MICROCAPITAL STORY: Lagos State Government Provides Microloans worth USD 48k to Small and Medium Enterprises (SMEs) in the City of Ikorodu in Nigeria

The Lagos State Government has provided loans worth NGN 7 million (approximately equivalent to USD 48k) in an effort to provide access to financial services to Small and Medium Enterprises (SMEs) in the city of Ikorodu. According to a press release on the Nigerian daily, punchng.com the loan was facilitated by Ms. Abike Dabiri-Erewa, a member of the House of Representatives. punchng.com is owned and operated by the Nigerian newspaper, The Punch. Speaking during the presentation of checks to the beneficiaries of the scheme, Ms. Dabiri-Erewa described poverty as ‘multi-dimensional’ and called for effective implementation of microfinance schemes as a means to address poverty in Nigeria. The release quoted her as saying that microfinance was a vital instrument for self-empowerment, enabling the poor to become agents of economic ‘change’. This loan by the Lagos State Government is among a series of efforts by other local and state governments in Nigeria to address poverty through microfinance.

MicroCapital had previously reported on the efforts made by the Nigerian government to increase the number of microfinance institutions (MFIs) in the country and to achieve its objectives of economic growth, inclusive finance and poverty alleviation. In continuation of the government’s efforts, the Microfinance Policy, Regulatory, and Supervisory Framework for Nigeria was issued by the Central Bank of Nigeria (CBN) in 2005 with the goal of promoting the establishment of microfinance banks, Non-Government Organizations (NGOs) and other institutions that support the development and growth of microfinance service providers and clients. The CBN started granting licenses and regulating operations of all financial institutions in Nigeria in an effort to create a more stable financial system which the poor can avail of. As per this MicroCapital story, the Lagos State Government announced a new microfinance bill in 2008 which made it mandatory for all local governments in the state to contribute a minimum of one percent of their allocations to the operations of the State’s microfinance banks. According to a statement issued in November 2008 by the Governor of the CBN, Charles Soludo, only 12 out of the 36 states in the country contribute to microfinance activities. MicroCapital had previously reported on the efforts made by these local governments (Kano, Lagos, Kaduna, Oyo and Ogo) to promote microfinance in their regions either by injecting capital into MFIs or disbursing loans directly. Following the statement by the Governor on the low participation of the states, the CBN announced that only MFIs that were ready to operate in rural areas would be issued license, according to this MicroCapital story.

Despite such measures by the government to promote microfinance, the growth of the microfinance sector in Nigeria, especially Northern Nigeria remains poor. According to this MicroCapital story, a survey conducted by FinMark and Research and Marketing Services (RMS), a South African research agency, shows that 79 percent of the adult population in Nigeria is unbanked, 85 percent of adult females are unbanked, and 53 percent of the adult population is financially excluded with no access to either formal or informal financial services. Further, a World Bank study reveals that nearly 70 percent of Nigeria’s population lives in poverty with more than 54 percent living below the poverty line (less than one US dollar a day). This translates to roughly two out of every three Nigerians living below the poverty line.

By Bharathi Ram, Research Assistant

Additional Resources:

The Punch news: Lagos provides N7m facility to SMEs

Microcapital Story:

Nov 3, 2008: Only 12 of 36 Nigerian States Contribute to Microfinance Activities for a Total of $1.26m

Apr 29, 2008: LSG announces microfinance legislation

Nov 13, 2008: CBN declares new microfinance bank licenses will be only granted to those operating in Rural Areas

Nov 3, 2008: Only 12 out of 36 states contribute to Microfinance Activitites

Central Bank of Nigeria