Thursday, July 23, 2020


In Nigeria where about one hundred million of the population live below one dollar per day, and the survival rate grossly suppressed by Covid-19 pandemic, micro credit institutions no doubt may become a very potent and dependable means of alleviating poverty. Unfortunately, the situation on ground now shows that if deliberate effort is not made, by way of bailing out or by way of some structural adjustments, the mass of the population which is regarded as poor may become more vulnerable to embrace ‘hushpuppi’ way of life as a means of survival.

For instance, many commercial banks that financed public sector have gone to extinction. The few ones that are struggling to remain in business are planning to merge so as to remain in business. Not only this, government has found it very difficult to execute public projects without loans from the worldbank and sale of treasury bills. Due to this and coupled with the consequent gross reduction in the money in circulation, traders, civil servants and of course everybody in the country are unhappy because of lack of access to funds. 

Apart from the sprawled economic condition caused by Covid 19 pandemic, fund scarcity is caused largely by growing corruption and so grave leakages in the political economy. Unfortunately, all these happen in the face of the Treasury Single Account (TSA) introduced by the present administration and the anticipated but unrealized benefits. The arrest of the erstwhile Acting Chairman of Economic and Financial Crime Commission (EFCC), Ibrahim Magu and the news that the eagle watching over the treasury may have devoured the vault, only gives the strong impression that at least, at the moment, the hope of getting out of the woods is quite omnious. 

The overall painful effect of all of this is that there will be greater reduction in wealth creation, substantial amount of funds meant for development will be spent to service debts, liquidity in circulation will not be sufficient to sustain big and small enterprises and the economy which is considered to be very tight will be more choking, especially for artisans and those in the middle class.  
So how would micro credit institutions which have the problem of liquidity and loan recovery survive under this circumstance? Our answer is that only secured credit transaction strategy, through collateral security, fraud control mechanism, coupled with effective marketing driven mostly by technology since the Covid 19 pandemic has made it compulsory to avoid human contact as much as possible by observing social distance and the rest.

A ‘collateral’ is a borrower’s pledge of specific property to a lender to secure repayment of debt in form of an asset or property offered against a loan. ‘Security’, on the other hand, can be defined as a right to resort to some form of property, tangible or intangible, for payment or by a guarantee of some persons to satisfy the debt or claim for which another person is liable. 

Both ‘collateral’ and ‘security’ serve as protection to a lender against a borrower’s default and could be used to offset the loan. The borrower forfeits the property pledged as collateral, with the lender becoming the owner. 

However, ‘collateral securities’ can be defined as additional rights, which render more certain the discharge of a debt than if satisfaction were dependent only on the person primarily liable. See Handevel Limited Vs Controller of Stamps (1985) 15 CLR 177. 

Not all assets or property are good as collateral security. A good collateral security must be marketable, its title must be certain and verifiable, its value must be ascertainable and verifiable, the cost, procedure and security for keeping it must not be exorbitant, it must be capable of being sold under a normal market condition, with reasonable promptness, at current fair market value and it must be greater in value than the loan. 

Generally speaking, a good collateral security renders the performance of secured obligation more certain. It enables a borrower with poor credit score to assess loans. Borrower’s credit worthiness becomes insignificant. It helps him to secure low interest loans and helps him to redeem the collateral by paying off the debt before the due date and obtain another loan without any hindrance. It gingers him to quickly liquidate the debt so as not to lose the assets and gives the debtor the opportunity to raise money without completely losing the assets.

On the part of the micro finance, ‘collateral security’ provides it with an alternative source of recouping its debts if the debtor fails to pay. It reduces or completely eliminates its risk and enlarges the pool of assets from which it can recoup its debt. It also gives it a better position or way of liquidating debts.

Under the law, the micro finance has extensive right of enforcement. It has right to property without going to court and gives it unlimited right to enforce the security. The law does not impose any ‘duty of care’ on the micro finance.

It should be noted that an unsecured micro finance which does not have asset or property to fall upon in case of default has no proprietary interest in any specific property of the debtor. It will rank behind preferential creditors in pecking order and bear the burden of insolvent liquidation as witnessed in the case of Mr Salomom Vs Salomon & Co. Limited (1897) AC 22 HL.

Although a secured micro finance has about 90% assurance of recouping its advances, this can only be achieved if adequate attention is paid to address the problems of lack of documentation, incorrect accounting, lack of supervision, lack of verification of information/documents/identity, improper assessment of categories of persons, improper interviews regarding purpose of loan and confidential information, lack of independent checks on applicants before disbursing, lack of post disbursement monitoring and unorthodox recovery mechanism.

The micro finance institutions must invest in training and retraining of staff so as to be properly positioned for work, there must be proper understanding of borrowers’ behavior, there must be constant innovation of new products to meet borrowers’ preferences, there must be continued research and development of the competitive market, there must be effective internal mechanism to detect and control fraud and there must be constant determination of reigning competitive strategies. 

The micro finance must note the following key elements of effective marketing strategy such as, well defined strategies, deep contextual understanding of the market and the customers, clear conversion goals, i.e, action intended after consuming the content, appropriate points of contact, i.e, how to initiate conversation with your target, a process of alignment and ability to scale – producing.

Furthermore, the human resource department must develop survival skill tool for the staff of the micro finance. The workforce must be proactive and information driven. Information is the lifeline of investment. Staff must be result oriented, must be capable of adding value to the company every day, every week and every month, must be bold and be able to express and suggest strategies for continued growth and survival, must not be moribund or lack ideas, must not be ashamed to compare notes with colleagues within and outside the business, must constantly interact with the competitive market and suggest ways of standing out, must be physically and mentally alert in discharging micro finance activities.

A good staff must have great ideas and possess the following 10 Top Qualities proposed by Forbes: honesty, ability to delegate, good communication skill, sense of humour, confidence, commitment, positive attitude, creativity, intuition and ability to inspire others.

A good staff must know the top 10 effective marketing strategies to enhance performance; e-mail marketing, website, in – person interactions, product evangelization, social media, events, outbound calling, public relations, direct mail, traditional advert – TV, radio, print media and pay per click.

A good staff must appreciate the importance of team work. There must be synergy on the part of all the staff, from the transport division, to the front desk, to human resources and then the field staff. Team work will no doubt enhance peak performance. 

Micro finance must have cherished goals and values. Values are fundamental beliefs of an organization, the guiding principle that dictates how the staff behave and perform. It usually helps the staff to know the difference between right and wrong and assists to determine if they are on the right path in fulfilling their business goals.

The micro finance needs to identify and acknowledge its values, post them on its website or hang them all around the premises so that when coming in, both the staff and the visitors will remember and know what the company stands for.

Inspiration for survival at this crucial time could be gleaned from the Grameen Bank of Bangladesh, founded by Muhammed Yunus, loaned money to the poorest of the poor and yet, it experienced repayment rates as high as 98%. Also, BancoSol, which began as NGO has become a commercial bank in Bolivia. Although, micro finance is inundated with plethora of problems, survival is not a hopeless thing to expect in the emerging unfriendly fiscal space. With secured credit transactions, a committed team of staff and effective marketing strategy, the micro finance will surely endure, notwithstanding this world uncertain economy. 

Francis Ogunbowale is a Lagos Attorney. His contact address is 
23b Adebayo Doherty Street
Beside Dowen College
Lekki Phase 1, Lagos. He can be reached on 

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