“It is only by the grace of God that I have not died but what I went through in the hands of those people is enough to push anyone to death. I went to them for a solution; I did not know I would be coming home with a bigger problem. I would never advise my enemy to collect money from them to do business.” Ajibike Sanni who lives in a tenement apartment popularly known as face-me-I-face-you in Dopemu Road located in the Agege area of Lagos told Neusroom.

Who’s ‘them’? One of the microcredit loan institutions in the country that claims to help poor women by giving them access to non-collateral flexible funds. According to her, she was doing quite well in her business selling petty things close to the Dopemu market where she had a shop in 2019. Her goods were however small which meant she went to the market almost every week.

“On days when I go to the market, I have to close my own shop as there is no one to help me take care of my wares. I thought about it that I was losing money one day a week going to the market. If I could get more money to buy more goods, I won’t need to go to the market every week and may just go once a month.”

According to Ajibike who is also known as Iya Muyideen, a friend introduced her to one of the micro-credit loan services located around Iyana-Ipaja. She said she became interested because the person assured her that there was no collateral required, something that had kept her away from approaching the regular banks. The person assured her there was no risk involved as she has been a long time user of the loan service

“When we got there, I told them I needed a loan of N100,000. They told me I was a first-timer and so would not be entitled to that sum. I told them that I wanted to use the money to expand my business and buy more wares. Instead of going to the market every week, I will be able to restrict it to just once a month. After my friend spoke to them that I was legitimate and truly owned a shop, they agreed. That was when I knew that I still had to provide two guarantors who would come with their passport photograph and sign some documents.”

According to Iya Muyideen, that was the hard part as many people were reluctant to be involved in a loan scheme that would make them responsible if the borrower does not pay.

“I found two people from my mosque who were willing to stand as guarantors for me. I was required to pay close to N20,000 for the processing fee, ID Card and form fee before the money was released to me. I was expected to make a weekly payment for 24 weeks. I had no problem repaying the loan for up to ten weeks. Then things changed. A supermarket was opened close to Dopemu Market and beat down the prices of the same items I sold. Patronage went down drastically”.

Iya Muyideen said she found it difficult to pay back the loan timely because sales had dropped and she wasn’t making enough to cover the repayment.

“I missed just one week after consistently paying for 10 weeks and I saw hell. They called my guarantor and threatened him. The following week, they came to my shop and embarrassed me from afternoon till night shouting my name over a loudspeaker that I am a debtor. They told me if they have to return in another week, I would regret it.”

She said in a desperate move to avoid a repeat of what happened that day, she sold off her wares at reduced prices and even in some cases, less than the original price she bought them to meet the one-week deadline. It was the beginning of the end of her business.

Micro-credit loans and Micro-finance banks in Nigeria

According to the Central Bank of Nigeria, a large percentage of Nigerians are still excluded from financial services. Only about 35% of the population is included in formal financial services. This however increased to 53.7% when those in the informal sector like Ajo, Esusu, and money lenders were added to it.

The CBN’s 2005 Microfinance Policy, Regulatory and Supervisory Framework for Nigeria which was revised in April 2011 provides guidelines that cover the licensing and operation of Microfinance banks in the country whether they operate from just a single branch, or within a state and in some cases across the country.

CBN regulation on these institutions became important as a way to formalize the informal loan sector and also help with making inroads into poverty alleviation and rural development.
While Microfinance banks are properly regulated by the CBN, NGOs that provide loan service are not clearly defined and so do not necessarily fall within the scope of CBN regulations.

These NGOs are supposed to provide non-collateral small flexible loans to poor people and their services are supposed to exclude receiving credit from the people and therein lies the loophole.

Most of these loan credit facilities started as NGOs designed to help poor rural people especially women by giving them access to loan facilities. A number of them have now transitioned to microfinance banks in order to meet up with CBN operations. For example, some of these micro-credit providers now receive credit, do monetary transfers and have branches all over the country, something that wouldn’t have been operable as an NGO. Despite these transitions, these entities still retain their NGO operation which allows them to operate behind the scene under the cloak of an NGO if the need arises.

The most popular of these entities is the Lift Above Poverty Organisation more known by its acronym, LAPO which was formed in 1987 in present-day Ogwashi-Uko in Delta state. It began as a non-profit entity offering soft loans with interest to poor women before being incorporated with the Corporate Affairs Commission in 1991 as an NGO. In 2010, it transitioned to a microfinance bank while still retaining its NGO activities which allows it to operate on both levels.

Applicants are required to first pay for registration and form fees before they are eligible for a loan. Photo: Omotayo Yusuf. 

Other microfinance banks that have attained national recognition are Grooming, Asha, Mercy and Grace, Accion, etc. However, LAPO has attained a sort of informal ubiquitous name for all of them.

Mode of operation

These credit facilities require an initial average payment of N5000 to N10,000 for first-timers which covers the registration form and processing fee. This payment is reduced when a borrower is taking a second loan.

These facilities are designed in a way that borrowers meet in smaller groups headed by a Collection Officer or CO as they are known. These small community groups meet weekly usually in the house of the CO or a designated place where they receive the weekly returns from borrowers.
In the past, these loan services were restricted to poor women because of their disadvantaged position in getting collateral-based formal loans. Also, women were usually part of community clubs or societies involved in thrift collection and periodic savings.

To be eligible, a first-time borrower usually needs to know a member of the group who will be the link to getting the loan. The borrower then provides two guarantors. The borrower is then expected to deposit 10 per cent of the expected loan to the microcredit outfit. After approval, the loan is either given to the borrower as cash payment or issued as a cheque which can be cashed at their microfinance bank.

Some microcredit providers like Asha Microfinance target associations of artisans in particular neighbourhoods and offer them loans. Skilled workers like painters, plumbers, mechanics, panel beaters, etc. already have associations whose members know each other and are usually involved in petty contributions that they take turns to access. These credit facilities offer them loans at the same time without having to wait for turn by turn. In return, the loan facilities benefit from the organised structure of these associations as the process of identifying and vetting borrowers is already done in these groups.

When the loan is disbursed, the borrower is usually given 24 weeks to pay back the loan which includes the primary fund, the interest as well as compulsory weekly savings. For example, if someone takes a ₦100,000 loan, the person will be expected to pay back N5,500 over 24 consecutive weeks at 20% interest rate. N5,000 represents the loan plus interest while the remaining N500 is the savings required of the borrower to participate in which can then be collected at the end of the 24 weeks. This is exclusive of the initial processing fee that was paid. Some micro-credit providers offer a 30% interest rate with repayment plans done over 30 weeks.

Loan Recovery

Some micro-credit facilities offer a one week grace and repayment is activated after two weeks of receiving the loan. Most however insist repayment begins one week after receiving the loan. When a borrower defaults, the guarantor is notified and is expected to reach out to the borrower. The guarantor sometimes is threatened with arrest or asked to pay back the unpaid money for the week.

“Most times, nothing happens to the guarantor. They just “shakara” you and threaten to arrest you but it’s just to make you call the person that borrowed money. They know that when you hear that, you will call the person immediately.” Fatiha Aremu who lives in the Shasha Area of Lagos told Neusroom. She said she has been a long term borrower as well as a guarantor to her friends.

Some microcredit providers work out a plan where when one’s savings is equal to or exceeds the rest of the money still being owed so that when the person defaults, the savings is used to cover the debt. In cases where the borrower does not have enough savings to cover the debt, the notorious recovery machinery is activated.

According to many women, many of whom spoke on the condition of anonymity for fear of being blacklisted, many of the loan-recovery institutions have zero reception to debt. It does not matter whether there is a valid reason or not according to Mutihat (last name withheld).
“You are friends with them when you pay back your money. Any week you default is when you will know they are not your friend, especially LAPO. They don’t like it if you owe. That is one thing they repeat to you when you collect the money. I know a woman that was locked up in a public toilet for one hour because she defaulted for a week.”

There have been reports of harassment of defaulters by microcredit loan services. Some customers claim they can show up as a group in the house of a defaulter regardless of the time of day or night.

“They will not bring police but what you will go through will be worse than being arrested, ” Iya Muyideen told Neusroom. “They can put a bowl on your head and ask you to ask for alms from passers-by. Any week I don’t have their money ready, my heart is always beating fast and I will not be able to eat.”

Iya Muyideen introduced me to a friend whom she claimed attempted suicide when she was unable to pay back her loan but the woman was unwilling to speak with Neusroom even anonymously. She said she was past the story of credit-credit loan facilities and would not want to recount her experience with them. There was also the story of a woman who committed suicide after she could not repay her loan. By the time she was taken to Promise Hospital in Dopemu, she had passed away. Some women are also allegedly forced into prostitution in order to be able to repay the loan.

Financial aid or financial raid?

One of the criticisms against microfinance banks and microcredit loan facilities in Nigeria is how their operations leave poor people on a painful cycle of torture, depression and debt. While the loan payment is spread across a long time (at least 24 weeks), beneficiaries soon realise after a while that weekly repayment makes it difficult for them to do other things.

One customer, Wale Akinpele residing in Kareem Babatunde street, Lagos told Neusroom: “Every week, it is like I have to make a choice between paying the loan or eating; or paying the loan or paying for bills. It is never convenient. It’s like you can’t do anything for 24 weeks that you have to pay the loan and that’s difficult. There are weeks you have excess money and there are some periods you won’t have enough but they don’t want to hear stories. If you default, you are in trouble.”

As earlier noted, many of these loan facilities started as NGOs with little focus on profit but more attention on providing poor people with access to credit. They received grants from foundations who saw them as institutions willing to help poor people altruistically and not for profit. Many have however metamorphosed into full banking with high-interest rates and very strict repayment plans. The forced saving which when seen from the face value seems like a laudable initiative is, in reality, a tough burden on the borrowers because it is during the period they are repaying the loan. This also technically raises the loan percentage.

One of the most critical books against microfinance and microcredit operation is Confessions of a Microfinance Heretic written by British author and microfinance veteran, Hugh Sinclair.

Sinclair has also publicly spoken against their model and his criticism is based upon what he describes as the first-hand experience of different micro-credit operators including LAPO which he said he observed when he was in Nigeria. He believes that LAPO’s interest rate is higher than 100% when one puts into consideration all the charges and interest and savings required from the borrower. He believes that “LAPO is a long-way off from squeaky clean and by no means unique. By supporting and rewarding such an institution with substantial capital after rating withdrawals, a major rating downgrade, manipulative interest rate policies, nepotism, operations described quite simply as illegal, extortionate interest rates despite high profitability, chronic client desertion etc. we set a disturbing precedent.”

The sentiment that microfinance banks make poor people poorer and give their rich owners access to funds is also shared by Steve Beck and Tim Ogden. They believe that in some instances, customers would end up taking another loan to cover the first one thereby sustaining a circle of debt and poverty.

David Roodman who is a former senior fellow at the Centre for Global Development however disagrees. He believes that microfinance can help reduce poverty and gave the example of a South African model that focused on payday loan services.

Perhaps for salary earners, the current model adopted by micro-credit facilities in Nigeria may work but those kinds of borrowers represent a very small part of the target market. Many of the borrowers are lower-income Nigerians with very little capital at hand and no expected salary to pay for these loans within a short period.

A few of the borrowers however believe that these micro-credit institutions are better than nothing. Isiaka Omobolaji who drives a commercial vehicle in Shasha and also works as a panel beater said the trick to getting a good loan deal is to borrow more than one needs.

He said: “In my own case, I usually need money to fix my Danfo because it has problems every week. The trick is to borrow more than the budget. For example, If I need N50,000, I prefer to borrow N80,000. That way when I fix the problem with the N50,000, I have N30,000 left from which I can be taking from to pay back my loan for a few weeks. By the time I exhaust that money, I would have saved up money from my transportation business to continue to pay back my loan.”

He insisted that it was not possible to borrow the exact amount one needs, use it for business and start paying the return within a week.

According to Dr Uche Igwe, a political economy analyst, microfinance banks are supposed to give micro-credit to the poor. However, he believes that the cost of doing business plays a significant role in how the system fails the beneficiaries.

“The system is already designed to fail. The cost of doing business is high; energy is expensive. Thus, utilization of such loans for business is already difficult. Some may even take the loan and go and use it to marry because it is actually difficult to use such money for business and start paying back on it after a week.”

The analyst suggested that the government has to develop an all-encompassing robust plan that will address the needs of poor people without making them poorer.

“The problem at the moment is that there is no accurate data that captures these important information and these sort of government policies must be data-driven so that the people that need these things the most can access them. These policies must also be devoid of politics and partisanship.”

Neusroom reached out to Hugh Sinclair on his scathing criticism of Microfinance banks in Nigeria especially LAPO and this is what he said:
“The MFIs, led principally by LAPO (they established the precedent), exploit poor Nigerians by the million. It is extremely difficult for the poor to profit from micro-enterprises at the best of times. When they are also saddled with loans that may have interest rates far in excess of 100% per year it is almost impossible. The banks exploit the desperation of the poor to better their situations. The MFIs generally make claims of social impact, of helping the poor, they have lots of photos of so-called clients working their way out of poverty. This is complete nonsense.

“These banks often start as NGOs, claiming tax benefits and gaining funds from donor organisations. People, governments and investors are generally not suspicious of NGOs, as they argue that they are “not for profit” and thus would not exploit the poor. This is a farce. If an NGO has an income of $100 and expenses of $80, it makes a profit. The only difference between an NGO and a commercial company is that this profit cannot be distributed to the owners, as there are no owners of an NGO. However, the banks exploit this in two main ways.
First, they pay huge salaries to the senior managers. Secondly, after a few years, they convert the NGO into a for-profit commercial bank, at which point all the accumulated profit is given as shares to the managers. This was what happened with LAPO.

“LAPO is worth studying, not necessarily because it is the worst – but because it is such a perfect example of the corruption. It is the industry standard for all that is wrong with microfinance. No other bank, as far as I know, has managed to be quite so exploitative, hide it so little, get caught lying so often, attract the worst possible investors, and make so much profit for the owners while contributing so little to the poor. It is sad, and does little to improve the reputation of Nigeria in the financial sector.”

A New York Times report also indicts LAPO describing the bank as making money off poor people while a Guardian report raises the same concern about its operation in Sierra Leone.

Conversation with Godwin Ehigiamusoe

When I reached out to Godwin Ehigiamusoe, the owner of LAPO to request an interview, I indicated beforehand that I had spoken to Hugh Sinclair who has been a staunch critic of LAPO. In response, he sent me a chapter from his upcoming memoir, which responds to allegations Sinclair had made in the past.

He wrote: “Hugh Sinclair also took advantage of the not-too-salutary image of Nigeria. It was so cheap and easily believable to talk of corruption in Nigeria. Whatever his reasons, his attempt to discredit LAPO, failed woefully. LAPO not only continued to grow but also retained all its partners and even added others such as the International Finance Corporation (IFC), FMO of the Netherlands, and African Development Bank.”

When we finally had the interview, Ehigiamusoe mentioned that he no longer worked at LAPO but was happy to respond to my questions. He again first spoke about Sinclair’s criticism.

“Sinclair said we had a bad retention rate but I used statistics to counter his claim that it was not true. Except in 2009 when we transformed to a regular bank, we recorded growth every single year. The only area I would agree with Sinclair was on the issue of interest rate which we later worked on. We were able to come up with a gradual reduction of the interest rate. We global members came up with what we called Social Performance to measure how we reduced poverty and positively affect lives.

“We also came up with client protection principles that addressed interest rates, treatment of clients and data security. Sinclair left all that out.”
Ehigiamusoe explained that MicroRate was set up to go to institutions and check whether they comply with it.

“In Nigeria, only LAPO and Grooming were certified. The International microfinance community cut Sinclair off. He wanted to latch onto the Nigerian image of corruption. He would call most of our partners and threaten to go to the press.

“We never lost any of the partners lending to us except Blue Orchard and they returned after three years and gave us loan”

Asked about the reported treatment of customers and the position that microfinance banks make people poorer, Ehigiamusoe disagrees and insists LAPO has helped women get out of poverty.

“We are not just a microfinance bank. We provide health benefits to our clients and scholarships to their children. In 2006, we won an excellent award in microfinance foundation. In New York. We got $10,000 and used it to contribute to the scheme. We discovered that some of our clients’ children are not in school and we created skilled training for them which was certified. We have millions of clients By 2022, microfinance banks will be expected to have at least N5bn capitalisation and we are at 21 billion. We are number one in Nigeria.”

Asked about the complaint that the repayment scheme is difficult thereby making it difficult for the funds to be used for business, the LAPO founder said they have up to 17 different types of loans for different purposes to address different financial plans.

“We have short term and long term loans. We have an agriculture loan which takes a while before repayment. There are some that take at least a month before repayment. We have disbursed billions of naira without collateral. For the past 10 years, we have introduced insurance. If for example, a woman takes a loan of N100,000 and pays N80,000 and then dies, the insurance will not only forgive the N20,000 but also return the N80,000 to the family. This might not mean much to some people but it means a lot to that family. In the past year, we have paid N130,000 in insurance claims. We have insurance against market fires too. In the case of a terminal illness like cancer, we simply forgive the loan.”

Neusroom has reached out to Grooming and Asha Microfinance banks

Medical implication

Many of the women who spoke to Neusroom complained that the ordeal has affected them medically. Iya Muyideen said when it’s a few days to the repayment day, she would start becoming restless and her heartbeat would be racing. She said she experienced sleeplessness even during periods when she had money to pay.

“It doesn’t matter whether I have the money or not, I will always be afraid. I even lost weight during the period.”

A doctor at Hellocare Nigeria, Dr Zubair Abdullahi who spoke with Neusroom believes there is a link between what the women go through and their health situation.

He said: “The anxiety that comes with defaulting, the physical assault and the threats all contribute to rising stress levels that’ll affect their ability to sleep well, and especially affects people who have Cardiovascular (diseases of the heart) more. Anxiety plays a key role in blood pressure control and sleep is important for blood sugar control so it’s a legit worry.
Asked if this situation can lead to depression, Dr Abdullahi strongly believes so.

“Persistently low mood over a long period of time (depression) can be multifactorial. One of the key issues identified are regarding the effects of poverty, debt accrued and low quality of life. It leaves affected persons feeling worthless, unduly anxious and unable to find or create happiness for themselves. When the innate needs humans have (food, shelter, taking care of our loved ones) become arduous to achieve, it’s not unusual for the mood to tank and remain low.”