Oluwakemi Sule runs a small stall in one of the largest markets in Lagos. Every day, the 53-year-old mother-of-three sells her goods on a street-level plank atop a dry gutter at Ojuwoye Market in the Mushin neighbourhood of Nigeria’s most populous city. Her husband died three years ago, and since then she has been the sole provider for her three children, who all rely on her stall to survive. Each item she hopes to sell has been purchased with loans taken from a microfinance bank.
With Nigeria among the countries with the highest population of people living below the poverty line, a majority of Nigerians do not have a deposit bank account, with many unable to meet the requirements for a conventional bank loan or savings account. In its place, microfinance banks have become the most convenient way to secure capital for the country’s poorest.
Microfinancing is a banking service targeted towards low-income individuals or groups without formal access to financial services. The concept was first tried in Bangladesh in the 1970s to reduce rural poverty and has since gained a foothold in most developing countries including Nigeria as a poverty-alleviation scheme. As of 2018, there were 882 microfinance banks across Nigeria licensed by the Central Bank of Nigeria (CBN).
The majority of microfinancing loans in Nigeria are given to women as they run the vast majority of small businesses in the country. Even though the government promotes the banks as an empowerment tool, Oluwakemi says women like her are struggling under the weight of their discriminatory practices.
For the past ten years, Oluwakemi has relied on these loans to keep her business afloat. She takes it twice a year, most often in January and June.
‘’I collect the loans because there is no choice,” she told VICE World News. “The interest rate is very high and it is more like you are working for the banks.”
In June 2020, she collected a 300,000 naira (£570) loan to replenish her stock. The loan is to be repaid piecemeal, weekly for thirty weeks. Every Tuesday, she takes 12,000 naira (£22) in cash to one of the offices of the bank nearest to her or gives it to one of the women she has been paired with, who is responsible for ensuring that they both keep up with their payments.
Oluwakemi says the banks take advantage of people’s desperation and the lack of literacy among many of the women working in the market by inserting hidden charges like additional interest and unexplained miscellaneous fees, shooting the interest rate beyond 20 percent — a claim Seyi Fatoye, a former staffer at one of the largest microfinance banks in Nigeria for three years, corroborated.
The interest on her loan amounts to 60,000 naira (£114), which will eat a significant chunk from her profits. According to Dr Olalekan Obademi, a lecturer in the Department of Finance at the University of Lagos, the interest rate is extremely high when you consider the main goal of a microfinance institution is to reduce poverty and build financial self-sufficiency for economically vulnerable people.
“The business environment in which the microfinance banks are operating is harsh,’’ Obademi told VICE World News. ‘’The institution has to be pro-poor.’’
“[The] loans will wreck you,’’ Oluwakemi added.
In October last year, President Muhammadu Buhari announced the closure of all of Nigeria’s land borders to imported goods. The government claimed the step was necessary to boost local production of foods and goods. But the startling decision took a toll on an import-dependent economy causing a surge in the price of goods and commodities. This coupled with a pandemic that saw a drastic drop in the global demand for oil — effectively Nigeria’s sole revenue generator — and a haemorrhaging currency plunged the country into its second recession in five years, worsening poverty in an already struggling nation.
In the market, small-scale businesswomen like Oluwakemi reel from a 14 percent rise in inflation, while the terms of their loans remain unaltered.
‘’The price of everything in the market goes higher every day,” Samiat Kareem — a trader and mother-of-two who also takes loans from a microfinance bank in Lagos — told VICE World News as she pointed to a carton in a stack by the dusty roadside. “For example, this carton of oil used to cost 10,000 naira (£19) and now it is 14,800 naira (£26). And nothing changed with the loan. During the lockdown, some of the microfinance banks added extra [interest] because they said the banks lost money during that period. People refused to pay it and threatened to quit some of the banks and it was reversed.”
Prior to the institutionalisation of the informal microfinance sector in 2015 by the CBN, just 39 percent of Nigeria’s adult population had a deposit bank. The CBN announced that the plan would bring ‘’existing informal institutions...within the supervisory purview of the CBN’’.
Up until then, individuals relied on traditional alternatives to find financing for their businesses, such as through small, informal contributory savings schemes like “Esusu” and “Ajo,” where a group of people come together to contribute an agreed sum of money at agreed intervals and the total amount is given to a member or multiple members of the group weekly or monthly.
According to a Policy Research Working Paper published in 2017 by the World Bank Group, 54 percent of the 16 million microfinance banks customers in Sub-Sahara Africa are women, while 37 percent are among the world's poorest women. Microfinance banking seemed like a ticket out, but the experiences of low-income businesswomen like Oluwakemi point to a different reality.
The CBN is meant to regulate microfinance banks with a dedicated sector supervising their operations. “There is a regulatory failure on the part of the central bank,” Obademi said. “You can’t expect to access funds at the general market at the current MPR of about 14 percent and dole it out at nothing less than 20 percent because they also have to make a margin. So there must be a deliberate plan by the government to make sure that credit must be accessed by the poor at a concessionary interest rate.’’
Still, despite the predatory loan arrangements, the institution still serves as the only economic lifeline for most poor women in many parts of Nigeria. It provides much-needed cash without the complicated bureaucratic process of conventional banks and their demands for collateral.
“The process is not complex like the [conventional] banks,” Oluwakemi said. “You just need to fill a couple of forms and join a group and if you want to stand alone, you only need two guarantors to stand for you and one of them should be your husband.”
After years of struggling to pay back loans, Oluwakemi has decided to join an Ajo with other traders in the market. Every day, she contributes a meagre 200 naira (£0.38), to a pool of savings with twenty or thirty other women.
At the end of each day, the total amount will be given to one of the members of the savings pool to use.
‘“I don’t wish to return to collecting microfinance loan,’’ Oluwakemi said, adding that she’s not alone as more women are turning back to these informal, community-led credit arrangements. “People are abandoning the banks and looking for solutions elsewhere.”
These arrangements require trust between every member of the savings pool. The microfinance banks have tried to replicate some of these community practices only to put more pressure on borrowers.
‘’Microfinance banks will normally attach you with other women and one of us would be appointed the leader,’’ she said. ‘’The leader is responsible for the whole group and if any of the members fail to pay back, it is either they deduct from the savings the leader has with the bank or they deduct from the rest of the group as punishment. “Even sometimes the leader can take from the money and mismanage it.”
Defaulting on a loan can have serious consequences, too, with people known to be shamed in public and arbitrarily detained by the bank to serve as a deterrent to others, Oluwakemi said. “I think the different bodies coordinating the microfinance banks need to look into the treatment of their customers,’’ Seyi added.
“There is a lot of pressure. Some weeks, it is impossible to pay back the money – market might not have gone well and there are other things you want to do with the money. "They don’t just care about you, it is their money they are after.’’