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Esusu and access to credit

Published July 11, 2016

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Nimi Akinkugbe

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Nimi Akinkugbe, nakinkugbe@punchng.com

The International Day of Cooperatives was marked by the United Nations on July 2,
2016.

I urge governments to create an enabling environment for cooperatives to thrive

and grow. Let us harness the power of cooperatives to achieve the SDGs and create a
world of dignity and opportunity for all.
 Ban Ki Moon, the United Nations Secretary-General

Millions of Nigerians are not adequately served by the formal nancial sector and
remain largely unbanked; they continue to nd mainstream nancial services to be
unaffordable, unresponsive and unfriendly. As this limits their opportunity to save,
they are forced to rely on informal modes of saving and depend on credit unions,
co-operatives and Rotating Savings and Credit Associations (ROSCA). Such
institutions have clearly demonstrated the ability of people to organise themselves
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at a basic level and come together to save and borrow to their mutual bene t.

ROSCAs are the most commonly found nancial institution in the developing world
and have been in existence in many forms for hundreds of years. Indeed, in some
rural areas, they are the sole savings and credit associations.

The Esusu or contribution club is a traditional rotating savings and credit

association that has ourished in West Africa for generations and is still widely
practised today.

The incentive of participating in Esusu is the forced savings that it encourages;

putting aside money today to bene t from a lump sum payment in the future.
Subscribing members contribute a xed amount periodically. The accumulated
funds are usually then assigned to each member of the group in rotation, until all
have bene tted from the pool of funds. As a result, each member is able to access a
larger sum of money during the life of the association, and use it for whatever
purpose she or he wishes.
Access to credit

Formal lending institutions attach stringent conditions to the granting of loans and
informal moneylenders tend to be highly exploitative, offering exorbitant interest
rates that put credit out of reach of the small borrower.

Esusu, in a sense, allows individuals who may ordinarily not have access to credit
markets a form of interest-free credit. Through the pooled contributions saved,
albeit without interest earned, participants enjoy the possibility of gaining access to
the accumulated sum long before the individual has saved up that full amount. Such
lump sums make it possible for participants to acquire goods that they may
otherwise not be able to afford, pay off debts or meet other pressing obligations.
They can also take advantage of the occasional opportunity to improve their general
welfare.

Without contribution, I dont know where I would be today. It is impossible to get

bulk money to pay rent, school fees or other necessities that my family needs. In my
group, there are 12 of us and each person contributes N20,000 a month. This means
that once a year, I get N240,000 and I dont even have to pay back with interest.
Where would I have seen such money! Thank God oh, Dayo, a bank clerk, says.

My husband just lost his job with a bank. They gave him just one months salary;
so, we are really in trouble. In fact, he is just sad as he doesnt know how we will
feed. My own turn is coming up in August and I will receive N100,000. I had
planned to start a small business but its OK, at least, I will be able to help with
feeding the family for some time until he is up again, says Mercy Sossou, a petty
trader.

I tried for several months to get a bank loan. They asked me to provide land as
collateral, which I do not have. I joined an Esusu group with 10 members and we
contribute N10,000 each every month. This has really helped my business; when it
was my turn last month, I received N100,000. I would never have been able to save
that amount to invest in my business. If someone runs away with all our money, we
all know each other so I will just go to her house. Alhaja Banjoko, a distributor.
I really struggled getting a loan from a bank as the collateral requirements were
onerous. I joined my companys cooperative and thrift society and it has been a
Godsend. It is through this that I acquired my rst property.

Peter Johnson, member, cooperative and thrift society

Based on Trust

This form of collaboration is totally founded on trust. Though naturally there will be
instances where members of the groups have been duped of their contributions,
even in societies where levels of trust on nancial matters are questionable, Esusu
has proved to be popular and effective and continues to be so.

Time value of money

The Esusu ignores the basic concept of the time value of money. The rst recipients
of the pooled funds are thus the main bene ciaries of the scheme, whilst
subsequent collectors are essentially lending money to others interest-free; they
also have to bear the additional risk of default from other members over time.

Investment clubs

Although Esusu has played a signi cant role in helping people cultivate a savings
habit, more formal investment clubs have been in existence for decades, and are a
more effective way of achieving the saving and investment goals of members. They
offer their members a means to grow their personal wealth and learn about
investing at the same time.

Members of an investment club make subscriptions and invest the pool of funds as
an entity in a variety of instruments including mutual funds, stocks, and real estate.
Compensation is expected in the form of interest and dividend payments as well as
appreciation in the value of the underlying investments.
With the signi cant hub of economic activity in the informal sector, the onus is on
the micro- nance banks and other mainstream nancial sector participants to
develop appropriate products and services to target this sector. These informal
credit institutions should, through registration and regulatory guidelines, be
gradually integrated into the formal nancial community to protect members. Until
this happens, they will continue to thrive unregulated.

Nimi Akinkugbe has extensive experience in private wealth management. She seeks
to empower people regarding their nances and offers frank, practical insights to
create a greater awareness and understanding of personal nance.

For more personal nance tips, contact Nimi:

Email: info@moneymatterswithnimi

Website: www.moneymatterswithnimi.com
<http://www.moneymatterswithnimi.com/>

Twitter: @MMWITHNIMI

Instagram: @MMWITHNIMI

Facebook: MoneyMatterswithNimi

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Contact: editor@punchng.com

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