When Microfinance Banks End A Small Business In Nigeria, Everybody Rejoices

By  |  January 17, 2023

In Nigeria, small business owners who fall into debt with microfinance banks are frequently subjected to ridicule. This disturbing revelation highlights the struggles that these business owners can face.

In May 2022, on a chilly morning, Blessing Uzorgu observed her husband, Chima Samuel Uzorgu, walking to the park with his packed bag despite her tearful pleas.

Two days before his departure, their children were sent to live with their uncle, their father’s elder brother. Chiamaka and Chisom, both in primary school, were made to reside with a man who showed no concern for them.

Chima, an educated businessman from Eastern Nigeria, operates a successful business at Irepodun Market in Ikotun, Lagos. He had opened a branch in a royal community across the market before he got married. In his culture, it is traditional for a man from Eastern Nigeria to achieve a certain level of financial stability before getting married.

Chima said he was happy and prepared. “I was eager, and I was like, ‘she would enjoy her stay with me’,” he recalled thinking about his wife that day.

Chima had come across a young woman working at a neighbor’s shop, but he decided to overlook her as he assumed she was his romantic partner. However, a week later, when he couldn’t shake off the uncertainty, he asked his neighbor if they were romantically involved. To his relief, his neighbor confirmed that she was only an employee.

Blessing is the eldest of five siblings, three boys, and two girls, from a middle-class family who could only afford to send her to secondary school. As is common for women in Nigeria who do not pursue higher education, she had to find employment while waiting for a husband. Her meeting with Chima marked the beginning of a new chapter in her life. Given that she had been ready for marriage since completing secondary school, is she prepared to support her husband in his responsibilities?

On the joy of a new home

Chima was serious and so was Blessing, the woman he met at his neighbor’s shop. She expressed her willingness to start a relationship by visiting Chima’s shop and agreeing to go on a date with him. Following their first date, they went on many other dates, often at Chima’s house.

Chima’s financial troubles began when he obtained a loan from a well-known Microfinance Bank in Lagos, Nigeria. Despite having previous experience with borrowing from such institutions and successfully repaying previous loans he used to establish his second shop, the high-interest rates associated with the loans proved to be a significant burden. He and his sister had to work tirelessly to repay the loans, which resulted in a decrease in inventory in their shops, as confirmed by their financial records. Despite this revelation, Chima still decided to take out another loan.

Did the money go to other channels, or could the loan be the issue?

Following his initial loan experience and surprise revelation, Chima met with his wife and sister over dinner to discuss their plan of action. They resolved to operate only one store using borrowed funds.

“We needed to truly discover what went wrong,” Chima said.

Chima in his shop in the Royal Community

Chima’s decision to study the feasibility of repaying a loan and interest from his business without losing it was difficult to implement. He had to take more responsibility for the business, using borrowed funds solely for business expenses, and keeping accurate financial records.

The difficulties of upholding his commitment were significant, especially as a married man with children. He faced more spending temptations than if he were single, and expenses were likely to arise frequently due to the constant presence of his kids.

“I think he is capable of keeping to his words, but it is a logical and emotional challenge,” said Amarachi Uzorgu, Chima’s younger sister that manages the shop in Irepodun Market. “It’s not something you can do with children around. It’s hard to be disciplined.” 

As Amarachi pointed out, running a business is demanding, and not being cautious can lead to disorganization for a businessman who is not well-trained.

Despite the challenges, Chima successfully ran the business in the first quarter of 2020 and a full year later using borrowed funds. Both times, he adhered to the tactics he had agreed upon with his family: running the business independently without using any of its profits for personal or family expenses. Through hard work, he achieved what many people thought was impossible.

Chima uncovered the issue. He had feared that repaying the loan and interest would leave insufficient funds to support his family through the business, and his findings confirmed this concern.

In May 2019, Chima remembered the warning of his older brother, Kingsley Uzorgu, on the day he was due to leave his apprenticeship and start his own life and business, “Microfinance banks are only out to enrich themselves, steer clear of them,” he had said in their native language before Chima’s departure.

Blessing, who apart from being Chima’s wife, also helps Amarachi with the books in the second shop, said that borrowing from Microfinance Banks to fund a business in Nigeria is a “business killer.”

Microfinance Banks’ cold cases

Chima Uzorgu isn’t the only one in Nigeria that has had Microfinance Banks eat up their business. In developing countries like Nigeria, Microfinance Banks have done more harm than good to the people it was intended for, some badly damaged by the high-interest rates and actions of the system with less legal approaches to redemption, as well as by the happy state of their competitors and neighbors.

ID Cabassa, a public servant in Ikotun, has been a guarantor for small business owners when they sought loans. He has studied the repayment process and found that the problem often lies in the borrower’s lack of capability at the time of receiving the loan.

In 2021, Mr. Cabassa became curious when Chima announced he was planning to take out another loan while they were drinking beer at a bar. Chima’s sudden shift in focus to his bottle of beer led Mr. Cabassa to suspect that it wasn’t just the alcohol influencing his friend’s decision.

He spoke with Sunday Nwajiaku, a bus driver who transports goods for clients from well-known markets such as Lagos’ Idumota Market and International Traderfair to the Irepodun market in Ikotun. Mr. Nwajiaku was also inquisitive and said,

“I asked if Chima would be taking out a new loan, and the only way to find out is to ask him.”

Mr. Cabassa started inviting some of their older friends to talk to Chima to find out what is going on. For months, they discovered that Chima was being secretive, and even in obvious scenarios, where they had been eyewitnesses.

Amarachi Uzorgu (left) and Blessing Uzorgu (Right)

But getting Chima to hit the nail on the head was difficult. The persistent pressure proved abortive. Nonetheless, time always tells on people. That’s what happened in Chima’s case, in 2021.

His shop’s collapse, the one inside the market, provided “Pressure-free,” or establishing evidence free of charge by reminding debtors to come to ask for their money in their numbers. Just a few months after he had finished paying off the loan, “We surprisingly saw an army of debtors march to Chima’s shop located in the royal community after the collapse of the shop inside the market” Mr. Cabassa said.

Chima confirmed that he was owing them, including a young boy still serving his master. Mr. Nwajiaku believes Chima has been suffering and smiling, and that Microfinance banks had eaten him deeply.

Microfinance banks are also profiting at the expense of two of Chima’s neighbors, Ugochukwu Chibueze and Chiamaka Divine. Both of them, who are roadside traders, had taken Chima’s advice when they approached him with concerns about their lack of funds to properly finance their businesses. As a result, they lost their businesses and are now heavily in debt.

“We knew what we were doing, but when we started paying back, we lost absolute control,” Mr. Chibueze said.

Then they asked Titilayo Bakare, a loan officer from a different Microfinance Bank, to give them another loan. Mrs. Bakare paid a deaf ear to their plea. Then, Chiamaka visited her office.

“I was very skeptical,” Chiamaka said.

Despite this, Chiamaka persisted in her pleas. She begged, tears streaming down her face, even going so far as to kneel – ultimately resulting in the loan being approved.

Failing business tests 

What is the future of using borrowed money to run a business?

Business owners, studies, reports, investors, and even loan officers who understand the difficulties of running a business, all agree that funding is necessary. However, challenges abound.

Although researchers are learning ever more about borrowing money to start a business, they are still trying to pinpoint what traits in business owners are significant to their success with borrowed money.

It’s also unclear what percentage of interest a business can afford to pay back with the loan, and at what stage can they remain functional after paying back what they owe.

According to Chima, the financial struggles and ultimate failure of his shop in the Ikotun market may have been caused by using the income from the shop to cover expenses and funding other ventures. It is possible that daily expenses led to more money being spent than was being brought in. However, further research is needed to confirm these suspicions.

Traders must be taught to keep track of all expenses, no matter how small, that are paid for with their business funds. Some traders can be careless. Mr. Cabassa stated that he has observed traders with a large customer base sometimes thinking, “I can afford anything I want!”

Careless spending is the quickest way to ruin a business, according to Mr. Nwajiaku. The best results are achieved when spending and all other aspects of the business are closely monitored. If it is difficult to manage on your own, it is recommended to hire a qualified professional to help keep it under control.

High-interest rates on loans from Microfinance Banks have caused many traders in Nigeria to lose their businesses. Mr. Chima, in particular, has been mocked and tormented by his neighbors and debtors daily due to the failure of his shop and his accumulated debts. Unable to take the torture any longer, Chima closed his only functional shop and moved away to a different state, leaving his children with his elder brother and sending his wife back to her parents’ house.

Many of Chima’s debtors are searching for individuals with information about him since he closed his shop last year.

As for Amarachi Uzorgu, Chima’s younger sister, she has relocated to live with her husband.

“Measures must be taken to address the high-interest rates on loans from Microfinance Banks in Nigeria.”

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