INTRODUCTION

1. INTEGRATING FINANCIAL SERVICES INTO POVERTY REDUCTION STRATEGIES - THE NIGERIAN EXPERIENCE INTRODUCTION Nigeria: population of about 130 million, land area of 924,000 square kilometers, over 200 ethnic groups and at least 500 indigenous languages and dialects, Agriculture is the country’s dominant economic activity.

2. INTRODUCTION ctnd Nigeria: poverty levels is about a quarter of sub-Saharan Africa’s poor, Over 65 % of the population of Nigeria lives below the poverty line This contradicts the nation’s abundant agricultural, gas and several untapped solid mineral resource endowments.

3. DIMENSIONS OF POVERTY IN NIGERIAIN The Poor are mainly agricultural producers with slow growth in rural and peri-urban areas, Areas where they live suffer from: environmental degradation, lack of access to productive inputs, high population and poor infrastructures.

4. DIMENSIONS OF POVERTY IN NIGERIAIN Areas where they live suffer from ctnd: Little or no formal  education, temporary famine and malnutrition in the period between one harvest and the other, Poor dwellings, sanitation, health facilities, Lack of proper clothing, very poor physical outlook,

5. DIMENSIONS OF POVERTY IN NIGERIAIN Table 1 NIGERIA: TREND IN POVERTY LEVEL (1980 – 1996) SOURCE: Federal Office of Statistics (National Bureau for Statistics), National Census Survey

6. DIMENSIONS OF POVERTY IN NIGERIAIN Table 11: Nigeria: Social Indicators (1990 – 2001)

7. DIMENSIONS OF POVERTY IN NIGERIAIN Poverty caused by: macro economic distortions resulting in sluggish economy, non-competitiveness of Nigerian goods in the international markets, bad governance and its attendant misplaced priorities, few economic opportunities, Corruption, conflict and violence.

8. DIMENSIONS OF POVERTY IN NIGERIAIN Poverty caused by ctnd: huge debt burden; low productivity; high rate of population growth poor policy formulation and lack of policy continuity, multiciplicity of institutions and agencies with overlapping functions, poor coordination and monitoring.

9. GOVERNMENT POVERTY REDUCTION EFFORTS IN NIGERIA ctnd In the 1970s to 80s: emphasis on agriculture and the rural sector, In the late seventies to the early eighties: Sectoral allocation quotas, CBN prescribed interest rates, and rural banking policy, In 1972, the Nigerian Agricultural Co-operative Bank and the Agricultural Credit Guarantee Scheme Fund in 1977, In 1989, Peoples’ Bank of Nigeria to provide loans to people engaged in small businesses requiring small amounts of start up capital.

10. GOVERNMENT POVERTY REDUCTION EFFORTS IN NIGERIA ctnd Other policies/programmes: the Directorate of Roads, Foods and Rural Infrastructure, National Directorate of Employment, Better Life For Rural Women, Family Economic Advancement Programme, Agricultural Development Projects and River basin and Rural Development Authorities.

11. GOVERNMENT POVERTY REDUCTION EFFORTS IN NIGERIA ctnd In the 1990s to date: In the 1990s: more result oriented and wholistic approaches to poverty alleviation In 1992, the Community Banking Programme was launched to promote and enhance economic activities in the rural areas In 1994, a broad-based Poverty Alleviation Development Committee (PAPDC) under the aegis of National Planning Commission (NPC) was set up, In 1998, the formation of an action strategy code-named Community Action Programme for Poverty Alleviation (CAPPA), In May 1999, the Federal Government, decisively streamlined and rationalized all the poverty alleviation institutions and agencies,

12. GOVERNMENT POVERTY REDUCTION EFFORTS IN NIGERIA ctnd Merged the Peoples’ Bank and NACB to form NACRDB in 2000, established the National Poverty Eradication Council (NAPEC) superintending over all multi-sector poverty reduction related activities of all the relevant Federal Ministries, Parastatals and Agencies within the country, In 2001 the National Poverty Eradication Programme (NAPEP) was established to address the challenge of poverty in Nigeria and serve as the Secretariat of the National Poverty Eradication Council (NAPEC). NAPEP adopts the bottom-up approach to programme implementation and monitoring and it is not limited to the life span of any particular government or administration in the country. In March 2004, the country launched the National Economic Empowerment and Development Strategy with the following poverty reduction emphasis:

13. GOVERNMENT POVERTY REDUCTION EFFORTS IN NIGERIA ctnd Ensuring and sustaining unfettered access to education for the total development of the individual, Strengthening the preventive and curative primary health care services to improve the health of Nigerians and reduce poverty, Developing affordable houses for the masses through popularization of the use of local raw materials and monetization of civil servants housing scheme,

14. GOVERNMENT POVERTY REDUCTION EFFORTS IN NIGERIA ctnd Promoting a virile private sector as a way of generating employment for the unemployed and youths, Integrating women by enhancing their capacity to participate in economic, social, political and cultural life of the country, and Promoting agricultural productivity and access to portable waters supply.

15. Central Bank of Nigeria Related Initiatives and Programmes Management of the Agricultural Credit Guarantee Scheme Fund, Coordination of the Small and Medium Industries Equity Investment Scheme, and Development and implementation of rural/microfinance policy.

16. Agricultural Credit Guarantee Scheme Established in 1977 with initial authorised capital base of N100million, subscribed by the Federal Government of Nigeria (FGN) and the Central Bank of Nigeria (CBN) in the ratio of 60:40 respectively. Capital base has been increased and now stands at N3.0billion.

17. Agricultural Credit Guarantee Scheme Ctnd • The Guarantee Cover • Loans granted to the agricultural sector by banks (universal and community banks). • Pays 75 percent of the net balance in the account of the clients in the event of default. • Target clientele - farmers: individuals, co-operative societies and corporate entities. • Limits of lending are: • Individuals (1) N20,000.00 without tangible security (2) N1,000,000 with tangible securities • Co-operative societies and limited liability companies -N10.0million (with collateral)

18. Agricultural Credit Guarantee Scheme Ctnd National Performance :1978 to 31st December 2004: • A total of 397,422 loans amounting to N7.6billion were guaranteed. • 278,104 loans amounting to N4.54billion were fully repaid. • Repayment performance was thus 69.98% by number and 59.72% by value of loans guaranteed.

19. Innovations Under the ACGSF 1996, economy was deregulated. Banks became free to determine their investment options. Agricultural lending and small holder project funding suffered. CBN initiated products and innovations to encourage financial institutions to continue to participate in ACGSF activities.

20. MAIN ACGSFPRODUCTS AND INNOVATIONS

21. MAIN ACGSF PRODUCTS AND INNOVATIONS Self-Help Groups Linkage With Banks Fashioned in 1992 as a mechanism for the promotion of savings mobilization and credit delivery under the ACGS. Groups save in the banks where they intend to take loan and the savings act as cash security for the intended loan. Over time, savings culture is entrenched and capital is accumulated. Group is enabled to fully or partly support members’ operational activities. The CBN assists in the linkage of the banks and the groups and in building their capacity for mutually beneficial business relationships.

22. MAIN ACGSF PRODUCTS AND INNOVATIONS Trust Fund Model Conceived to reduce the risk which banks are exposed to in their lending to uncollateralized agricultural borrowers. Involves the mediation of any willing party that would want to pledge funds in the banks as cash security for loans to certain clients. Parties include governments, churches, NGOs, companies etc and lending are normally done to saving Self-Help Groups (SHGs).

23. MAIN ACGSF PRODUCTS AND INNOVATIONS Trust Fund Model Ctnd The steps involved in the adoption of the TFM include: Decision by a state/local government or other organization to dedicate/commit some funds for the improvement of the living standards of its people: Invitation by state government/any other organization to CBN and willing partner banks (intermediary banks) to a preliminary meeting to discuss the modalities of the Trust Fund Model. Drafting, finalization and signing of a Memorandum of Understanding (MOU) on the project.

24. MAIN ACGSF PRODUCTS AND INNOVATIONS Trust Fund Model Ctnd Provision of evidence that the state government/any other organization have deposited 25 percent of the proposed client loan exposure in the intermediary bank and that the prospective clients have been formed into non-politicized small holder groups, linked to the bank and saved additional 25 percent of the intended loan amount. Application for loan from the intermediary bank by the groups. Inspection of the projects, approval of the loan (usually two times the sum of the government deposit and farmers savings) and application to the ACGSF for guarantee. Guarantees of 75% of the of 50 percent unsecured part of the loan package by the ACGSF. Disbursement of loan

25. MAIN ACGSF PRODUCTS AND INNOVATIONS • Trust Fund Model Ctnd • Performance of the TFM: • Katsina State N1,000,000,000.00 • Kogi State N180,000,000.00 • Ondo State N100,000,000.00 • Kaduna State N100,000,000.00 • Jigawa State N500,000,000.00 • Benue State N15,000,000.00 • Nassarawa State N10,00,000.00

26. MAIN ACGSF PRODUCTS AND INNOVATIONS Interest Drawback Programme (IDP) Introduced with effect from 2003 lending season. Capital of N2.0 billion, separate from the ACGSF. Funded jointly by the Federal Government of Nigeria and the Central Bank of Nigeria in 60:40 shareholding ratio. Assist borrowers under the ACGSF reduce their effective borrowing rates. Farmers borrow from lending banks at market-determined rates but are given interest rebate of 40% if they repay their loans as and at when due. A total of 10,366 IDP claims, valued N29.1 million has been settled by the department as at June 2005.

27. MAIN ACGSF PRODUCTS AND INNOVATIONS Community Bank Participation Under the ACGSF With effect from January 2004, community banks were approved by the Management of the CBN to participate under the ACGSF. Nationwide training was conducted for the managers and desk officers of the banks on the operation of the ACGS in 2004 and 2005. In 2004, 4 community banks participated under the scheme and the number of loans granted amounted to 586 by number and N15.2 million by value.

28. Small and Medium Enterprises Equity Investment Scheme (SMEEIS) Initiated in year 2001 by the Bankers’ Committee Provides that 10 (ten) percent of the profit before tax (PBT) of banks be set aside annually for investment as equity in small and medium enterprises. Support agro-allied enterprises, information technology and telecommunication, manufacturing, educational establishments, services, tourism and leisure, solid minerals and construction. Guidelines have been reviewed to the effect that 10 percent of the SMEEIS Funds would be apportioned to micro entrepreneurs. Fund set aside by banks as at 30/6/2005 stood at N31.0 billion out of which only N10.3 billion or 33.3% had been invested.

29. National Micro-Finance Policy and Regulatory Guidelines/Related Matters A national policy that will boost activities of microfinance institutions has been drafted and is being considered by the Management of the CBN. The International Year of Micro-Credit is being planned. The Year provides opportunity for the international community to raise awareness about the importance of micro credit and microfinance in the eradication of poverty. The Nigerian programme is expected to cover various states and local governments of the federation and details of this will be communicated to various stakeholders by the Local Organizing Committee very soon.

30. FORMAL FINANCIAL SYSTEM AND POVERTY ALLEVIATION IN NIGERIA Financial systems, the world over, play fundamental roles in the development and growth of the economy. A financial system is a collection of various markets, institutions and operators that interact within an economy for mobilizing funds from surplus units to deficit units. In Nigeria, two broad categorization exist namely, money and capital markets: The money market deals with short term funds, usually of less than one year maturity: Central Bank of Nigeria (CBN), Deposit Money Banks (DMBs), Discount Houses, Finance Companies, Bureau de Change, Community Banks, corporate bodies and individuals/households.

31. FORMAL FINANCIAL SYSTEM AND POVERTY ALLEVIATION IN NIGERIA The activities of money market operators in thein Nigeria are regulated by the Central Bank of Nigeria (CBN), the Nigerian Deposit Insurance Company (NDIC) and the Federal Ministry of Finance (FMF). The capital market in Nigeria provides long-term finance for investments that are critical for the economic growth and development of the country: the stockbrokers/dealers, issuing houses, registrars, the Nigerian stock exchange, trustees and underwriters. The regulators in capital market include the Securities and Exchange commission, Nigerian Stock Exchange, Central Bank of Nigeria and the Federal Ministry of Finance.

32. PERFORMANCE OF THE FORMAL FINANCIAL SYSTEM Largest in Sub-Saharan Africa with regard to diversity of institutions and instruments, In the money market, there has been an upward trend in the total value of instruments transacted in the period over the years: N7.06 billion at end-1980, the value of traded instruments rose to N837.5 billion in 2003. The major players in the money market are the deposit money banks. The assets of the banks in relation to GDP grew significantly from 18.8 percent in 1970 to 34.1 per cent in 1980 and 65.9 per cent in 1986 showing improved performance of the market.

33. PERFORMANCE OF THE FORMAL FINANCIAL SYSTEM The net interest margin of the banking sector over the years have indicated declining efficiency, from 1.8 per cent in 1999 to 1.9, 2.2 and 2.2 in 2000, 2001 and 2002, respectively. Similarly return on assets of the banks declined from 3.0 per cent in 2000 to 1.2 per cent and 0.8 per cent in 2001 and 2002, respectively while return on equity declined from 37.5 per cent in 2000 to 14.0 and 9.1 per cent in 2001 and 2002, respectively. As for the capital market, the value of traded instruments rose from N6.79 billion 1986 to N2,112 billion 2004. Using the market capitalization relative to GDP as a yard stick, the capital market operations have improved over the years. The ratio stood at 9.8 per cent in 1986, 10.41 per cent in 1996, and 25.5 per cent in 2004.

34. PERFORMANCE OF THE FORMAL FINANCIAL SYSTEM Other qualitative performance indicators are: Diversity of Products & Improved Service Delivery, Enhanced Payment System, Increased Number of Operating Institutions, Better Monetary Management,

35. PERFORMANCE OF THE FORMAL FINANCIAL SYSTEM In terms of outreach to the poor the formal financial system has performed woefully The major players (banks) have continued to favour the large accounts of an established clientele with 100 per cent collateral. Most bankers have not regarded microfinance and poverty lending as a genuine option owing to three basic concerns: Too Risky. Too Expensive. Socio-economic and Cultural Barriers. Ratio of commercial SSE loans to total credit has continued to decline over the years.

36. Table 1V: Ratio of Loans to Small Scale Enterprises to Commercial Bank’s Credit

37. MAINSTREAMING MICRO & RURAL FINANCE AS A POVERTY REDUCTION STRATEGY INSTITUTIONAL STRATEGIES: Opening of a new licensing window for micro finance specific banks, and encouragement of informal financial intermediaries and NGOs to take advantage of the window, Ensuring adequate capitalization requirements of the Microfinance Institutions Linkage of rural/microfinance banks to development finance institutions/banks Establishment of an Effective Credit Bureau Micro Finance Capacity Building Programmes Reformation of Government Owned Development Banks into Viable Institutions: private/public partnership, privatization or commercialization to reposition them to effectively deliver their mandates

38. MAINSTREAMING MICRO & RURAL FINANCE AS A POVERTY REDUCTION STRATEGY COMPLIMENTARY STRATEGIES/PRINCIPLES: Public Education on the existence and the evil of poverty and advocacy of good practices, Harnesmment and co-ordination of donor activities and resources, Involvement of the poor in poverty alleviation programmes, Emphasis on viability and sustainability, Data collection, preparation and presentation, Target setting.

39. MAINSTREAMING MICRO & RURAL FINANCE AS A POVERTY REDUCTION STRATEGY AREAS Of EMPHASIS: Improved access to productive Assets, Technological development and replication, Information on inputs and output markets, Specific focus on women.

40. CONCLUSION In Nigeria, Poverty is both a rural, peri-urban and urban phenomenon, Government has embarked on various programmes mainly targeted at the rural poor, agricultural producers and women in the past, However these efforts have lacked co-ordination, consolidation, and impressive impact, The Nigerian financial system which is dominated by the formal sector has only taken care of the financial requirements of the rich and the urban sector, In the future years to come, the participation of the private sector is important and new window would be open to increase their participation, Appropriate policy would be put in place, In the  African sub-region,  there  is particularly the need for sub-regional and national  visions on holistic approach to regard poverty alleviation of which microfinance should be a key part.