The Nigerian state has a 36.6 percent unemployment rate riddled with poverty. The government should create a revolving fund fund that focuses on capacity building, skills training, business start-up and improving on existing enterprises. The fund will help beneficiaries who cannot access micro-credit in the bank because they do not have collateral to start up their own business.
The Revolving Fund lending approach will be based on group lending where needy solidarity groups of 5 people or more with businesses to start or run form a borrowing group. The group members co-guarantee each other’s loans. There is no collateral. The group members use peer pressure to ensure loan repayments are done on time and in full.
A financial training on savings enables the beneficiaries to grasp the essence of savings, investment and financial discipline. The beneficiaries pay a 3% interest rate as part of sustainability. The interest returned is given to other groups as a revolving fund to start a business. The groups are encouraged to open bank accounts with commercial banks of their own choice to keep the savings. Business counseling and training continues throughout the year to strategically monitor and guide the beneficiaries in their businesses.
The beneficiaries submit a business plan which is first appraised at group level before being sent to the board for appraisal before receiving the first cycle of the fund. They receive the second cycle of the funds after submitting a business report which demonstrates that they have kept records, have established viable enterprises and met program requirements. The beneficiaries are expected to do well so they can be given bigger funds.
It is expected that in the first quarter of the Year, other credible partners have been identified to help facilitate the intervention at the local government levels in collaboration with states.
Primarily, the revolving fund Intervention would provide low-income earners with the opportunity to establish profitable micro-businesses, increase their incomes, develop organizational, management, book keeping and leadership skills, and develop elf confidence.
The revolving fund intervention will be expected to have reached self-sufficiency by 2019. Increased beneficiaries will mean more interest revenue for the program, which will contribute to a growing revolving fund and a reduced cost per unit of lending. Measures to be taken to reduce long-term dependence on grants and subsidies will include re-capitalizing the revolving fund portfolio by plowing back interest earned from the beneficiaries.
A revolving fund loss reserve fund of 5% is set aside to ensure any bad debts are dealt with. This money is put on a Fixed Deposit Account at a commercial bank to earn an interest rate of at least 5% per month. As a measure to safeguard against bad debts, the Nigerian government can take an Insurance Policy and Insurance Programme loans with a local insurance company.
The Nigerian state through the revolving fund intervention can build a solid and growing fund base with clear business plans, backed by operational capacities that lead to mobilization of commercial funds from depositors and the financial system and eventually to full independence from donor support by generating its own income and enough to sustain the programme.
By Audu Liberty Oseni