Group Loan Scheme, A Rescue For Micro Businesses

INCLUSIVE banking had eluded many, especially women, for many years. They don’t operate bank accounts and cannot therefore, benefit from banking services, including soft loans to expand and sustain their businesses. So they depend largely on family and friends for business capital. And when that does not happen, business becomes comatose and eventually crumbles.

For these micro traders, help may be on the way, as a number of them can now team up to access credit from Micro finance banks. Known in local parlance as LAPO (Lift Above Poverty Organisation), small businesses have come to admit this system as a good way to expand and sustain business.

Petty traders now organise themselves into groups to apply for loan at Micro finance banks, which they now refer to as ‘savior banks.’ an Investigation revealed that, with this initiative, market men and women find it easier to access loan from microfinance than from commercial banks.

They approach the microfinance banks as a group; and once the group is approved, members can start requesting for loans without collateral, although they would need to provide guarantors.

However, at inception, members were asked to pay certain amount for savings account and insurance cover and documentation. While few of them are aware that they can get loans individually, market women prefer the group system because the process is less cumbersome. As they are borrowing, they are also encouraged to save, while paying back their loans to mitigate the risk. It also avails them the opportunity to meet colleagues, who can assist when they have difficulty paying back at maturity.

At a group meeting recently, Mrs. Adeyanju, popularly known as “iya Ibeji” on Odukoya street, Bariga, said, “I have been using this group method for over eight years, people were not many then, and it has helped my business a lot. With a minimum of N50, 000, you can start, or expand your business.” Mrs Adeyanju is the secretary of Anjolaoluwa group.

According to the President of Anjolaoluwa group, Mrs. Ronke Oladipupo, “the loan starts from N50, 000, and we have to pay back 58,000 over a period of eight months, from which savings of about N200 is also made into members account, from each remittance of N2, 700 to credit officers. People are usually afraid of loans, but it is not something they should be scared of, provided they put the money into good use.

“Also, when you finish paying back your loan, you are entitled to a higher amount of loan, our own increased by N20, 000, after the first payment, up to about N150, 000, based on your credibility with previous loans, and you can get your savings at any time you decide to leave the group.”

Mrs. Tunrayo Fawole, a trader at Oshodi market said, “I am the president of Boluwatife group, under LAPO and I am also a member of another group under Grooming. As a leader, I ensure that there is transparency in my group, and make sure they pay back their loans on time, otherwise, we’ll all pay for it.”

The system, as easy as it looks, also has its challenges. A trader who sells underwear at Oshodi market, Mrs. Tunrayo Fawole of Boluwatife group, complained of the lack of transparency in her group. She said, “at first, I was able to get a loan, but later our leader, who usually keeps the payment cards was not forthcoming about my status, so I requested for my savings. Apparently, she failed to make payments, so I requested for my cards, when she brought it, it was badly damaged, and we couldn’t reconcile the account, and my savings had grown to about N60, 000. So I decided to leave the group and requested to collect my savings, but the credit officer refused to release my savings because some members were owing, eventually, I was not sure if someone owed or if it is the group leader that had spent the money.

“The way the system works, your relationship is with the credit officer, you may not have a direct link with the Microfinance bank, but the banks through their credit officer ensures that the money comes back to them. I went to the microfinance office, but was told that it is between myself, the group leader and the credit officer, I am still hoping that I’ll get my money back.”

For Alhaja Titilayo Akande, who sells scarves at Iyana Ipaja market, “I once used the group method to get money to expand my business. I used to be a secretary of my group, but today I am no longer a member because, my family members supported me with capital. My business is not like food, that people buy everyday. When there is no sale, there is tendency to panic over where to get the money to pay back. Sometimes, it is just the fear of the credit officers; some are not friendly, and they can insult you, just to recover the loans.

“The credit officer for my group was very strict when it comes to loan recovery. Because of the way the system runs, the group pays for every member that defaults, so the Micro finance banks don’t make losses. The height of it was when a member ran away from Lagos with over N300, 000. As the secretary, I called her severally, but once she hears my voice, she cuts the call. All of us in the group paid for it, otherwise, it would be taken from our little savings.”

Mrs. Adeyanju said, “It is true that some people run away and are not willing to pay back. But in order to make it easier for our own members, we laid a rule that members who cannot meet deadline should quickly see the president, or me so that we can raise money within ourselves to pay for the person, then he or she can return it later. Some people would collect the money and divert it to something else that would not produce profit or expand their business, and that is a problem. For us, we try to be as transparent as possible, even when members don’t attend meetings; they send their cards for markings to me so I can present it to the credit officer.

Fawole said, “in one of the groups I belong to, the bank can also seize your goods if you fail to return payments after the extended period.”

Tracing its history, LAPO actually began as a non-profit organisation (NGO) in the late 1980s, when Dr. Godwin Ehigiamusoe identified the financial gap in the market for poor Nigerians, in response to the effects of the implementation of the Structural Adjustment Programme (SAP) in 1986.

He started by giving loans of N100 each to three women, who were members of the same parish in Ogwashi-Uku, Delta State. The repayment procedures were simple: repayment of N10 per installment made every fourth day, which was the local market day. Gradually the number of borrowers increased.

In 2010, LAPO Microfinance Bank obtained government approval to operate as a national microfinance bank. With up to 2 million clients, it disbursed N92.2 billion in 2014.

According to the Managing Director and founder, Ehigiamusoe, “complaints always come up at the point of repayment. When clients are applying for the loan, there is always no problem, everybody is happy at that moment. However, when there is a default and the officer insists that the money must be paid, every action and nuances of the officer is scrutinised and categorised as bad customer service. As part of measures to enhance our customer service delivery process, our staffs are on continuous training.”

Continuing, he said, “Our society has always believed that all loans or funds disbursed for business purposes are from government coffers. This explains why they are reluctant to pay back. Unpaid loans have caused many microfinance banks to crumble. LAPO still has this challenge. But we have been able to bring it to the barest minimum by putting mitigating factors in place to manage defaulters. We have reviewed our loan appraisal processes. If you are able to get a client appraisal right from the beginning, you would have reduced the chances of default to an extent.

We do not sue or arrest defaulters; we have a guarantors system in place as one of the measures to manage default. From the application process, the guarantors are aware that they are involved in the process of repayment, in cases of default. So they act as checks for the borrowers.

“We have had reasons to write-off some loans, especially for cases where natural disasters like fire, accidents and other unforeseen events have made it impossible for the borrower to pay back. Such clients are covered under our comprehensive insurance scheme.