Nigeria: Boosting small businesses, through micro-loans

As part of its efforts to extend financial inclusion the Nigerian government has created a scheme that allows small traders and artisans to access business loans via their phones. Writes Linus Unah.

On a sweltering Monday afternoon in early September last year, the vice-president of Nigeria, Yemi Osinbajo, visited a major market in Iwo, a town in the southwestern Nigerian state of Osun. Speaking from a raised surface, Osinbajo told the crowd that a new government programme known as TraderMoni would provide collateral-free loans to them.

“The policy of the federal government is to support businesses, not just big businesses but small, medium-sized businesses and micro businesses,” he said. “We recognise the hard work of traders who wake up everyday and toil in the markets with a dream to become financially independent and secure a future for themselves and their children.”

Since August last year, he has been travelling to different markets in Nigeria’s 36 states to chat with traders while announcing the loan scheme. Under the TraderMoni programme, the government is offering interest-free loans of between N10,000 and N100,000 ($27.5 to $275) to small traders and artisans, including food sellers, hairdressers, tailors, carpenters, tricycle drivers, and secondhand clothing sellers.

“Moni” is the word for money in Pidgin English, which is widely spoken in West and Central Africa. TraderMoni loosely means “the trader’s money”.

Simiat Kasali, a widow in Osun, has been struggling to cater for her four children. Most of what she makes from selling rice, garri and sugar at a small roadside store is used to support her family. The items in her store are worth about N20,000 combined.

“The loan from the government has helped me to buy more rice and sugar since that is what most of my customers wants,” Kasali says.

Nigeria’s informal economy is largely cash-based, meaning most small-scale businesses barely consider having a bank account. This sector, which includes traders like Kasali, accounts for about 60% of the entire economy or about $240bn. It creates much-needed new jobs (more than 80% of workers are informal), offering more chances to people than the formal sector.   

But access to finance remains a major barrier to expansion. Banks often do not only have high interest rates but also include collateral requirements when providing credit facilities. Most small businesses struggle to meet these demands, cutting them off from the capital they need to grow.  

TraderMoni is one of three micro-credit schemes under the Government Enterprise and Empowerment Programme (GEEP) launched in 2016.  The other components of the GEEP, which works with over 20 partner companies, are FarmerMoni (which offers loans to farmers) and MarketMoni (which cater to market associations, women cooperatives, artisan groups, trade associations and cooperatives). All of these programmes are executed by the Bank of Industry.

“These hardworking Nigerians are not ‘interesting’ to the traditional lenders: they have little to no financial track record, they have no collateral, some barely have formal identities,” Uzoma Nwagba, chief operating officer of GEEP, told Nigerian newspaper Business Day in an interview.

Some 4,000 TraderMoni agents, usually local people within the state, visit markets or other places of business with their computer tablets. To help traders and artisans identify them easily, these agents often wear caps or hats and yellow T-shirts with TraderMoni embossed on the front. They collect the recipients’ biographical details, phone number, GPS location of their point of trade, what they sell, and take photos of them – all of which are uploaded to a central server.

Within two weeks, artisans and traders who qualify receive a text message informing them that their loans have been automatically credited to a mobile wallet account on their phones. They can transfer the money from the wallet to a bank account, withdraw it from ATMs, or obtain cash from local mobile money agents. The loans must be repaid within six months at about 10 designated banks across the country. This includes an option to repay daily or weekly.

Initial loans are 10,000 naira but beneficiaries who repay their first loan within three months are automatically eligible for a second loan of N15,000. Essentially, the amount they can borrow grows as they repay, until it reaches the N100,000 ($275) cap.

“I used the loan I got in October to buy sewing cloth, and I will work very hard to repay so I can get more next time,” says 37-year-old Muktar Suleiman, a tailor in the northern Nigerian city of Kano.

With TraderMoni, the government is aiming to provide at least 30,000 loans in each of the country’s 36 states and the capital Abuja. So far, some 1.5m beneficiaries have received the loans. With an unbanked population of about 60.1m (only 39.8% adults out of a total adult population of 99.6m have a bank account), part of the larger target for the government is to push for financial inclusion.

FarmerMoni and MarketMoni participants wanting to collect loans must have a Bank Verification Number (BVN), a centralised biometric identity for each Nigerian banking customer. For TraderMoni loan receivers, the second loan usually comes with a BVN requirement, meaning they have to be banked.

Despite the progress recorded by the TraderMoni initiative, there are fears that it could suffer setbacks that have afflicted government-funded programmes in the past, including corruption and the tendency for new administrations to abandon existing programmes amid changing priorities. In addition, people often think government loans are “free”, and might be reluctant to pay back.

In response the GEEP is deploying BVN as “digital collateral”. Loan receivers who default on repayment after several warnings won’t be able to use their bank accounts as their BVNs would be blocked. But it helps to tread carefully in this area, particularly as the government is aiming to promote financial inclusion.

Nwagba of GEEP is optimistic about loan repayments. “When you bring credit, real funding, to people who have historically not had such access, they tend to use it judiciously and repay, especially when repayment guarantees a higher amount in loans, almost automatically,” he told Business Day.