November 24, (THEWILL) — The informal sector of our economy is enormous and demands our attention. It employs the majority of our population and generates income that many rely on for survival.
I recently read the “Moniepoint” report on the informal sector in Nigeria and it was a delight. What made this report stand out was the real nature of the data, the people behind it, and the profound insights the researchers uncovered. The Moniepoint 2025 Informal Economy Report found that most informal businesses (44%) generate only about N20,000 daily. Imagine the impact of helping them double this daily income. That result would mean a 100% uplift. That is what we should aim for. It is not difficult to achieve with commitment and sincere purpose.
Over 40% of people in the informal sector have no savings whatsoever. This means the N20,000 daily income is crucial for their survival. Furthermore, 42% of these businesses cannot last for 30 days without this income. A continuous micro-credit line can serve as a lifeline, helping them support their businesses to earn this daily income consistently.
The study also found that 79% of these businesses have experienced the high cost of doing business in the past year, just like everyone else in the economy. They specifically cited increases in supplier prices and transportation costs. This is, therefore, probably the best time to support these businesses in order for them to survive.
Why Support is Critical
The informal sector accounts for a significant portion of our economy. It primarily caters to the youth group (73% of whom are between 18 and 44 years old) and is dominated by young people and women. If we want them to create jobs for themselves, we must support them with micro-credits. Micro-credits are the key to the informal sector’s survival, a way to ensure its gradual growth, and a mechanism to regularise it into our formal economy. Supporting this group will always bear fruit.
Even with a low survival rate, which is common in this group, the small support provided by society can help them achieve a higher survival rate and create jobs. The few that grow and formalise their businesses into the larger economy will result in a win-win for society (I say society, not just Governments) because Communities can also create support for this group). A society focused on creating wealth through businesses that provide community services will work with Governments to make this possible.
Creating microcredits to support microbusinesses is like funding education: it has a multiplier effect. Educated minds develop solutions for local problems. Micro-credits are one of the most effective welfare systems that can help people escape poverty and provide them with dignified employment. The informal sector is a significant group in our society; providing them with productive work reduces idle time, contributes to a safer environment, and increases our national productivity.
Job creation is no longer just about employing people in Government or large institutions. Today, job creation is increasingly self-driven; people are creating their own jobs. The Government can accelerate this trend by helping people start their own businesses and supporting them through the survival period. The good thing is that they are self-motivated; many in this group prefer to work for themselves and are happier doing so.
So, How Do We Do This?
Let me start by explaining my experience with Micro-Credits. Sometime in the year 2000, I sold an idea for a micro-credit scheme to the then Edo State Government. It became known as the “Edo State Micro Credit Scheme.”
Although there was no single micro-credit bank at the time, it was not a revolutionary idea. It was widely practised in Asia, popularised by Dr Mohammed Yunus. But it was new here. We ran a very successful pilot scheme for about two years. Strangely, the Government had other priorities. It failed to support it past the pilot stage, despite the success of the pilot scheme.
We received a boost when Mrs Abike Dabiri-Erewa popularised the scheme on her Sunday TV programme on NTA by covering one of our disbursement ceremonies. This led to calls from Ondo State, Rivers State, and Senator Gbenga Daniel, who was running for Governor of Ogun State at the time, saw an opportunity, we were introduced by Otunba Lekan Bello, who would later become his first Finance Commissioner, and we helped design a Micro Credit program that contributed to his first term win.
Our most significant support came from two wonderful people, Mr Isa Inuwa and Mr Charles Omonokhua, both of the Bank of Agriculture. They saw the potential and were willing to support us with a large loan, but needed State counterpart funding, which the state did not provide. They supported us even more by engaging us in training programs in all their area offices to teach micro-credit principles to their officials.
One crucial finding emerged from the pilot program: the poor generally do not owe. We recorded a 93% repayment rate for the period, during which over 3,000 people benefited from the pilot scheme. We also found that our use of co-operatives as a disbursement platform worked well. This remains my recommended model for success.
Instead of the usual approach of throwing money at attempts to create businesses without systems in place to ensure success, for the money invested in people and expecting results, why not find existing micro-businesses and support them with a credit line? A credit line provides leverage for the business.
A well-managed credit line for these businesses will work magic with just a little help. Credit allows you to buy more, and it is the route to growth. I do not recommend micro-credits for start-up businesses; that is the domain of Angel investors and Venture Capitalists. The mix-up of these two approaches has led to many failures in Government-supported attempts to create enterprises for people.
My best model involves the following steps:
- A Fund must be created to support this initiative.
- The disbursement vehicle must be registered as a cooperative.
- The credit line is granted to the co-operative, not to the individuals.
The co-operative will grant credit to individuals within their groups but will be responsible for the repayment.
From my experience with micro-credits, the poor do not want to owe. You must make repayments easy for them. They do not understand bulk repayments. They must be schooled in the credit culture, which teaches them to take and repay, so the money (or credit) becomes a permanent resource for their growth.
If you support a micro-business with N100,000 and let them repay N5,000 weekly, you can give them the same N100,000 every 21 weeks. This creates a credit line that allows an Akara seller, for instance, to buy wholesale beans and oil in bulk. They can sustain the business by saving N1,000 daily to repay the N5,000 weekly instalment, revolving the N100,000 every 21 weeks, to replenish their stock or inventories for resale.
Imagine having 1,000 of these co-operatives, with 21 members in a group and 7 in a sub-group. It requires little supervision because they manage themselves and are self-sustaining.
The cash transfer scheme, which the Government now implements, can be enhanced as a microcredit scheme. Beneficiaries will be required to engage in some form of microbusiness, allowing it to be meaningful and enabling them to grow. In the US, President Clinton’s welfare reform included requiring people to participate in work programs in exchange for benefits. Many choose to work for real money.
The government’s attention should be focused on this, because money spent here goes directly to the people. You cannot go wrong when you spend money on the people.
***Written by Victor Ogiemwonyi.
•Ogiemwonyi is a retired Investment Banker.
