Micro finance could help lift African and East European countries out of poverty!

            

Muhammad Yunus, father of micro finance

                 The importance of micro, small and medium businesses (enterprises) (MSMEs) in the development of any nation needs to be emphasized.  Every  emergent economy must have a vibrant and sustained MSMEs sub sector which was vital to the development of most countries in East Asia which are referred to today as the Asian Tigers. Management involves ensuring that a group of people work together in the most effective and efficient manner to achieve a stated goal in the best and most economical way. In MSME the eyes of the owner must always be on costs: expenditure or overheads.  

                 The changing nature of work organizations, including flatter structures and recognition of the efficient use of human resources, coupled with advances in social democracy have combined to place growing importance on leadership.  The nature of management is moving away from an emphasis on getting results by the close control of the workforce towards an environment of coaching, support and empowerment. Historically, the significant role of MSMEs in development has been universally acknowledged. In Asia, small businesses have made up to more than 90% of the industries in Indonesia, Philippines, Thailand, Hong Kong, Japan, Korea, India and Sri Lanka. They account for 98 percent of the employment in Indonesia, 78 percent in Thailand, 81 percent in Japan and 87 percent in Bangladesh. Even in countries such as the United States of America where big corporations hold sway, MSMEs still play enormous role in the country’s economy. There really is no universally accepted definition of MSMEs.  They are defined differently based on regional or country context.   

                 Government agencies, ministries, etc use different definitions. For example in the United States of America, the small business administration defines “small business” as any business with less than 500 employees. This figure may represent medium to large enterprise in the African context. In Mauritius, MSMEs are defined as manufacturing enterprises which use production equipment with an aggregate CIF value not exceeding 10 million rupees. In South Africa more elaborate categorization is utilized as follows: survivalist, micro enterprises, small enterprises, medium enterprises and large enterprises. Survivalist enterprises represent activities by people unable to find paid jobs or get into the economic sector of their choice.  Small enterprises constitute bulk of established businesses and have from 5 to 50 employees.  Medium enterprises often employ up to 200 persons and have capital assets, excluding property of about 5 million Rand.

                  In Nigeria, MSMEs are taken to be enterprises or businesses in manufacturing activities or related service industries as officially defined by the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) as follows:

           
            Cottage/Micro Industry is an industry whose total capital cost including working capital but excluding cost of land and building is less than N5.0 million and a work force of less than 10 employees.

           
            Small Scale Industry is an industry whose capital cost including working capital but excluding cost of land and building is less than N50.0 million but more than N5.0 million and workforce of 10 – 49 employees.

   
       Medium Scale Industry is an industry whose capital cost including working capital but excluding cost of land and building is less than N500.0 million but greater than N50.0 million and workforce of 50 – 199 employees.

                 In Nigeria the National Policy for the Development of Micro, Small and Medium Enterprises (MSMEs)  was launched in 2007. This was a collaborative effort between SMEDAN and the United Nations Development Programme (UNDP). It is meant to be a widely accepted policy document that would guide the development of micro, small and medium enterprises. The key areas addressed by this policy included institutional, legal and regulatory framework concerning business registration, property rights, contract enforcement and dispute resolution etc.  The policy also identified special target enterprises for quick win attention.

                 
                  Over 80 million people (65% of the  active population) in Nigeria remain out in the cold as  the formal financial institutions are not serving them. Microfinance specific institutions in Nigeria have not been able to adequately address the gap in terms of credit, savings and other financial services required by the micro-entrepreneurs.                Ironically micro finance has its roots in Asia. Muhammad Yunus ( born 28 June 1940) is a Bangladeshi social entrepreneur, banker, economist, and civil society leader who was awarded the Nobel Peace Prize for founding the Grameen Bank and pioneering the concepts of micro credit and microfinance is widely regarded as the father of micro finance. The loans are meant to be given to entrepreneurs too poor to qualify for traditional bank loans. In practice, Microfinance means more than the delivery of small units of financial social and health services.It goes beyond the disbursement and collection of loans. Micro finance also includes  the entire flexible structures and processes by which financial services are delivered to micro-entrepreneurs on a sustainable basis.

                  An MFB  may be described as a company licensed  to carry on the business of providing microfinance services such as savings, loans, domestic funds transfer and other financial services that are needed by the economically poor, micro, small and medium enterprises (within the 22 permissible activities). Those taking the loans have to understand that:

•       It is not for Charity lending

•       It is not a one-time lending, e.g. government loans to the poor

•       It is not for the affluent in society

                 The poor need a variety of financial services.Micro credit is a powerful instrument for poverty alleviation.Microfinance must be able to build financial systems that serve micro enterprises and this kind of financial sustainability is necessary to reach a significant number of poor people .Microfinance is about building permanent local financial institutions

                 There is therefore an urgent need to take the bank to the people with inadequate access to financial services, including remote areas, have regular contact with borrowers- daily, weekly or monthly as the case may require. There is also a need to increase the use of groups for the purpose of accessing credit It is easier to deal with cooperatives rather than individuals. Africa in this century desperately needs her own version of Muhammad Yunus who would devise a method of raising the continent out of poverty.