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Bailing out the Poor

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IMAGE: Mr John Litwack, the bank’s acting Country Manager and Lead Economist, »


Nigeria is intensifying efforts to reduce poverty through the creative approach that will have a direct impact on its rural poor. Chineme Okafor writes

In April the World Bank Group had clustered Nigeria alongside countries with concentration of the extreme poor people. In its annual paper released during the first quarter, the World Bank said countries needed to complement efforts to enhance growth with policies that allocate more resources to the extreme poor.

In addition, the paper noted that it was imperative not just to lift people out of extreme poverty; it was also important to make sure that, in the long run, they do not get stuck just above the extreme poverty line due to a lack of opportunities that might impede progress towards better livelihoods.

But in July, the World Bank’s poverty indices for Nigeria changed with latest figures showing that the poverty rate in the country has dropped from 35.2 per cent of the population in 2010 / 2011 to 33.1 per cent in 2012 / 2013.
Mr John Litwack, the bank’s acting Country Manager and Lead Economist, had stated this during a media launch of the Nigeria Economic Report in Abuja.

Litwack said that the decrease represents a dramatic drop from   an estimated poverty rate of 62.2 per cent recorded between 2009 and 2010 based on the Harmonised Nigeria Living Standard Statistics (HNLSS).
So it appears that progress is indeed taking place, despite the many challenges. But more is needed to attain the world community’s global anti-poverty objectives.

Explaining the disparities between poverty level in the Southern and Northern Nigeria, Litwack said there appeared to be higher poverty rate in the Northern part than in the Southern parts of the country.
“The number of poor Nigerians has remained 58 million, more than half of which live in the North East or North West of the country.
“ While the South and North Central experienced declines in the poverty rate between 2010 to 2011and 2012 to 2013, the poverty rate increased in the North East and remained almost unchanged in the North West,’’ he said.

But the government keeps coming up with innovative ideas to help people out of poverty.
Those who possess the capacity to engage in medium and small scale commercial enterprises have become the target nowadays, because of the belief that such people have the potential to turn the tide, not only for themselves, but for others through job creation.
True, for Mrs. Rosemary Ugwu, a 45-year- old commodity trader at Ogbete Main Market in Enugu, it is not so much about the lack of energy to sustain her capacity to earn daily income from her small business of nuts and herbs, notwithstanding its inadequacy but more about the frequent need to run to her capital base, thus depleting it after all.

With an often blend of her response with both English and Igbo languages, she said: “My capital base is small, that is why I cannot go more than this now but it is not as if I am ungrateful o! I am very grateful that I can leave home in the morning to contribute in fending for my family no matter how small I bring home.”

“My husband equally understands because he provided parts of my start-up capital and knows that building up this capital is not easy…. I wish I can get a capital that is devoted to this business, the one that I won’t have to touch sometimes to solve certain problems,” Mrs. Ugwu added.

Further interactions with Ugwu’s and other traders, artisans across communities in Nigeria, delivered a simple and native understanding of how Micro, Small and Medium Enterprises (MSMEs) can support inclusive economic growth of societies, communities and countries.

For instance, in developed economies, the contribution of MSMEs to national GDP has increasingly averaged about 47 per cent. As a matter of fact, MSMEs are recognised all over the world as the engine of growth in any development oriented economy and this is due to the inherent labour intensive production processes that MSMEs possess as well as their strength as a viable platform for job creation.

So to remedy the situation and help Nigerians out of poverty, the Central Bank of Nigeria swung into action. Last week, the apex bank brought together stakeholders to find ways to address the challenge. The response was to create wealth, so a N220 billion funding package to stimulate growth in the country’s medium and small scale enterprises became a bold move against poverty.

At the 8th Annual MSMEs Conference of the CBN where it launched its endowment of a huge N220 billion funding portfolio in support of Nigeria’s MSMEs, President Goodluck Jonathan who signed off processes for the portfolio disbursement, disclosed that against the recorded contribution of MSMEs to the growth of developed economies, Nigeria enjoys just about 10 per cent contribution to her GDP growth by MSMEs.

“As reported by the Small Medium Enterprises Development Agency of Nigeria (SMEDAN), there are about 17.3 million MSMEs in Nigeria compared to the over 40 million MSMEs in Indonesia, whose population is only a little greater than ours. Some of the reasons adduced for this disparity are the limited access to finance, low production technology, poor infrastructure and lack of market access,” President Jonathan said.

He spoke of the need for relevant stakeholders involved in Nigeria’s developmental drive to stimulate a joint commitment to inclusive growth and job creation through MSMEs saying, “These challenges call for more concrete and concerted measures to enhance, and expand the activities of MSMEs in our country.”

In his commitment to a fresh approach which the CBN has initiated to fight off poverty and engender inclusive growth within the society, Jonathan noted that a vibrant MSME sub-sector was indispensable for such inclusive economic growth to be seen and felt by Nigerians.
“As Africa’s largest economy, with excellent prospects of becoming one of the 20 largest economies in the world in the nearest future, it is imperative that the challenges confronting MSMEs are addressed frontally at this time.

“Our administration has already instituted a number of reforms to improve the enabling environment and build strong institutions that would fast-track the progress of MSMEs,” the president said.

He further said: “Given that the structural transformation of the economy remains our core priority, we are investing heavily in critical infrastructure to promote job creation and inclusive growth. We are aware that inadequate infrastructure increases the cost of production by an estimated 30 per cent, making Nigerian goods under-competitive.”

As part of the government’s renewed commitment to MSMEs and inclusive economic growth, Jonathan noted that the CBN has under the Nigerian Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL), immensely supported its Agricultural Transformation Agenda (ATA), particularly through the Growth Enhancement Scheme (GES).

He thus added that as a de-risking mechanism, the initiative has provided guarantees and interest subsidies of over N29 billion for 158 agro-dealers, as well as making it possible for primary producers in the agricultural value chain to get supplies of improved seeds and fertilizer.

Like a new convert, the president also said at the conference that a Wholesale Development Finance Institution (DFI) which will provide long term funds of up to 15 years for industrial development will be set up by the government in addition to restructuring the operational capacities of existing DFIs, all as part of measures to enhance the contribution of MSMEs to Nigeria’s economic growth and poverty reduction.

“The enormity of the task ahead demands immediate and dedicated action. That is why I am kick-starting today, the disbursement of the N220 billion MSME development fund to participating financial institutions and State governments for onward-lending to MSMEs across the country.

“At the same time, we are addressing issues such as money and capital market options for MSME financing, leveraging technology for financial services delivery to MSMEs, financing techniques for SMEs in the oil and gas, agricultural value chains and services sub-sectors,” he explained.

“Our people must be provided opportunities to live better and more productive lives. We must continue to work together to build on this progress, so as to achieve the major goals of the transformation agenda, including job creation and poverty reduction,” the president said as he asked participating entities to honestly engage funds that will accrue to them from the MSME portfolio.

Game Changer
As an innovative way of improving MSMEs access to finance, shoring up their potentials for job creation and most importantly, enabling them reduce poverty within the country, the CBN through its Governor, Godwin Emefiele said that the micro-loans will be administered through private or state-owned microfinance institutions, finance houses, and cooperative finance agencies while the SME loans will be disbursed through commercial banks.

Emefiele explained that state governments will be able to access up to N2 billion each for on lending to eligible beneficiaries through participating financial institutions in their states.

As a possible game changer in the fight against poverty, Emefiele thus requested for active commitment of governors of participating states in the country especially with regards to honest drives to closing up the N9.6 trillion funding gap in the MSMEs sub-sector of Nigeria’s economy.

“Your Excellencies, this fund is directly in conformity with my resolve to create a professional and people-centred central bank that will act as a financial catalyst for job creation and inclusive economic growth.
“While these are our ultimate goals, our main intermediate objective is to ensure that these funds get to people at the very bottom of our social pyramid at single digit interest rates.

“The CBN will also undertake regular on and off site checks to ascertain veracity of the reports received. I enjoin all of you, Your Excellencies, to help us in achieving these goals by ensuring that these funds are deployed in an effective and efficient manner,” Emefiele said.

But in response to Emefiele’s request, Governor Theodore Orji of Abia State who described the CBN’s N220 billion loan facility as a wonderful innovation stated that the Memorandum of Understanding (MoU) signed between states and the CBN would guide in keeping track with ideals of the initiative.

Orji told journalists at the sideline of the event that the CBN gesture was an indication of the capacity of an apex bank to bend backwards to touch the lives of the rural people in far-flung parts of the country by creating jobs to alleviate poverty.

While disclosing Abia’s receipt of N2 billion from the portfolio, Orji explained that the state’s share of the loan would go directly to the people involved in small scale business in the state, starting from farmers, artisans and women amongst others , so as to help them out of poverty with a ripple effect on their immediate environment.

The governor who was accompanied to the summit by top government officials in the state equally maintained that the additional funding will add to the state’s infrastructural development.

“The loan would create multiplier effects on the state and legislation is the best way to ensure continuity as incoming administration must obey laws formulated by the House of Assembly.

“It’s a wonderful innovation by the CBN. It shows that the CBN can now touch the lives of the rural people, because there is this perception that the CBN is there to formulate policies alone and regulate the banking industry.
“But today, and subsequently we have known that the CBN has the capacity to touch the rural people, to alleviate poverty and to create employment at the rural level,” Orji said.

He added: “With this additional funding, it means additional impact on the people, additional improvement on the infrastructural development of Abia, because N2 billion is not small money. If we put it in agriculture, if we have about three liberation farms in Abia, we are going to increase the liberation farms to five. If we have 100 people that we give loan for farming, they will increase to 200 and that will have a multiplier effect on Abia State.

For Mrs. Ugwu and a mass of other Nigerians with very low or non-existent access to capital to grow their businesses, the waiting time may have come to a halt if the management of CBN’s intervention does not go ugly.

Apart from its request for honesty from the state governors, the CBN has said that in order to attain its goals with the initiative, it would commit considerable human, material, and financial resources to monitor both the disbursement and utilisation of funds under the framework in a robust and verifiable manner.

It noted that participating financial institutions will be required to submit periodic returns on disbursements as well as an analysis of the social impacts of the fund, thus to suggest that Nigeria may have rolled up its sleeves in the task against poverty and discrimination to economic inclusion.

Now the spotlight has been turned to MSMEs which have very great potential to turn around the lives of citizens but have greatly been underfunded in Nigeria to play this pivotal role in the country’s development trajectory. But time will however tell of how well the country has made good such decent drive to push a good number of her citizens out of the world’s extreme poor populations.

Article Credit: Thisdaylive

Updated 5 Years ago

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Tags:     Chineme Okafor     World Bank Group     Mr John Litwack     Mrs. Rosemary Ugwu     President Jonathan     Godwin Emefiele