It first started with Microfinance, and then it forayed into Microinsurance. The general idea has been to harness the potentials of piecemeal financing schemes to better the lot of people who find themselves at the periphery of the mainstream economies of most developing countries.
Most people at the bottom of the economic pyramid in most societies have somehow been excluded from enterprise and the formal economy by a potent combination of factors which includes: lack of technical and administrative expertise, finance and access to markets.
This has had the unfortunate consequence of stunting their economic growth and caging the aspirations of social upliftment from the bottom of the pyramid (BoP), thereby forcing most of their micro enterprise into administration or being left to struggle with the inevitable prospect of folding up just a few years after starting out in business.
However, things are beginning to look up for most of these micro entrepreneurs with the advent of microfinance and microinsurance.
According to Wikipedia, microfinance is the provision of financial services to low-income clients, including consumers and the self-employed, who traditionally lack access to banking and related services.
More broadly, it is a movement whose object is "a world in which as many poor and near-poor households as possible have permanent access to an appropriate range of high quality financial services, including not just credit but also savings, insurance, and fund transfers." Wikipedia Microfinance
The microfinance movement has rapidly taken root globally and has become a global movement especially among social entrepreneurs who see it as a veritable tool to eradicate endemic poverty.
Those who promote microfinance generally believe that such access will help poor people out of poverty.
On the other end of the table, microinsurance as it is also described by Wikipedia is “insurance characterized by low premium and low caps or low coverage limits, sold as part of atypical risk-pooling and marketing arrangements, and designed to service low-income people and businesses not served by typical social or commercial insurance schemes.” - Wikipedia Microinsurance
Microinsurance can be a very useful tool in ameliorating the suffering and hardship people at the BoP are often exposed to by the unfair realities and circumstances of life.
As Manuel Bueno discussed in his recent blog posting, microinsurance aims to help low-income people manage risk and reduce their vulnerability to shocks.
A useful examples of how microinsurance has helped poor people in need is the unfortunate case of Monica Kirunguru, a poor Kenyan woman who’s husband was hospitalized and eventually died.
Microfinance and microinsurance hold immense potentials as major tools for combating poverty, and if their potential is properly harnessed, the world could witness a dramatic revolution which would see the next billion rising from the BoP to the middle income level on a global scale.
Monday, June 21, 2010
Friday, June 18, 2010
Thursday, June 10, 2010
Nigeria: A Travesty of Democracy
The quiet of the night was punctuated by the deafening sound of my neighbour’s electricity generating set. Power cuts have become an expected part of our daily life; it’s no longer fashionable owning one of such devices as necessity has made it mandatory to own one.
With nationwide electricity generation down to a mere 3000 megawatts for a nation of over 150 million inhabitants, alternative energy sources have come to stay as a large chunk of the population have resorted to the acquisition of such properties to supplement the epileptic electricity supply from the incumbent national supplier.
The situation with electricity generation and distribution in Nigeria today is just one of the many ills that plague the land, a superannuated national grid that served the purpose of 50s Nigeria. Decrepit infrastructure cuts across all sectors of national life.
Nigeria’s road networks are in a horrible state, rail infrastructure has been comatose since the 70s, violent crime and kidnapping is on the rise as the national security agencies have no idea on how to curb the menace.
The nation seats on an ethnic and religious fault line that threatens to tear it apart. Nigeria continues to record impressive macro economic growth which never seems to reflect on the quality of life of its citizens at the bottom of the economic pyramid.
With over 70 percent of its citizen living on less than $1 a day, and faced with no form of social security, the brutal hardship has reduced life expectancy to a record low of less than 47yrs.
The summary of it all is that Nigeria as a nation seems to be in a funk, perpetually fumbling and wobbling from one crisis to another, like fraternity jerks on some cheap steroids.
With all of these failings of the Nigerian state, it becomes more startling when one realizes that in that last 11yrs of its 50yrs sovereign life; Nigeria has been run under a democratically elected government.
One wonders, especially as one looks back with nostalgia at Nigeria’s past years, we painfully note that Nigeria has been in a constant state of deterioration, one observes, though arguably that (based on certain indices) that things have actually gotten worse.
Corruption has reached all time highs; the political class with much impunity appropriates the nation’s wealth to themselves. They have developed the unfortunate habit of legislating self serving laws which endangers Nigeria’s nascent democracy, the last leadership vacuum that was created by the ill health and eventual demise of late President Umar Musa Yar’Adua presented them with an opportunity to display grandiose rascality and criminality on a scale that shocked global and local observers. Even the developed world’s intelligentsias were impressed by such conspiracy and opprobrium.
Ironically, Nigeria is endowed with immense human and material (natural) resources sufficient to make it a global industrial and economic power. Nigeria’s potentials have unfortunately refused to become anything more than potentials. Once gloriously referred to as the Giant of Africa, now such claims have been reduced to mere sarcasm.
Nigeria’s political elite, who have stirred the ship of state for the past 11yrs are far removed from the reality of the nation in which they live. They are Nigeria’s celebrities (not the Nollywood actors and actresses that ply the trade of entertainment), title hugging freaks who love the limelight and relish in the mediocrity in which they have left the nation.
They live a life of opulence comparable with what is obtainable in the oil rich “Emiraties” of the Middle East, Nigeria’s health care system isn’t even good enough for them as they routinely fly abroad for trivial medical check ups, their children attend the best schools abroad (this makes them feel unconcerned about the state of Nigeria’s educational system) and they own choice assets abroad.
And things got this bad in the last 11yrs of democracy in Nigeria!
Democracy is generally acknowledged to be a political form of government carried out by the people either directly or by means of elected representatives of the people; simply put: a government of the people, for the people and by the people.
The question that begs for answer in the Nigerian case is: is Nigeria actually practicing democracy?
The question, if subjected to rigorous academic scrutiny comes up with interesting answers, yet the reality the stares us rudely in the face is the failure of Nigeria’s political economy to deliver on the promises of democratic governance.
Ironically, Nigeria’s last presidential election was a sham characterized by massive electoral fraud. This partly explains why the politicians of our land don’t see any reason why they should be accountable to the electoral; after all our votes didn’t count in bringing them into office.
As societies evolve, different forces intertwine among different civilizations and ideologies which lead to the dynamics and metamorphosis of societies that eventually lead to the transformation of humanity. Democracy is one of such transformational forces. Even though there is no universally imposable definition of democracy, equality and freedom non-rivalrous and non-excludable from the generally accepted principles of democracy.
These principles are reflected in all citizens being equal before the law and having equal access to power. In democracies, the freedom of citizens is generally secured by legitimized rights and liberties which are protected by the constitution.
Nigeria’s democracy in its current state is a travesty of democracy. The basic constituents of a democracy are missing from the Nigerian reality.
Nigeria’s case can be partly explained; considering that democratic governance is a system not traditionally rooted within the larger cultural heritage of the Nigerian. It is more or less alien.
Nigeria, a nation with over 250 ethnic groups dating back to 100s of years past, with their own unique complexities and ancient systems of governance which still run parallel to its modern institutions of governance (most of them were monarchial and authoritarian in nature). Quite regrettable is the fact that these parallel institutions and systems are still very much active and hold sway over the modern institution, in many cases trumping their powers and thus rendering them impotent.
Nigeria finds itself in dire straits, and if this situation remains unchecked, Nigeria’s democratic experiment might be truncated by other contending forces as has been the case in the past. One of such potent forces capable of scuttling Nigeria’s democracy has always remained the threat posed by the military establishment. In the past there have been numerous military interventions, such incidence led to the unfortunate militarization of the Nigerian polity which consequences still remains in present day Nigeria.
The line between religious and tribal interests as against the common good of the Nigerian state is blurred. There is an urgent need for the separation of such parallel interests from the functions and duties of governance at all levels in Nigeria.
With nationwide electricity generation down to a mere 3000 megawatts for a nation of over 150 million inhabitants, alternative energy sources have come to stay as a large chunk of the population have resorted to the acquisition of such properties to supplement the epileptic electricity supply from the incumbent national supplier.
The situation with electricity generation and distribution in Nigeria today is just one of the many ills that plague the land, a superannuated national grid that served the purpose of 50s Nigeria. Decrepit infrastructure cuts across all sectors of national life.
Nigeria’s road networks are in a horrible state, rail infrastructure has been comatose since the 70s, violent crime and kidnapping is on the rise as the national security agencies have no idea on how to curb the menace.
The nation seats on an ethnic and religious fault line that threatens to tear it apart. Nigeria continues to record impressive macro economic growth which never seems to reflect on the quality of life of its citizens at the bottom of the economic pyramid.
With over 70 percent of its citizen living on less than $1 a day, and faced with no form of social security, the brutal hardship has reduced life expectancy to a record low of less than 47yrs.
The summary of it all is that Nigeria as a nation seems to be in a funk, perpetually fumbling and wobbling from one crisis to another, like fraternity jerks on some cheap steroids.
With all of these failings of the Nigerian state, it becomes more startling when one realizes that in that last 11yrs of its 50yrs sovereign life; Nigeria has been run under a democratically elected government.
One wonders, especially as one looks back with nostalgia at Nigeria’s past years, we painfully note that Nigeria has been in a constant state of deterioration, one observes, though arguably that (based on certain indices) that things have actually gotten worse.
Corruption has reached all time highs; the political class with much impunity appropriates the nation’s wealth to themselves. They have developed the unfortunate habit of legislating self serving laws which endangers Nigeria’s nascent democracy, the last leadership vacuum that was created by the ill health and eventual demise of late President Umar Musa Yar’Adua presented them with an opportunity to display grandiose rascality and criminality on a scale that shocked global and local observers. Even the developed world’s intelligentsias were impressed by such conspiracy and opprobrium.
Ironically, Nigeria is endowed with immense human and material (natural) resources sufficient to make it a global industrial and economic power. Nigeria’s potentials have unfortunately refused to become anything more than potentials. Once gloriously referred to as the Giant of Africa, now such claims have been reduced to mere sarcasm.
Nigeria’s political elite, who have stirred the ship of state for the past 11yrs are far removed from the reality of the nation in which they live. They are Nigeria’s celebrities (not the Nollywood actors and actresses that ply the trade of entertainment), title hugging freaks who love the limelight and relish in the mediocrity in which they have left the nation.
They live a life of opulence comparable with what is obtainable in the oil rich “Emiraties” of the Middle East, Nigeria’s health care system isn’t even good enough for them as they routinely fly abroad for trivial medical check ups, their children attend the best schools abroad (this makes them feel unconcerned about the state of Nigeria’s educational system) and they own choice assets abroad.
And things got this bad in the last 11yrs of democracy in Nigeria!
Democracy is generally acknowledged to be a political form of government carried out by the people either directly or by means of elected representatives of the people; simply put: a government of the people, for the people and by the people.
The question that begs for answer in the Nigerian case is: is Nigeria actually practicing democracy?
The question, if subjected to rigorous academic scrutiny comes up with interesting answers, yet the reality the stares us rudely in the face is the failure of Nigeria’s political economy to deliver on the promises of democratic governance.
Ironically, Nigeria’s last presidential election was a sham characterized by massive electoral fraud. This partly explains why the politicians of our land don’t see any reason why they should be accountable to the electoral; after all our votes didn’t count in bringing them into office.
As societies evolve, different forces intertwine among different civilizations and ideologies which lead to the dynamics and metamorphosis of societies that eventually lead to the transformation of humanity. Democracy is one of such transformational forces. Even though there is no universally imposable definition of democracy, equality and freedom non-rivalrous and non-excludable from the generally accepted principles of democracy.
These principles are reflected in all citizens being equal before the law and having equal access to power. In democracies, the freedom of citizens is generally secured by legitimized rights and liberties which are protected by the constitution.
Nigeria’s democracy in its current state is a travesty of democracy. The basic constituents of a democracy are missing from the Nigerian reality.
Nigeria’s case can be partly explained; considering that democratic governance is a system not traditionally rooted within the larger cultural heritage of the Nigerian. It is more or less alien.
Nigeria, a nation with over 250 ethnic groups dating back to 100s of years past, with their own unique complexities and ancient systems of governance which still run parallel to its modern institutions of governance (most of them were monarchial and authoritarian in nature). Quite regrettable is the fact that these parallel institutions and systems are still very much active and hold sway over the modern institution, in many cases trumping their powers and thus rendering them impotent.
Nigeria finds itself in dire straits, and if this situation remains unchecked, Nigeria’s democratic experiment might be truncated by other contending forces as has been the case in the past. One of such potent forces capable of scuttling Nigeria’s democracy has always remained the threat posed by the military establishment. In the past there have been numerous military interventions, such incidence led to the unfortunate militarization of the Nigerian polity which consequences still remains in present day Nigeria.
The line between religious and tribal interests as against the common good of the Nigerian state is blurred. There is an urgent need for the separation of such parallel interests from the functions and duties of governance at all levels in Nigeria.
Ajo: Banking for the unbanked and financially underserved populace at the Bottom of the Pyramid (BoP).
With more than half of the adult population unable to access retail banking services, the introduction of microfinance banking by the Central Bank of Nigeria (CBN) was welcomed by Nigeria’s development partners and the general populace.
However, this laudable concept was soon caught in the thorns of an inefficient Nigerian economic system and hijacked by money bags, having failed to capture its target market – ‘the poor’.
Tunde Lemo, the then deputy governor of the Central Bank, confirmed last year that some of these microfinance banks are simply ostentatious, with some of them having holidays abroad as part of their executive remuneration.
“With a package like this, how do such banks hope to reach out to those not using any bank and alleviate poverty, which are the main reasons for setting them up?,” Mr. Lemo had queried.
Within 3 years of operation, 90% of Nigeria’s Microfinance banks folded up. The Central Bank insists that every microfinance bank should have a minimum reserve of N20 million (about $130,000), while the National Deposit Insurance Corporation (NDIC) insures each depositor for a maximum of N100, 000 ($670), regardless of the amount of money invested.
Experts have identified the problems of microfinance banks in Nigeria to be similar to those of commercial banks. Some of these include severe under capitalization, extremely high levels of non-performing loans, insider lending, lack of transparency, inexperience and supervision, meager capital base, loss of customers’ confidence, and most significantly is the high overhead cost.
They have also expressed fears that the sector might collapse soon if the operators did not change their strategy.
It is in recognition of the unique challenge that Microfinance banking has faced in Nigeria that this article decided to investigate the functioning of a traditional model rooted in the Nigerian system.
In Nigeria’s multicultural society, deeply embedded within its shadow private sector, there exists a micro credit scheme little known to people outside the shores of Nigeria.
This informal banking and micro credit scheme has thrived and is even practiced beyond the national boarders of Nigeria (as far as Ghana).
An attempt will also be made to dissect the anatomy for the education of the uninformed that are yet to be acquainted with the knowledge and the workings of such a scheme.
It is also intended to investigate the possibilities of extending such a scheme beyond its current rudimentary setup in order to enhance its efficiency as a more viable strategy at enhancing the economic upliftment of the next billion still stuck at the bottom of the economic and social pyramid.
In our multi ethnic environment, it is know by different monikers among the various ethnic groups that make up the population of Nigeria, among the Yoruba, it is called “Ajo”, and among the Ibo (even in Ghana) it goes by the name “Susu” .
These two names serve as the most common names by which it is known, however, in the English language, it is simply known as “Thrift collection”. Let us for simplicity use the word Ajo to identify the scheme.
The anatomy of Ajo:
Ajo is a simple thrift collection based informal financial service, wherein the thrift collector/operator goes about to collect small deposits of funds from the clients on a daily basis. Ajo collectors are one of the oldest financial groups in Africa. Even though the origin of Ajo is quite murky at this time.
Based largely in Nigeria, they provide (for a small fee) an informal means for low income Nigerians to securely save and access their own money, and gain limited access to credit, a form of microfinance. Money looked after for an individual by an Ajo collector is held in accounts in formal banking sector.
The deposits collected from the client is determined from the beginning of each new monthly cycle by the client and sustained at the predetermined rate till the end of that particular cycle, it is at the discretion of the client to decide how much he/she can deposit on a daily basis.
The contribution is fixed around a 31 day calendar per month and at the completion of each monthly cycle, the depositor retrieves the funds minus a service charge equivalent to one day deposit which is usually for the first day deposited.
For a client who chooses to make a daily contribution of $1, at the end of 31 days, he is entitled to get back $30 from the Ajo operator, $1 fee is retained for the services of the operator.
A unique feature of the scheme is the loan apparatus which is technically interest free and has a nearly non-existent default repayment rate when compared with the very high loan defaults associated with the contemporary microfinance banking system we have in operation today in Nigeria.
Features of Ajo:
· The fundamental foundation for the Ajo business is built upon Trust and Relationship
· It is not recognised or regulated by government, there is virtually no form of institutional oversight body supervising thrift collection operators, it practically operates in the shadows of Nigeria’s financial services regulatory institutions (The Central Bank of Nigeria, Nigeria Deposit Insurance Corporation etc. are not in the know of the activities of these local financial services.
· The only form of regulation or supervision available in the domain of the thrift collector operators is usually of the informal trade unions (which serve to regulate the activities of members who volunteer to be a part of the unions, the activities of these unions are usually unorthodox, anti-competitive and pose unpleasant barriers to free market entry by new entrants)
· Majority of their clientele base is of the low income class drawn from the base of the pyramid.
· The fixed daily contribution which is required to be maintained at that rate till the end of the monthly cycle is determined at the discretion of the client.
· To start a thrift collection business, an intending Ajo operator usually requires minimal funding (start up capital required is usually of the logistics and administrative type) to enter into this line of business – high dose of passion and commitment usually serves as more strategic incentive to convince prospective clients into patronage than financial power.
· The business requires minimal overhead/operational cost for day to day business activities, because they avoid many of the excessive costs already being incurred by the modern microfinance banks, which has become their major albatross.
· The Ajo collection business in its purest form is not financed or operated using bank credit facilities.
· There is higher confidence and trust among Nigerians at the BoP in the Ajo collector operator than they have in the modern microfinance banks (from ethnographic surveys and focus groups interviews conducted)
· It serves as a reliable and constants source of micro credit for people at the BoP
· An Ajo operator usually operates on a micro-clientele base of usually around 50 to 100 clients per operator, this small scale enables them to effectively relate and supervise on an intimate base with clients rather than what is obtained in microfinance banking sectors (one on one relationship between operator and client)
· Most operators have been in business for considerable amount of time ranging from 5 years to over 25 years (from focus group interviews organized), in some cases, there has even been generational change as was with the case of one respondent who actually inherited the business from the mother after she passed away.
· Low staffing, at most, most Ajo operators employ 2 to 3 additional staffs who usually are family members, they are remunerated by cash, vocational training and are allowed to work conveniently for about 2 to 3 hours daily, this enables them keep other jobs, attend their vocational training etc. this helps keep staff cost low.
Nature of loans:
o Loans are usually for longer term clients for whom the operator has become reasonably familiar with
o The time frame for qualification for the loans usually is 1 to 3 years depending on several intrinsic factors.
o The loans offered are non collateral based.
o Non-repayment/default for loans is rare and in some cases loans might be rescheduled but they are never underwritten or declared as bad loans,
o The amounts loaned varies with each client, it does not exceed the monthly contribution capacity of individual clients, e.g. for a $30 per month client, he/she is entitled to $30 loan to be repaid in one month or rescheduled to the next month in a worst case scenario, whereas for a $300 per month client, he/she is also entitled to $300 per month on unified repayment terms basis for all clients. In essence, the loans made out to clients do not exceed the monthly contribution capacity of the client in question.
o The loan is usually advanced as an upfront for a new month, and then the client is required to commence with a daily repayment cycle for which the client is expected to complete repayment of the loan by the end of the month.
o The loan is technically interest free, since the Ajo operator only takes the 1 day service fee attached to the daily contribution, no extra charge is attached to loans offered to clients.
Challenges:
· Improper book keeping and accounting structure poses a major challenge
· Skepticism about eventual government interference, which is often attached to the fact that governance in this part of the world is more often than not a rent seeking enterprise and the fear that possible imposition of taxes might actually force operators to review their business models which might eventually lead to higher costs to the clients.
· The informal unions usually impose anti competitive rules, they also restrict domain of operation for Ajo operators, and they create artificial barriers to market entry for prospective entrants.
· The death of an operator in some cases may literally translate to the end of the business, this is however synonymous with most single ownership businesses run on a subsistent scale.
· The possibility of operators actually eloping with the funds of the clients, although rarely reported among clients interviewed also creates trust issues; this was what primarily led to the formation of the trade unions to check the activities of Ajo operators.
The next part of this paper intends to compare the Ajo scheme to the modern microfinance banking (MFB) as it was introduced in Nigeria.
The Ajo scheme has operator in the shadows of the formal banking system for long. It has recorded significant success, at low operation cost and has displayed higher efficiency in getting much needed micro-credit to those who badly require it.
It has also shown much resilience as there has been a minimal default rate among borrowers.
We intend to compare Ajo to MFB in Nigeria and drawn upon the strength and weakness thereof to propose a new model for micro credit service offering the unbanked and the underserved at the BoP in Nigeria.
However, this laudable concept was soon caught in the thorns of an inefficient Nigerian economic system and hijacked by money bags, having failed to capture its target market – ‘the poor’.
Tunde Lemo, the then deputy governor of the Central Bank, confirmed last year that some of these microfinance banks are simply ostentatious, with some of them having holidays abroad as part of their executive remuneration.
“With a package like this, how do such banks hope to reach out to those not using any bank and alleviate poverty, which are the main reasons for setting them up?,” Mr. Lemo had queried.
Within 3 years of operation, 90% of Nigeria’s Microfinance banks folded up. The Central Bank insists that every microfinance bank should have a minimum reserve of N20 million (about $130,000), while the National Deposit Insurance Corporation (NDIC) insures each depositor for a maximum of N100, 000 ($670), regardless of the amount of money invested.
Experts have identified the problems of microfinance banks in Nigeria to be similar to those of commercial banks. Some of these include severe under capitalization, extremely high levels of non-performing loans, insider lending, lack of transparency, inexperience and supervision, meager capital base, loss of customers’ confidence, and most significantly is the high overhead cost.
They have also expressed fears that the sector might collapse soon if the operators did not change their strategy.
It is in recognition of the unique challenge that Microfinance banking has faced in Nigeria that this article decided to investigate the functioning of a traditional model rooted in the Nigerian system.
In Nigeria’s multicultural society, deeply embedded within its shadow private sector, there exists a micro credit scheme little known to people outside the shores of Nigeria.
This informal banking and micro credit scheme has thrived and is even practiced beyond the national boarders of Nigeria (as far as Ghana).
An attempt will also be made to dissect the anatomy for the education of the uninformed that are yet to be acquainted with the knowledge and the workings of such a scheme.
It is also intended to investigate the possibilities of extending such a scheme beyond its current rudimentary setup in order to enhance its efficiency as a more viable strategy at enhancing the economic upliftment of the next billion still stuck at the bottom of the economic and social pyramid.
In our multi ethnic environment, it is know by different monikers among the various ethnic groups that make up the population of Nigeria, among the Yoruba, it is called “Ajo”, and among the Ibo (even in Ghana) it goes by the name “Susu” .
These two names serve as the most common names by which it is known, however, in the English language, it is simply known as “Thrift collection”. Let us for simplicity use the word Ajo to identify the scheme.
The anatomy of Ajo:
Ajo is a simple thrift collection based informal financial service, wherein the thrift collector/operator goes about to collect small deposits of funds from the clients on a daily basis. Ajo collectors are one of the oldest financial groups in Africa. Even though the origin of Ajo is quite murky at this time.
Based largely in Nigeria, they provide (for a small fee) an informal means for low income Nigerians to securely save and access their own money, and gain limited access to credit, a form of microfinance. Money looked after for an individual by an Ajo collector is held in accounts in formal banking sector.
The deposits collected from the client is determined from the beginning of each new monthly cycle by the client and sustained at the predetermined rate till the end of that particular cycle, it is at the discretion of the client to decide how much he/she can deposit on a daily basis.
The contribution is fixed around a 31 day calendar per month and at the completion of each monthly cycle, the depositor retrieves the funds minus a service charge equivalent to one day deposit which is usually for the first day deposited.
For a client who chooses to make a daily contribution of $1, at the end of 31 days, he is entitled to get back $30 from the Ajo operator, $1 fee is retained for the services of the operator.
A unique feature of the scheme is the loan apparatus which is technically interest free and has a nearly non-existent default repayment rate when compared with the very high loan defaults associated with the contemporary microfinance banking system we have in operation today in Nigeria.
Features of Ajo:
· The fundamental foundation for the Ajo business is built upon Trust and Relationship
· It is not recognised or regulated by government, there is virtually no form of institutional oversight body supervising thrift collection operators, it practically operates in the shadows of Nigeria’s financial services regulatory institutions (The Central Bank of Nigeria, Nigeria Deposit Insurance Corporation etc. are not in the know of the activities of these local financial services.
· The only form of regulation or supervision available in the domain of the thrift collector operators is usually of the informal trade unions (which serve to regulate the activities of members who volunteer to be a part of the unions, the activities of these unions are usually unorthodox, anti-competitive and pose unpleasant barriers to free market entry by new entrants)
· Majority of their clientele base is of the low income class drawn from the base of the pyramid.
· The fixed daily contribution which is required to be maintained at that rate till the end of the monthly cycle is determined at the discretion of the client.
· To start a thrift collection business, an intending Ajo operator usually requires minimal funding (start up capital required is usually of the logistics and administrative type) to enter into this line of business – high dose of passion and commitment usually serves as more strategic incentive to convince prospective clients into patronage than financial power.
· The business requires minimal overhead/operational cost for day to day business activities, because they avoid many of the excessive costs already being incurred by the modern microfinance banks, which has become their major albatross.
· The Ajo collection business in its purest form is not financed or operated using bank credit facilities.
· There is higher confidence and trust among Nigerians at the BoP in the Ajo collector operator than they have in the modern microfinance banks (from ethnographic surveys and focus groups interviews conducted)
· It serves as a reliable and constants source of micro credit for people at the BoP
· An Ajo operator usually operates on a micro-clientele base of usually around 50 to 100 clients per operator, this small scale enables them to effectively relate and supervise on an intimate base with clients rather than what is obtained in microfinance banking sectors (one on one relationship between operator and client)
· Most operators have been in business for considerable amount of time ranging from 5 years to over 25 years (from focus group interviews organized), in some cases, there has even been generational change as was with the case of one respondent who actually inherited the business from the mother after she passed away.
· Low staffing, at most, most Ajo operators employ 2 to 3 additional staffs who usually are family members, they are remunerated by cash, vocational training and are allowed to work conveniently for about 2 to 3 hours daily, this enables them keep other jobs, attend their vocational training etc. this helps keep staff cost low.
Nature of loans:
o Loans are usually for longer term clients for whom the operator has become reasonably familiar with
o The time frame for qualification for the loans usually is 1 to 3 years depending on several intrinsic factors.
o The loans offered are non collateral based.
o Non-repayment/default for loans is rare and in some cases loans might be rescheduled but they are never underwritten or declared as bad loans,
o The amounts loaned varies with each client, it does not exceed the monthly contribution capacity of individual clients, e.g. for a $30 per month client, he/she is entitled to $30 loan to be repaid in one month or rescheduled to the next month in a worst case scenario, whereas for a $300 per month client, he/she is also entitled to $300 per month on unified repayment terms basis for all clients. In essence, the loans made out to clients do not exceed the monthly contribution capacity of the client in question.
o The loan is usually advanced as an upfront for a new month, and then the client is required to commence with a daily repayment cycle for which the client is expected to complete repayment of the loan by the end of the month.
o The loan is technically interest free, since the Ajo operator only takes the 1 day service fee attached to the daily contribution, no extra charge is attached to loans offered to clients.
Challenges:
· Improper book keeping and accounting structure poses a major challenge
· Skepticism about eventual government interference, which is often attached to the fact that governance in this part of the world is more often than not a rent seeking enterprise and the fear that possible imposition of taxes might actually force operators to review their business models which might eventually lead to higher costs to the clients.
· The informal unions usually impose anti competitive rules, they also restrict domain of operation for Ajo operators, and they create artificial barriers to market entry for prospective entrants.
· The death of an operator in some cases may literally translate to the end of the business, this is however synonymous with most single ownership businesses run on a subsistent scale.
· The possibility of operators actually eloping with the funds of the clients, although rarely reported among clients interviewed also creates trust issues; this was what primarily led to the formation of the trade unions to check the activities of Ajo operators.
The next part of this paper intends to compare the Ajo scheme to the modern microfinance banking (MFB) as it was introduced in Nigeria.
The Ajo scheme has operator in the shadows of the formal banking system for long. It has recorded significant success, at low operation cost and has displayed higher efficiency in getting much needed micro-credit to those who badly require it.
It has also shown much resilience as there has been a minimal default rate among borrowers.
We intend to compare Ajo to MFB in Nigeria and drawn upon the strength and weakness thereof to propose a new model for micro credit service offering the unbanked and the underserved at the BoP in Nigeria.
Cartels in Nigeria: How They Divide and Run the Markets
On a Saturday morning, I was on a visit to a neighbour’s house, on arrival, I took advantage of the crude gym implements at his place to flex my muscles, just 10 minutes into the session, and my practice was interrupting by some marauders who introduced themselves as the local union of commercial gym operators.
Whose job it was to ensure the smooth operation and regulation of their line of business within the geographical space that made up our neighbourhood.
That isolated incidence and the argument that ensued almost led to violence and this has informed my decision to write this piece about Nigeria’s business environment; its unofficial regulators and regulations.
They operate with much impunity. This has led to the kidnap of Nigeria’s markets by the cartels that dot the entire business landscape of Nigeria.
The Nigerian economy is one of the few in the world that encourages cartels to hold the consumers and even the regulators hostage.
When issues related to the nefarious activities of such cartels are tabled for deliberations on a national level, there is often the temptation to ascribe the immense powers of these cartels to an evil cabal responsible for sustaining the powers of such cartels.
Essentially, such conspiracy theory may be founded considering the moral bankruptcy of Nigeria’s political economy, these has aided them to maintain their stranglehold on Nigeria’s markets.
However, an often ignored reality is that the tendency for "cartelism" is a syndrome that is hard coded in the DNA of the average Nigerian (in business or social interactions), the mindset here is to form cliques that would run things as an elite group thereby insidiously oppressing others.
This mentality cuts across all strata of the social echelon in Nigeria and is very much prevalent at the BoP.
One of the major obstacles faced by a prospective investor in the Nigerian economy is the existence of unnecessary and outlandish artificial barriers created either by rent seekers within the national/regional regulatory authorities or individuals/groups who constitute themselves as authorities within their sphere of illegal influence.
Somehow, they manage to gain legitimacy and hence impose their reign of caprice on all and sundry.
The scope of operation of most cartels in Nigeria follows a basic path: control the market, maintain an executive that imposes levies on their members and controls market entry, upward regulation of price (prices are hardly influenced by market forces of supply and demand), creating artificial barriers for market entry (for prospective investors who desire to enter the market), and anti competitive tactics (such as predatory pricing) etc.
A major consequence of these antics is that consumers are often held to ransom and made to pay arbitrary prices for goods and services.
The experience at my friend’s personal gym gives a tip of the whole mass of what the cartels do to run down market efficiency and competitiveness in Nigeria.
If the commercial gym service operators offered better quality of service, surely they wouldn’t have any need to fear my friend’s pro bono service as people are often willing to pay for quality service.
We all agree that competition is the primary catalyst for innovation, technological advancement and economic development; therefore if meaningful progress must be achieved in Nigeria’s market place and economic landscape.
The promotion of competition should remain be a major policy tool, irrespective of the current cultural or accepted behavioural patterns in our political and business space.
Nigeria’s government has in the past attempted to arrest this situation, for the records; six times the government tried and six times it failed, although they claim that they could point out the exact reasons why these efforts met a brick wall.
I believe that the problem is in two folds, first the fact that it is encoded into the character of the average Nigerian business person to tow the part of mediocrity – here, innovators are an exception and often few (and so try their best to set up protective measures against possible competition that would rout out slapdash business ethics)
And second the monumentally weak governance institution that exists in Nigeria has made the reign of feudal lords and artificial spheres of influence thrive either in business or politics.
Here we have states within a state, institutions within institutions and economic blocs within the larger economy, a very complicated and often Byzantine maze for anyone to easily navigate.
Some of such cartels that hold hostage Nigerians at the BoP include:
· National Union of Road Transport Workers (NURTW) and the Road Transport Employers Association of Nigeria (RTEAN) – responsible for the motor park touts/extortionists popularly called agberos
· Motorcycle Operators Association of Lagos State (MOALS) – the motor bikes that are often employed by people at the BoP as a form of self employment initiative to provide public transport within cities across Nigeria. MOALS is the notorious Lagos State chapter that makes life difficult for people trying to enter the trade; they maintain their own touts that go on an extortion spree targeting individual operators.
· Barbers and Hair stylists associations scattered across cities in the entire federation of Nigeria
· Vulcanizers (local name for automobile tire repairers) and automobile mechanic technicians association.
· Gym owners association
· Tailors and fashion designers association
The list is endless; any new trade that comes into existence is followed by a union or association of similar trade operators whose ultimate goal has always been market control.
At the top echelon of the society, the cartels in operation are the more noticeable Major Oil Marketers Association of Nigeria (MOMAN) the rice and cement cartels, the diesel cartels, cartels controlling the sales and imports of salt, sugar and other major staples, the nefarious hard drugs cartels etc.
The solution to the cartel dilemma is a systematic and simultaneous elimination of parallel institutions that run alongside the established and recognised governance institutions, followed by a strengthening of the existing governance institutions.
These parallel institutions continue to thrive by ensuring that regulatory agencies and other governmental institutions of the state remain inefficient and weak.
Considering the strategic importance of having free and fair competitive economy, competition policy has a significant role to play in promoting competitiveness and growth.
This has led to the increasing concern that besides seemingly weak sector-specific laws on competition in Nigeria, efforts to have a competition law for Nigeria has failed.
Previous efforts are chronicled below. None has been given a serious attention.
Draft Bill 1:
Federal Competition Bill 2002 - A bill for an Act to set-up federal competition. To provide the necessary conditions for market competition and to stimulate creative business activities, protect consumers, and promote the balanced development of the national economy by prohibiting restrictive contracts and business practices that substantially lessen competition and regulating the abuse of dominant positions of market power and anticompetitive business combines, and to establish the Federal Competition Commission for the effective implementation and enforcement of this bill and for matters connected therewith. This is in an Executive Bill sponsored by the Federal Government through the Bureau of Public Enterprises (BPE). This draft bill was presented as an executive bill to the Senate in 2002.
Draft Bill 2:
National Anti-trust (Prohibitions, enforcement, etc) Bill 2004: An act to regulate and prohibit unfair competition and unreasonable combinations in restraint of commerce, industry and trade, including monopolies, trusts and interlocking directorates, for the purposes of maintaining and strengthening the free enterprise system, ensuring unrestrained competition, and establishing a level playing field, in business in the federation, and to make provision for other matters relating thereto. This bill was sponsored by Hon. Halims Agoda and others and presented to the House of Representatives in 2004.
Draft Bill 3:
Competition (Anti-trust) Bill 2007-sponosred by Hon. C. I. D Maduabum. Presented to the House of Representatives in 2007. First reading was on September 5, 2007. No second reading till date.
Draft Bill 4:
Nigerian Trade and Competition Commission Bill 2008 - The bill was sponsored by Senator Joel Ikenya. First read on November 6, 2008. Referred to Joint Committee on establishment and Public Service matters, Judiciary, Human Rights and Legal matters, and Commerce.
Draft Bill 5:
Nigerian Anti-trust (enforcement, miscellaneous provisions, etc), 2008 - A bill for an Act to prohibit monopolies to trade, commerce or industry, to regulate the business activities of companies and trust with regard to restraints in trade or commerce, to establish the anti-trust division for the purposes of enforcing the provisions thereof and to foster the sustenance and development of a free market system, and secure the practice of a fair and open market system, etc.
The bill was sponsored by senators Heineken Lokpobiri and F. K. Bajomo and was first read on April 23, 2008. It was never read a second time.
Draft Bill 6:
Competition and Consumer Protection Bill 2009. On April 22, 2009, late President Umaru Musa Yar'Adua presented before the Federal Executive Council (FEC) a bill that seeks to promote the welfare and interests of consumers and provide them with competitive prices and choices.
It also seeks to regulate monopolies, merger and acquisitions and all forms of business combinations and prohibit restrictive business practices, which prevent, restrict or distort competition or constitute the abuse of a dominant player in the market.
Approval of the bill was differed till another date to enable council members sort-out grey areas in the bill and for proper harmonization with the existing sector-specific regulatory laws.
At a national training workshop on competition policy in Abuja penultimate week, the general Coordinator of Consumers Empowerment Organisation of Nigerian (CEON), Mr. Adedeji Babatunde identified political economy constraints in implementing competition regimes.
Some of these, he listed as lack f consensus amongst the relevant government ministries, departments and agencies on the competition commission; low awareness of benefit of competition law for the country in the political circle; possible hostility from large business (state monopolies that were privatized, at the beginning of the privatization process, which are weary that the competition law is designed to weaken their position in the sectoral markets.
One way of achieving this is to ensure that the people employed to run such regulatory agencies and competition authorities would be people committed and passionate about making positive impact and transforming Nigeria’s market place to becoming more open, free and driven by fair playing practices, not government lip service as they have done in the past years.
Whose job it was to ensure the smooth operation and regulation of their line of business within the geographical space that made up our neighbourhood.
That isolated incidence and the argument that ensued almost led to violence and this has informed my decision to write this piece about Nigeria’s business environment; its unofficial regulators and regulations.
They operate with much impunity. This has led to the kidnap of Nigeria’s markets by the cartels that dot the entire business landscape of Nigeria.
The Nigerian economy is one of the few in the world that encourages cartels to hold the consumers and even the regulators hostage.
When issues related to the nefarious activities of such cartels are tabled for deliberations on a national level, there is often the temptation to ascribe the immense powers of these cartels to an evil cabal responsible for sustaining the powers of such cartels.
Essentially, such conspiracy theory may be founded considering the moral bankruptcy of Nigeria’s political economy, these has aided them to maintain their stranglehold on Nigeria’s markets.
However, an often ignored reality is that the tendency for "cartelism" is a syndrome that is hard coded in the DNA of the average Nigerian (in business or social interactions), the mindset here is to form cliques that would run things as an elite group thereby insidiously oppressing others.
This mentality cuts across all strata of the social echelon in Nigeria and is very much prevalent at the BoP.
One of the major obstacles faced by a prospective investor in the Nigerian economy is the existence of unnecessary and outlandish artificial barriers created either by rent seekers within the national/regional regulatory authorities or individuals/groups who constitute themselves as authorities within their sphere of illegal influence.
Somehow, they manage to gain legitimacy and hence impose their reign of caprice on all and sundry.
The scope of operation of most cartels in Nigeria follows a basic path: control the market, maintain an executive that imposes levies on their members and controls market entry, upward regulation of price (prices are hardly influenced by market forces of supply and demand), creating artificial barriers for market entry (for prospective investors who desire to enter the market), and anti competitive tactics (such as predatory pricing) etc.
A major consequence of these antics is that consumers are often held to ransom and made to pay arbitrary prices for goods and services.
The experience at my friend’s personal gym gives a tip of the whole mass of what the cartels do to run down market efficiency and competitiveness in Nigeria.
If the commercial gym service operators offered better quality of service, surely they wouldn’t have any need to fear my friend’s pro bono service as people are often willing to pay for quality service.
We all agree that competition is the primary catalyst for innovation, technological advancement and economic development; therefore if meaningful progress must be achieved in Nigeria’s market place and economic landscape.
The promotion of competition should remain be a major policy tool, irrespective of the current cultural or accepted behavioural patterns in our political and business space.
Nigeria’s government has in the past attempted to arrest this situation, for the records; six times the government tried and six times it failed, although they claim that they could point out the exact reasons why these efforts met a brick wall.
I believe that the problem is in two folds, first the fact that it is encoded into the character of the average Nigerian business person to tow the part of mediocrity – here, innovators are an exception and often few (and so try their best to set up protective measures against possible competition that would rout out slapdash business ethics)
And second the monumentally weak governance institution that exists in Nigeria has made the reign of feudal lords and artificial spheres of influence thrive either in business or politics.
Here we have states within a state, institutions within institutions and economic blocs within the larger economy, a very complicated and often Byzantine maze for anyone to easily navigate.
Some of such cartels that hold hostage Nigerians at the BoP include:
· National Union of Road Transport Workers (NURTW) and the Road Transport Employers Association of Nigeria (RTEAN) – responsible for the motor park touts/extortionists popularly called agberos
· Motorcycle Operators Association of Lagos State (MOALS) – the motor bikes that are often employed by people at the BoP as a form of self employment initiative to provide public transport within cities across Nigeria. MOALS is the notorious Lagos State chapter that makes life difficult for people trying to enter the trade; they maintain their own touts that go on an extortion spree targeting individual operators.
· Barbers and Hair stylists associations scattered across cities in the entire federation of Nigeria
· Vulcanizers (local name for automobile tire repairers) and automobile mechanic technicians association.
· Gym owners association
· Tailors and fashion designers association
The list is endless; any new trade that comes into existence is followed by a union or association of similar trade operators whose ultimate goal has always been market control.
At the top echelon of the society, the cartels in operation are the more noticeable Major Oil Marketers Association of Nigeria (MOMAN) the rice and cement cartels, the diesel cartels, cartels controlling the sales and imports of salt, sugar and other major staples, the nefarious hard drugs cartels etc.
The solution to the cartel dilemma is a systematic and simultaneous elimination of parallel institutions that run alongside the established and recognised governance institutions, followed by a strengthening of the existing governance institutions.
These parallel institutions continue to thrive by ensuring that regulatory agencies and other governmental institutions of the state remain inefficient and weak.
Considering the strategic importance of having free and fair competitive economy, competition policy has a significant role to play in promoting competitiveness and growth.
This has led to the increasing concern that besides seemingly weak sector-specific laws on competition in Nigeria, efforts to have a competition law for Nigeria has failed.
Previous efforts are chronicled below. None has been given a serious attention.
Draft Bill 1:
Federal Competition Bill 2002 - A bill for an Act to set-up federal competition. To provide the necessary conditions for market competition and to stimulate creative business activities, protect consumers, and promote the balanced development of the national economy by prohibiting restrictive contracts and business practices that substantially lessen competition and regulating the abuse of dominant positions of market power and anticompetitive business combines, and to establish the Federal Competition Commission for the effective implementation and enforcement of this bill and for matters connected therewith. This is in an Executive Bill sponsored by the Federal Government through the Bureau of Public Enterprises (BPE). This draft bill was presented as an executive bill to the Senate in 2002.
Draft Bill 2:
National Anti-trust (Prohibitions, enforcement, etc) Bill 2004: An act to regulate and prohibit unfair competition and unreasonable combinations in restraint of commerce, industry and trade, including monopolies, trusts and interlocking directorates, for the purposes of maintaining and strengthening the free enterprise system, ensuring unrestrained competition, and establishing a level playing field, in business in the federation, and to make provision for other matters relating thereto. This bill was sponsored by Hon. Halims Agoda and others and presented to the House of Representatives in 2004.
Draft Bill 3:
Competition (Anti-trust) Bill 2007-sponosred by Hon. C. I. D Maduabum. Presented to the House of Representatives in 2007. First reading was on September 5, 2007. No second reading till date.
Draft Bill 4:
Nigerian Trade and Competition Commission Bill 2008 - The bill was sponsored by Senator Joel Ikenya. First read on November 6, 2008. Referred to Joint Committee on establishment and Public Service matters, Judiciary, Human Rights and Legal matters, and Commerce.
Draft Bill 5:
Nigerian Anti-trust (enforcement, miscellaneous provisions, etc), 2008 - A bill for an Act to prohibit monopolies to trade, commerce or industry, to regulate the business activities of companies and trust with regard to restraints in trade or commerce, to establish the anti-trust division for the purposes of enforcing the provisions thereof and to foster the sustenance and development of a free market system, and secure the practice of a fair and open market system, etc.
The bill was sponsored by senators Heineken Lokpobiri and F. K. Bajomo and was first read on April 23, 2008. It was never read a second time.
Draft Bill 6:
Competition and Consumer Protection Bill 2009. On April 22, 2009, late President Umaru Musa Yar'Adua presented before the Federal Executive Council (FEC) a bill that seeks to promote the welfare and interests of consumers and provide them with competitive prices and choices.
It also seeks to regulate monopolies, merger and acquisitions and all forms of business combinations and prohibit restrictive business practices, which prevent, restrict or distort competition or constitute the abuse of a dominant player in the market.
Approval of the bill was differed till another date to enable council members sort-out grey areas in the bill and for proper harmonization with the existing sector-specific regulatory laws.
At a national training workshop on competition policy in Abuja penultimate week, the general Coordinator of Consumers Empowerment Organisation of Nigerian (CEON), Mr. Adedeji Babatunde identified political economy constraints in implementing competition regimes.
Some of these, he listed as lack f consensus amongst the relevant government ministries, departments and agencies on the competition commission; low awareness of benefit of competition law for the country in the political circle; possible hostility from large business (state monopolies that were privatized, at the beginning of the privatization process, which are weary that the competition law is designed to weaken their position in the sectoral markets.
One way of achieving this is to ensure that the people employed to run such regulatory agencies and competition authorities would be people committed and passionate about making positive impact and transforming Nigeria’s market place to becoming more open, free and driven by fair playing practices, not government lip service as they have done in the past years.
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