Posted by The Punch on
On assumption of office in 1999, President Olusegun Obasanjo realised that to solve the problem of rural underdevelopment and poverty, the unfavourable disposition of the banking system to the supply of medium and long-term funds, and the complete neglect of micro-credit mobilization must be reversed.
On assumption of office in 1999, President Olusegun Obasanjo realised that to solve the problem of rural underdevelopment and poverty, the unfavourable disposition of the banking system to the supply of medium and long-term funds, and the complete neglect of micro-credit mobilization must be reversed. This informed the introduction of the Small and Medium Industries Equity Investment Scheme (SMIEIS). In it, all banks, with the support of the Central Bank of Nigeria, willingly agreed to syndicate 10% of their pre-tax profit into a fund for equity participation in industrial enterprises, provided such businesses have a maximum of N200 million in assets and employ between 10 and 300 persons. Relatedly, the National Poverty Eradication Programme was introduced in 2002 to accelerate the pace of poverty eradication in the country.
But for inexplicable reasons, many banks have been reluctant to fully participate in the scheme, to the extent that facilities withdrawn from the pool, and meant for disbursement into business enterprises, have either remained idle in banks' books or diverted into other uses. For this, the CBN, before the recent threat of sanction on erring banks, actually penalised 26 banks last year for deliberately failing to invest about N3.3 billion set aside as directed.
To all intents and purposes, it is doubtful whether the present strategy to fast-track industrialization and poverty eradication would yield the desired results. For a start, the concept of SMIEIS appears too formal and has proved unsuitable to the needs of the widely non-corporate, but dominantly rural and informal sector of the economy. Besides, programmes of participating banks have no micro-credit content, but strong urban bias, and preference for high and quick return-yielding ventures.
This explains why more than 90% of the projects and 89% of total investments are concentrated in Lagos and environs. Similarly, information technology and the telecoms sector account for 70% of the number of projects and 56% of aggregate credit facilities, even as agro-allied and manufacturing projects attract 11% and 13% of financial attention, respectively. In the same vein, the centralization of NAPEP implementation accounts for the inefficiency and lack of accountability bedevilling the scheme.
The lesson, therefore, is that no meaningful poverty reduction programme could succeed without the active participation of the rural populace, as well as the entrenchment of a strong micro-credit culture, facilities and institutions. This calls for urgent steps to resuscitate the People's Bank scheme, while strengthening and repositioning the Community Bank programme, which were specifically designed to provide micro-credit facilities and banking services to individuals who did not have access to loans from conventional banks.
When the People's Banks came on stream in 1989, it granted loans directly to self-employed technicians, petty traders, small-scale farmers, barbers, hairdressers and market women in rural and urban communities. Community Banks, on the other hand, are self-sustaining and owned and managed by individual or group of communities for providing micro-credit to cottage industries and other enterprises within the immediate environment.
The two agencies could be made to work in tandem, for they are needed, more than ever before, as a conduit for credit mobilization in rural development and poverty eradication processes. Indeed, unutilised SMIEIS funds should be channeled via Community Banks in form of micro-credits into rural mechanized farming and cottage industries. Similarly, major initiatives under NAPEP should be decentralized, while giving states and local governments more crucial roles to play in identifying programmes customized to the needs of individual rural communities.
The PUNCH, Wednesday, July 27, 2005