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Small businesses groans under SME loans

by Feferity

Before the lockdown, the headlines were something from the bad to the worse. Very frightening indeed and harmful to those involved.

‘Microfinance banks compound petty traders’ problems’

‘Traders lament stifling loan conditions’

‘Excess interest rates cripple SME’s’

‘Crude methods of debts’ collections by creditors’

“We are no godfathers or Father Christmas”, Banks confesses’…

…I dare say that Post ‘Lockdown’ crises loom on the financial sector

Who will save them?

Daily hustling and bustling are constant features in many of the plethora of markets that are scattered all over the Lagos metropolis, the same goes with the superfluity of shops that are carved out of every available space, conversion of all rooms adjacent to roads, all over the State. These markets and streets’ shops opened Sunday to Sunday, non-stop. Some start the day from as early as 4:00 am and would not close until past 10: 00 pm.

Their hustling goes beyond struggling to stock their wares and getting customers to buy. They face a myriad of problems. In most cases, they are the proverbial ‘bread-winners’ in their family, the majority of them are single mothers, while large numbers are widows.

These traders mostly rely on loans from various Micro Finance Banks to run their trades. These loans come in various forms. There are ones of daily weekly and monthly repayment schedule. And here lie their major problem.

The Micro Finance Banks, for whatever reasons, however, do not lend huge amounts of money. They start from manageable amounts. Some start with as low as #10,000 naira to be repaid in 10 weeks at #1,100 naira weekly. The customer is expected to grow with the bank until he/she can be taking relatively reasonable amounts. Still, there is a cap. They would not go above #1.5 million Naira, it was gathered.

Mrs. Victoria Esiegbe, typically, symbolizes these struggling women. A single mother, a Business Administration graduate and also a victim of reorganization in a new generation bank, a euphemism for retrenchment. After waiting in vain for another job, and considering the fact that she has a daughter to feed, without a supporting husband, she gathered her wits together and decided to start selling pasta and seasonings at a popular market in Ikeja. Since her start-up capital was low, she was encouraged by others in the markets to start patronizing one of the numerous Micro Banks that were always patrolling the markets. Not long, she joined one.

‘Sir, this is where my problems become truly compounded’, she languished during an interview. ‘Before I knew it, I was using one loan to clear another I collected from three other banks. I was paying close to #75,000 naira weekly’.

Findings among several customers of these banks showed a similar trend. At the onset, friendly and inviting packages and interest rates would be offered. But after documentation and time to disburse funds, so many deductions now come in. some of these banks even require customers to make a deposit of no less than 10 percent of the total loan amount. This is aside legal fee, administrative charges and insurance fee already charges and deducted at source.

These are conditions hidden from the perspective of the customers from onset. They are brought up for enforcement after the customer had made some commitments are may find it difficult to withdraw.

This prompt Mr. Samuel Adewuyi, a staff of a Bottling Company in Lagos to backed outstanding as guarantor to his friend’s wife. He was required to drop his post-dated cheques covering the total loan amount and interests. He refused.

FEFERITY MAGAZINE investigations revealed that no less than 80 percent of traders in various markets across the Country patronize one Micro Finance Bank or the other.

Some of those traders could actually do without the loans, but one of them, Alhaja Sadiat Awonuga told us that ‘taking these loans helps her to focus on her business. At least I know every week I must repay about #156,000 naira. This does not give me room for any frivolities’

But Mrs. Esiegbe differed on this point. She informed FEFERITY MAGAZINE that in her market, ‘virtually everyone is in debt, and, Sir, I can tell you that we are suffering. No matter what you sell, more than 75 percent is gone with the repayments of these loans’.

She recalled a sad incident a few years back when a nursing mother was locked up in a toilet by a bank over her failure to pay her loan on the scheduled date. Unfortunately, the woman was an asthmatic patient. She had an attack and almost died.

The banks still apply all manner of crude methods in collecting loans from defaulters. They arrest with private security or bailiffs, they threaten all manner of repercussions for failure to pay on schedule.

Our effort to speak to someone at the Micro Finance Bank was not successful but at the Corporate Affairs Unit of a popular bank in Ikeja, the Officer who spoke off-camera explained that ‘the banks are learning from the pitfalls of the old generation banks that became bankrupt due to bad loans’.

He said, ‘the Micro Finance Banks cannot afford to play godfathers’, as they also source their funds from the Central Bank, Commercial Banks, and high individual networks’.

His claims defied the policy guidelines of the Banks as laid down by the Federal Government and the Central Bank. There was supposed to be a sum dedicated for the purpose at the Central Bank which these banks could access and then lend to the traders at a comfortable rate.

A former worker of a micro-finance bank told our correspondence that ‘I left the job in Abeokuta when I realized one has to be ungodly and wicked to survive on the job. My Manager would tell us to be rude to defaulting customers, who were mostly elderly men and women’.

In his words: ‘The policy of helping the poor traders have failed’.

The present 14-day lockdown ordered by President Muhammadu Buhari on Sunday, March 30 effective from 11: PM Monday March 31 to April 13, however, posed a new dimension to the already tensed creditors/debtors relationships in the country. The week prior to the lockdown order, our Lagos Correspondent visited some of the micro-finance banks. He also interacted with some customers. The banks were noticed sending reminders to the debtors to come forward with their weekly/monthly commitments.

They only stopped sending messages/calling when the lockdown became effective.

Some of the customers spoken to do not know what awaits them once the lockdown is relaxed and business starts again. Most of the traders spoken to said they have spent deep into their capital and may find it difficult, meeting their various commitments. How the micro-finance banks handle this is a matter for conjectures at this point.


The Federal Government’s intention to help small scale traders, SME’s, particularly those who could not access regular loans from the commercial banks to secure loans at favorable conditions, led to the policy of establishing the micro-finance banks in the country. The Ibrahim Babangida’s Military Administration started the policy in 1989 with the establishment of the defunct “Peoples’ Bank”.

Late Dr Tai Solarin

The bank was established for the poor professionals and traders who, because of the stringent requirements of the orthodox commercial banks, might not be able to secure working loans from them. The government went ahead to appoint a renown social critic and educationist, late Dr. Tai Solarin of the popular May Flower School, Ikene as the Chairman.

This lofty policy soon boomed with the emergence of several finance banks in the country. Although today, the People’s Bank is defunct, the plethora of Micro Finance Banks that sprang from its ashes, are scattered all over the country.

But the desired effects or improvement are hardly noticeable among the targeted beneficiaries – the peasant sole and petty traders and by extension, the SME’s.

Afolayan Adebiyi writes from Lagos, Nigeria

Feferity (c) 2020

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