monitoring. Advice. IDP

TRUST DONOR: Additional Cash Security. Monitoring ADP: Inputs. Technology. Client

Identification

NAIC: Agric Insurance

FARMER: Output. Prompt Repayment. PeerPressure. Feedback

STAKEHOLDER RESPONSIBILITIES


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6.1.2. 2b LENDERS RISK PROSPECTS WITH

ACGSF, SELF-HELP (LINKAGE) BANKING

AND TRUST FUND MODEL - EXAMPLE

ONLY ACGSFGUARANTEE

(=N=)

PLUS SELF-HELP STAKE

(=N=)

PLUS TRUSTFUND STAKE

(=N=)

Amount Loaned 10,000.00 10,000.00 10,000.00

Amount in Default 10,000.00 10,000.00 10,000.00

Recourse to ACGSF

(75%)

7,500.00 5,625.00 3,750.00

Recourse to Group

Savings (25%)

- 2,500.00 2,500.00

Recourse to Trust

Donor Fund (25%)

- - 2,500.00

Lenders Capital

Loss

2,500.00

(25%)

1,875.00

(18.75%)

1,250.00

(12.5%)


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6.1.2. 2c CASE I SHELL PETROLEUM DEVELOPMENT

(SPDC) LTD. MICRO-CREDIT SCHEME FOR

AGRICULTURAL DEVELOPMENT (MICSAD)

MICSADTFM FUNDED BY SPDC, COMMENCED 1ST

DISBURSEMENT IN MAY 2000

HOST COMMUNITY: OIL COMMUNITIES OF RIVERSSTATE OF NIGERIA

PERFORMANCE AS AT JUNE 2003:

PROPOSED TRUST FUND (PILOT) =N=14.5 M

ACTUAL LIMIT APPROVED =N=12.53 M

ACTUAL TRUST FUND DEPOSIT =N=4.3 M

NO. OF GROUPS PROJECTED FOR PILOT 58 ACTUAL NO. OF GROUPS BORROWING 31

TOTAL SAVINGS MOBILISED =N=3.7 M

VALUE OF BANKS LOANS DISBURSED

BY PARTNER BANK =N=11.53

SWOT Analysis.. contdnext page


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.. 6.1.2. 2c Case I SPDC (contd)

STRENGTH: Sustained Commitment of Parties,

Capacity of Trust Donor

WEAKNESS: Intra-Group Squabbles; Default,

Reparation Syndrome

OPPORTUNITIES:To enlist other Oil/ServiceCompanies, State and Local

Governments

THREAT: Could be overtaken by Other

Untargeted Gestures;

Restive Youth Activities


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6.1.2. 2d CASE II NIGERIAN AGIP OIL

COMPANY (NAOC) LTD: GREEN CARD - TFM

GREEN CARD TFM FUNDED BY NAOC MOU SIGNED IN 2001; ACTUAL OPERATION

2003

HOST COMMUNITY: OIL COMMUNITIES OFRIVERS STATE OF NIGERIA

PERFORMANCE AS AT JUNE 2003: Proposed Trust Fund =N=20.0m

Actual NAOC Trust Deposit =N=5m

Total Savings Mobilised =N=2.9m Value of Partner Bank Loans Disbursed =N=10m

Number of Loans Involved =N=400 (40 groups)

SWOT Analysis.. contdnext page


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.. 6.1.2. 2d Case II NAOC (contd)

STRENGTH: Renewed Commitment of Trust Donor

WEAKNESS: Delayed Kick-off; Interest of some

groups waned

OPPORTUNITIES:To enlist other Oil Companies

and MultinationalsUAC,

NESTLE, MICHELIN, LEVER

BROTHERS, etc. THREAT: Militant Youth Agitation for general

reparations may scuttle Scheme


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6.1.2.3 INTEREST DRAW-BACK

PROGRAMME (IDP)

A FRAMEWORK OF INTEREST RATE REBATE

TWO (2) BILLION NAIRA SEED FUND

ESTABLISHED FOR THIS PURPOSE

INTRODUCED IN YEAR 2003 FARMING YEAR JOINTLY FUNDED BY FED. GOVT. AND CBN

(60:40)

RESPONSE TO CONCERNS ABOUT HIGH

MARKET INTEREST RATE FOR SMALLPRODUCERS Vs A DEREGULATED FINANCIAL

SERVICE ENVIRONMENT (PARADOX) .. contdnext page


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6.1.2.3 IDP (contd)

AGRIC/RURAL BORROWERS PAY THE

PREVAILING MARKET RATE OFINTEREST

ON SUCCESSFUL COMPLETION OFREPAYMENT ON SCHEDULE BORROWER

IS ENTITLED TO 40% REBATE OFINTEREST PAID VIA THE LENDING BANK

AVOIDS UP-FRONT INTEREST SUBSIDYAND ASSOCIATED HAZARDS

APPLICABLE ONLY TO LOANS GRANTEDUNDER ACGSF

SWOT Analysis .. contdnext page


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6.1.2.3 IDP SWOT: STRENGTH

SUSTAINABILITY OF REBATE FUND COMPATIBLE WITH MARKET-DRIVEN COST OF

CREDIT

ONLY ACTUAL OPERATORS BENEFIT

WEAKNESS

MAY NOT BE SUFFICIENT INCENTIVE WHEREWILFUL DEFAULT IS PRE-MEDITATED

OPPORTUNITIES COULD BE EXPANDED TO COVER NON-FARM ,

MICRO-FINANCED ACTIVITIES

THREAT APPEAL IS CONDITIONAL ON OTHER COOPERANT

INCENTIVES E.G. ADEQUATE CREDIT, PROFITABLEOPERATIONS

RESIDUAL SUBSIDY-DEPENDENT PERCEPTIONS


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6.2.0 PARTICIPATION OF COMMUNITY BANKS (CBs)

SINCE 1990, CBs OPERATED WITH PROVISIONALLICENCES AS UNIT BANKS

FULL OPERATIONAL LICENCE GRANTED TO 283 CBsIN 2003

CBN MANAGEMENT APPROVAL TO PARTICIPATE INACGSF ACTIVITIES, EFFECTIVE JANUARY, 2004

SENSITIZATION WORKSHOP AND TECHNICALTRAINING ORGANISED FOR MDs AND DESKOFFICERS BY CBN (OFID, DFD), ON-GOING

FREEDOM TO ENGAGE IN FULL RANGE OF RURALDEVELOPMENT AND BANKING ACTIVITIES EXCEPTFOREIGN EXCHANGE AND INTERNATIONAL MONEYTRANSFER TRANSACTIONS

CBs TO ENJOY CBN GUARANTEE COVER/CLIENTSTO BENEFIT FROM IDP



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CBs SWOT:

STRENGTH:

RURAL-BASED, DEEP KNOWLEDGE OF RURAL CLIENTS

NEEDS, BEHAVIOUR, NORMS AND MORES/PEER PRESSURE.

CLIENTS MEMBERS OF SAME OR NEIGHBOURING

COMMUNITIESHIGH STAKES. COULD

MAINSTREAM/NETWORK WITH STRONG DMBs IN URBAN

AREAS

WEAKNESS:

WEAKER COMPETITOR AGAINST RURAL BRANCHES OF

DMBs

COULD BE DOGGED BY WEAK MANAGEMENT & LOCAL

POLITICS. EXECUTIVE SQUABBLES.

CANNOT PLAY IN FOREIGN EXCHANGE MARKET WHICH IS

THE PLUM AREA NOW.



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CBs SWOT Analysis (contd)..

OPPORTUNITIES:NICHE SPECIALISATION IN RURAL

INTERMEDIATION AT LOWER COST;SPECIALISED SKILLS AND

TECHNOLOGY. THREAT:

WIDESPREAD LOAN DELINQUENCYCOULD THREATEN LIQUIDITY AND

SOLVENCY.DISTRESS CONTAGION. RUNS.


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6.3.0 SMALL AND MEDIUM INDUSTRIES EQUITY

INVESTMENT SCHEME

AN INITIATIVE OF DMBs COMMITTEE UNDER THE

MENTORING OF THE CENTRAL BANK OF NIGERIA

ESTABLISHED IN JUNE 19, 2001. INNOVATION IN

NIGERIA

BANKS SET ASIDE ANNUALLY 10% OF PROFIT

BEFORE TAX (PBT) FOR EQUITY INVESTMENT IN

SMEs ESPECIALLY IN THE REAL SECTOR

AN SME UNDER SMIEIS IS ENTERPRISE WITH A

MAXIMUM ASSET BASE OF =N=200M EXCLUDING

LAND/WORKING CAPITAL; EMPLOYEE STRENGTH

10-300


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6.3.0 SMIEIS (contd)

EQUITY PARTICIPATION MODE: SMIEIS DESK; SUBSIDIARIES; VCMs

INVESTMENT AREAS INCLUDE AGRO-ALLIED,

INFORMATION TECHNOLOGY/TELECOM,

MANUFACTURING, EDUCATIONAL

ESTABLISHMENT, SERVICES, TOURISM AND

LEISURE, SOLID MINERALS, CONSTRUCTION,

ETC.

BANKS TO EXIT INVESTMENTS NOT EARLIER

THAN 3 YEARS contd next page


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6.3.0 SMIEIS (contd)

OBJECTIVES:

Provision of Equity Finance for SMEs

Contribution of Managerial andTechnical Expertise to Businesses

Stimulating Economic Growth of SMEs

Developing Local Technology

Generating Employment

Stimulate Development of VCC Industry

Synergy. Multiplier. Technical ServiceProvision.

contd next page


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6.3.0 .. SMIEIS contd

SET ASIDE Funds shall be utilised within 18months in the first instance and within 12 months

in subsequent years. Withdrawal Sanctioned 31stDec. 2003 =N=1,871,313,445.24

SMIEIS PERFORMANCE (29thFebruary, 2004): SET ASIDE FUNDS =N=22,290,785,848.00

(OUT OF 83 BANKS) INVESTMENT =N=8,662,814,243.91

(BY 53 BANKS IN 153 PROJECTS)

10% OF TOTAL SMIEIS FUND RESERVEDFOR DEBT FINANCING OF MICRO-ENTERPRISES VIA INTERMEDIARYINSTITUTIONS (EQUITY)



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SMIEIS SWOT:

STRENGTH:

Sustainability of Funding Source; Mentoring byCentral Bank, Voluntary but Committal Initiative

WEAKNESSES:

Tardy Investment Rate Due to Novelty, Dearth of

Bankable Businesses In The Defined Class. Fearof Dilution of Ownership/Control. Verification

Puzzles

OPPORTUNITIES:

To become joint owners of growing businesses;

Increase Customer Base and Loyalty

Stimulate General Growth of Economy


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THREATS:

Higher Convenience and Preference by

both Clients and Investors For Debt-

Financing

Parallel Programmes By Govt (Smedan)

Negative Perceptions. Reticence Of Banks.


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6.4.0 NATIONAL MICRO FINANCE POLICY

6.4.1 BACKGROUND/RATIONALE GOVT RECOGNISES THE SUBSTANTIAL SIZE OF

THE INFORMAL SECTOR OF THE ECONOMY (55-65%)

SECTOR IMMUNE TO FORMAL REGULATORY/

SUPERVISORY POLICY IMPULSES SECTOR IS THE ACTIVITY ZONE OF BRISK MICRO-

FINANCIAL SERVICE ACTIVITIES

BEING UNREGULATED, THE SECTOR IS

VULNERABLE: NEGATIVE CONTAGION.EXPLOITATION. UNHEDGED DISTRESS. FINANCIALCRIMES

Contd next page


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.. 6.4.1 .. National Microfinance (contd)

ADVOCACY OF EXTENSIVE RURAL BRANCHNETWORK BY FORMAL BANKS NEGATED:

LEGAL FRAMEWORK. REGULATION.

TRANSPARENCY. RECORDS AND CONTRACTS.

UNHEDGED RISKS (WONDER BANKS SAGA)

GREY AREA FOR CURB MARKETS PARALLEL

FOREIGN EXCHANGE, MONEY

LENDERS/CHANGERS/DOUBLERS

INTERPHASE LICENCED CBs, MORTGAGE AND

FINANCE COMPANIES - HIGH RISK.

Contd next page


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6.4.1 National Microfinance (contd)

CLEAR REGULATORY GAP; HEALTHY COMPETITION,DEPOSITOR PROTECTION, SAFETY NETS,SUPERVISION/COMPLIANCE CONTRACTSENFORCEMENT DISPUTE RESOLUTION FINANCIALMAINSTREAMING. MINIMISING MARKET

FRAGMENTATION AND ARBITRAGE

CLEAR CASE FOR REGULATION: LICENSE. GROUNDRULES. SUPERVISION. CAPITAL ADEQUACYCONTRACTS. MARKET DEEPENDING. INTERMEDIATIONMAINSTREAMING.


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6.4.2 DRAFT MICROFINANCE POLICY

JUSTIFICATION

FORMAL BANKS DO NOT COVERMICROFINANCE SERVICES ADEQUATELY

MICRO-ENTERPRENEURS EXHIBITEFFECTIVE DEMAND FOR CREDIT AND AREABLE TO PAY FOR IT

MICRO-ENTREPRENEURS HAVEDEMONSTRABLE CAPACITY TO SAVE

COMPOSITE DEMANDS: SAVINGS, CREDIT,MONEY TRANSFERS, MICRO-LEASING.MICRO-INSURANCE.

Vision . Contd next page


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. 6.4.2 draft microfinance policy(contd)

VISION/MISSION TO PROMOTE ECONOMIC DEVELOPMENT BY

EMPOWERMENT OF MF SECTOR, THROUGHIMPROVED ACCESS TO COMMERCIAL CAPITALAND SYSTEMIC MAINSTREAMING.

TO USE MICROFINANCE AS TOOL FOR

IMPROVING LOW-INCOME GROUPS/REDUCINGPOVERTY

APPROPRIATE ENVIRONMENT FOR GROWINGVIABLE MICRO-FINANCE INSTITUTIONS

PROMOTE ADAPTION/ADOPTION OF

INTERNATIONAL BEST PRACTICES POLICY FRAMEWORK WITH NATIONAL

ORIENTATION/COVERAGE

Ingredients contd next page

6 4 2 d f i fi li ( d)


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INGREDIENTS

ENABLING ENVIRONMENT MICRO-ECONOMIC

POLICIES, FINANCIAL SECTOR POLICY,LAND/INSTITUTIONAL ISSUES

PROVISION OF DEMAND-BASED FINANCIALSERVICES

INSTITUTIONAL POLICIES: FORMAL INSTITUTIONS,

RATING AGENCIES, CREDIT BUREAU, FOREIGNAID/DONOR ASSISTANCERATIONALISATION/COORDINATION

GENDER EQUITY

OUTREACH AND SUSTAINABILITY

SUSTAINABLE INTERMEDIATION GOVERNANCE, REGISTRATION, MFI UP-SCALING/

TRANSFORMATION. PROCESSES.

Regulation & Supervisory Framework contd next page

6 4 2 draft microfinance policy (contd)


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. 6.4.2 draft microfinance policy(cont d)

REGULATION AND SUPERVISORY

FRAMEWORK (TIERED INSTITUTIONS) TIER ONE: MEMBERS-ONLY DEPOSITS.

LENDING. NO PUBLIC DEPOSITS.

TIER TWO: NON-BANK OR NON-CLEARING

BANK. DEPOSIT TAKING/CREDITINSTITUTION ALREADY LICENSED

TIER THREE: DEPOSIT TAKING/CREDIT

UNIVERSAL BANKS

Roles/responsibility under the policy contd next page



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p y ( )

ROLES/RESPONSIBILITY UNDER THE POLICY

GOVERNMENT

CENTRAL BANK

COMMERCIAL BANKS

PROVIDERS OF MF SERVICES

NGOs

DONOR COMMUNITY

ROAD MAP:

AUTHORISATION TO DRAFT POLICY CBNOK

INTER-DEPARTMENTAL MPPDC REVIEW CBNOK

NATIONAL WORKING COMMITTEE REVIEW 25TH

/26TH

FEB, 2004

INTERNATIONAL VALIDATION SUMMIT 18/19 MAR, 2004

INTER-DEPARTMENTAL COMMITTEE: FINALIZATION


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7.0 CONSTRAINTS AND CONCLUSIONS

7.1 CONSTRAINTS AND LIMITATIONS TO

PROVISION OF INNOVATIVE FINANCIALSERVICES TO SMALL HOLDERPRODUCERS IN NIGERIA

Reticence of banks to lend to small-holder

operators despite the innovative approaches:Inherent/Residual Risks

Dearth of basic infrastructure to facilitate outreach

Natural Disasters/Crop Failures

Diversion of Funds

contd next page ...


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7.1 constraints and limitations

Inadequate manpower for specialised funding in

rural/micro-clients Policy deficiencies/Credibility Gap

Inability of borrowers to offer acceptablecollateral. Limits of Clean Lending/Group

Guarantee Low pricing of small-holder producers output due

to lack of value addition.

Market glut

Fragmented holdings resulting in limitedapplication of modern technology.


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7.2 CONCLUSION

Provision of rural financial services to small-

holder producers is inherently costly due to

diseconomies of scale in reaching a large

number of spatially dispersed targets in a

narrow range of specialized land-basedactivities. Moreover, the terrain is often beset

with infrastructural, communication and other

deficiencies, further raising the cost of doing

business. The targets appear mired in a viciouscycle of incapacity.


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7.2 Conclusion contd

Extant schemes in Nigeria therefore tended to

appraise small-holder producers as meretargets of poverty alleviation and other welfareprograms having regard to their limitedcapacity to save or pay economic prices forfinancial services. Subsidized credit, inputs andconcessionary interest rate therefore dominatedthose supply-led initiatives. This orientationbred its own moral hazards as the targetsreceived these programs as humanitarian aids

or their share of the national cake withdismal consequences for repayment andprogramme sustainability.

7 2 Conclusion contd


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7.2 Conclusion cont d

The realism of diversity in product mix

and commercial sustainability of micro-financial service delivery has sincedawned on the government, donors,banks and small-holder targets,

especially since financial sectorderegulation following structuraleconomic reforms in the late 1980s andthe ensuing wider lender discretion.

7 2 C l i td


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Enabling the rural economy realize its potential

for growth and synergy with the vibrantmodern (oil-led) sector calls for ingenious andinnovative approaches to service delivery. Theinterventions in Nigeria must not only becompatible with a deregulated environment,but should also be accessible and affordable tothe rural small-scale producers. They shouldalso be seen to be adequate and sustainablewithin a framework of minimum legislation,

regulation, supervision and efficientcompetition.


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The trust fund model, the interest drawback

programme, the Small and Medium IndustriesEquity Investment Scheme and the Micro-finance Policy and Regulatory initiative areonly pre-cursors of this new orientation. Both

the nascent SMIEIS and the micro-financeproject, for example, have already generatedsalutary excitement in the SME sectorespecially in the development of venture capitaland technical service industries. There are alsopending requests for collaborative programmesfrom international MFIs and agenciesincluding the ACCION/IFC partnership,Chenomics and Opportunity International, etc.


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TH NK YOU

THE END

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