Non-Bank lenders in Nigeria fill the SME credit gap which funds the growth of many small businesses.
Money lenders are offshoots of the Esusu system. In the absence of banks and other savings outlets, money lenders spring up either by relying on the funds kept with them by various unions or belonging to Esusu associations ,or money lenders promote some Esusu association; hence, the very knit and close relationship between the Esusu associations and the money lenders.
Local money lenders are the last resort financing source for both the urban and rural areas .local money lending is a well established if not highly respected institution in the southern parts of the country. In the northern parts of the country, money lending is not practiced due to muslim law which is against interest charges. in both the urban and rural areas, local money lenders provide the quickest but costliest means of securing urgent funds for personal and business finance. the main sources of money lenders funds are the funds borrowed from their union of money lenders on their various esusu organizations, and loans or overdrafts from the commercial banks at much lower interest rates. the margin between their borrowing and lending rates can be as high as 90 percentage points.
The interest charges are in some cases over 100 percent per year of the principle amount lent, depending on local credit and social standing of the borrower. Village money lenders always insist on collateral in form of a piece of land with cash crops and the right to harvest the crops and to continue farming on the land until full repayment of principal and interest. Furthermore, they often insist on a guarantee by men of substance from the borrower’s family or village. Often, the guarantors themselves insist on their own share in most cases. movable properties used as collateral can be forcefully carried away by money lenders or guarantors on the slightest sign of default.
If both lender and borrower should die, the relevant documents if any may not be found and the consequent dispute over ownership or mortgaged property are incessant sources of most village quarrels and wars in the old days. Where one of the disputant dies, the other parties are almost certainly accused of causing the death and revenge is insisted upon. It is not surprising therefore that the activities of rural money lenders are often held with much disrepute in the village.
Cooperatives and thrift societies are relatively the best organized group within the informal market sector. Many are at an advanced stage of the esusu societies. Many are organized along professional or product lines, e.g consumer cooperative societies, and cooperative building societies. They are expected to constitute the pattern of economic and financial organizations in the rural areas in the absence of banks. The funds of these cooperative societies constitute the bulk of the fund of cooperative banks that are initially set up to serve the rural areas through the cooperative societies.
It was under this guise that the two pioneering cooperative banks were setup, cooperative bank limited., and cooperative bank of eastern Nigeria. they are to operate as central agencies for securing finance for registered cooperative societies and also, to promote and develop these registered cooperative societies into viable and financially self sufficient units.
It is for the purpose of helping the promotion and development of cooperative societies for rural savings mobilization that cooperative banks were initially excluded from the application of the regulations under the banking ordinance of 1952 and were also precluded from taking deposits from the public. Their heavy reliance on government funding relative to registered cooperative societies funds, and the attraction of deposit taking transformed these cooperative banks into commercial banks. This change in function further widens the gap between the cooperative banks and the rural sector ,and has further biased development against the weaker sector of the economy farmers, rural and small scale business in favour of large industrial and commercial urbanized sectors.
Sources of credit in Nigeria
|Family loans||Money lenders||Cooperative societies||Banks||Government||Savings|