Gbomu le lantern! Experience Nigerians undergo to repay loans from banks

Ask many market women or men about microfinance banks (MiFBs) and you will hear different stories: some pleasant, some unpleasant. But the most popular, and which customers of such banks readily tell, is that such loans, as easy as they are to access, are hot. Imagine placing the bare chest on a hot lantern, that is the imagery the customers often create of microfinance loans. Indeed, they call it ‘Gbomu le lantern’, placing the bare chest on a hot lantern. But why do people have such a feeling about MiFB loans and what are the experiences of collectors of such loans? TADE MAKINDE presents his findings.

ON Thursday, a surprising scene played out at the Oja’ba Market in Ibadan. Four women, escorted by staff of a microfinance bank (MiFB) were seen begging for money from passers-by and other market men and women. While some gave them money many did not, despite chorusing their predicament in unison. The four had taken separate loans from the bank and had defaulted in repayment. Intermittently, the bank officials assisted them in telling their indebtedness story to the onlookers, mostly sellers, who had slowly gathered when words got out that some of their friends were in the market publicly begging for funds. This was a new thing to them.

To the few who spoke in whispers, it was public humiliation, but the women didn’t care. All they wanted was to be free from their debt burden.

Loans from MiFB have become the preferred means of raising money as the terms are not as cumbersome as those of commercial banks. “They don’t ask for CsoO (Certificates of Occupancy); they don’t ask you to give anything as collateral. All they want is your assurance that you will be able to pay back their money, of course with interest,” Bayo, a beneficiary told Sunday Tribune.

With an interest of only 15 per cent, compared to commercial banks’ 18-28 per cent, and payable weekly for between 30 and 40 weeks, depending on the bank, “it makes sense to patronise such banks,” expressed Ade Fasehun, a photographer, another beneficiary of MiFB loans.

But when tongues began to wag as regards the ‘crude’ manner the MiFB had employed in getting its money back from defaulters, Fasehun,  who happened by when the four women were being taken round the market, after hearing from others what was amiss, blamed the women for their predicament. “It is defaulters like these who make it difficult for serious applicants like us to easily access the loans these days,” he lamented.

Providing access for funds

Like every enterprise, MiFBs are set up to make profits. Compared to widely accepted commercial banks, however, most low earners, or self-employed patronise them more. Apart from the fact that their interest rates are not as punitive as those of commercial banks, MiFBs have different terms that are expected to be met before loans can be accessed. While some will demand for records of the business as to be financed to determine their feasibility and ease of repayment, others are not that demanding. Some even allow their customers to take public holidays off, while some don’t. For the latter, customers are asked to pay a week or two ahead of any public holiday. Customers can’t miss the pay day whether it falls on a public holiday or not.

Having all these in mind, an interested customer can approach a MiFB and apply for a loan. This was what Ade, the photographer, did in 2012. He took a N50,000 loan from ZIP then, but ended up paying N57,500 within the stipulated 40 weeks.

“I bought a printing machine and a small camera, which I still use till today. These are some of the tools of my profession. Before I was given the loan, questions were asked about how I intended to repay it. They asked for my records, which I didn’t have because I was my own boss and never bothered to keep any daily record. The MiFB refused to give me the loan because they were not convinced that I could pay them back, but I approached another, which was more flexible with its terms. They said I could apply for special loan as a photographer and also demamded for my records. I didn’t have any and I told them the same thing I told the first bank. But when I told them that I printed between five and 10 pictures daily, they said if I could be paying N2,000 every Thursday, I would be considered. I brought the figure down to at least three pictures daily. That was a guaranteed N600. In four days, I would make what I was expected to pay them every week. For someone like me, MiFBs have been a saviour.”

Why many customers default

But not all such microfinance bank customers have such a good story. According to Ade, many of them end up piling up huge debts. Many sellers of perishable goods, for instance, are often not that lucky.

“When someone collects N50,000 and invests it in selling perishable or edible goods, the chances of such people paying on time are slim. A woman sells rice, garri, beans,yams, etc. If she is not able to sell enough to repay her weekly debt, and she’s still expected to feed her family, it’s the same family that will eat what she’s selling.

“The same applies to those selling apples, pineapples, mangoes, plantain, bananas, watermelons. These products perish in a matter of days. What do you expect the seller to do when she’s not able to sell them in a day? Nobody will buy rotten fruits or sour foods. These loans, no matter how small, are expected to be put to work so that the banks can make a marginal profit, survive and continue to lend people money. For me, it is only those who are doing something that people will always buy that should take MiFB loans,” he admonished.

Sunday Tribune found out it is everyone who took facilities from microfinance banks invest them in businesses. Some use such loans to pay their children’s school fees,while some spend it on dresses and jewellery. Mrs Morenike Adesanya is one of such. According to her, she never did business with the loans she regularly obtained from MiFB.

“What business can I do with N50,000?  For me, I basically use MiFB loans to buy clothes for myself and my kids during festive seasons. But before I even take the loan, I would have saved almost half of N50,000, which I will keep elsewhere in case I have problems meeting their weekly repayment. That provides a back-up, because my husband must not know that I take any loan, let alone one to buy clothes.

“From the daily cash my husband gives for family upkeep, and from money to shop big for the store, I always keep something by the side. Every wife does that in case of emergencies that our husbands can’t meet. Because I may not be able to raise between N30,000 and N50,000 to buy Xmas, Easter or birthday clothes for my kids at once, I always take a loan. I also buy gold necklace which I quickly sell at Oranyan market anytime I hear the price rises. So, I never default in paying back any loan I take from any MiFB,” she stated.

Because these two knew what they would be getting themselves into, they had prepared themselves for anything that might happen. But many don’t, even when they spent the money on frivolities.

Those who have no back up plan are the ones who usually end up paying through their noses,” expressed Fasehun.

Ignorant customers

“It is poverty actually that makes many to believe that N50,000 is a lot of money. A person wants to set up company from N50,000, buy cars,etc. All his or her hope is on this small loan. Once he receives the paltry loan, he spends it on other things, rather than on what it should have been. That has been the common trend in Africa, especially Nigeria. That was in those days when there were no MiFBs. MiFBs are not as big as commercial banks, so, there is a limit to what they can do when it comes to giving out loans. Hardly do MiFBs support even farmers because commercial farming costs a huge sum of money. Its not as if MiFBs don’t give beyond N50,000, but for the category I belong, and which most peasants and artisans belong, unless they want to deceive themselves, loans from N50,000-N250,000 can still work wonders. But no MiFB can give you that much for the first time. You must have been found reliable before you can be entrusted with more.

“Because many have consistently defaulted, most prospective customers never see those who effortlessly repay their loans. That is why it is never good that a defaulter is the one to talk to others about MiFB loans. They never say good things about such loans. Some don’t even have other means of raising the money on time, so you see them hustling till late in the market and you wonder why they are working like Jack Ass, especially when it is a day for them to pay. They have wasted six whole days and are now engaged in desperate efforts to raise the money at all cost, especially when its a day to pay day.

“It is that much hustling that quickly gives them away to many as midnight oil burners. We easily know that they have bitten more than they can chew. Won ti gbomu le lantern. They have taken a loan that they can’t easily repay, but which must be repaid, whether they like it or not. That is why I always made sure I raised 70 per cent of N2,000 by Tuesdays and another N20,000-N25,000 by Wednsedays so that by Thursday, I won’t have to struggle to make my weekly payment. I had a plan. Others should. Those who want the loan must  have back up plans to pay back.  If you take time out to explain your situation, they will hear you. They won’t mess you up like, at Oja’ba.”

A business is a business…

Speaking further on the disgraceful parade of the four defaulters, Fasehun said he was sure the bank went to that extent because the quartet must have been chronic defaulters. “They don’t just go to such length. In fact, I deliberately went to Oja’ba I was told that this ‘fine bara’ ploy had been going on here for weeks. They don’t bring the same set of defaulters here each time they come. Different officials, different debtors are brought here. Only perpetual defaulters are so dealt with. The officials must have been looking for them for weeks or even months before they were finally caught,” he told Sunday Tribune.

A bank staff corroborated what the young man said. “Many who apply for loans from us don’t kmow what they want the loan for. They mostly have no idea of how to turn money around. They just want to spend it or invest in something that they felt was sure to bring in money, but it almost doesn’t guarantee returns,” she told Sunday Tribune under condition of anonymity.

Asked if there was no way the bank could determine who should be given a loan or not, she said the bank would only act based on information provided. “Our sole business is to loan customers money, not to save it. We want to help as many as possible with small amounts of cash so that we can be able to stay in business. But when even the small amounts are not paid when due, our services will be grossly affected and we will not be able to help others,” she explained.

To minimise their losses, most MiFBs now grant loans to groups of individuals, rather than individuals. “The conditions agreed to are binding on all. One can not be an automatic member as there must be an insider who will vouch for you. These referees are the ones who will trace a defaulter in case he or she runs away.

“No member of the group will be paid any loan until payment is made. If that can’t be possible, the head of the group, or its secretary will be made to pay on the behalf of others,” she added.

“On the other hand, the bank can punish its staff for not handling the issue well. Sometimes, their wages suffer. That’s why they go all out to find hiding defaulters, or the entire group may be made to pay when we begin to apply the right pressure from the bank staff to the individual or the surety or the executive members who have acted as guarantors.”