A survey by FinMark Trust, through the i2i initiative, in partnership with Enhancing Financial Innovation & Access (EFInA), has shown that borrowing from family and friends went up by 29 per cent during the six-week economic lockdown instituted by the Federal Government at the onset of the Covid-19 pandemic. The report also showed that 29 per cent of borrowings were from informal financial service providers, with nearly one-third of informal loans sourced from local money lenders.
Borrowing from family members and friends are always the most considered option during economic crisis. That trend was dominant at the onset of the Covid-19 pandemic where many borrowers got their funds from family members and friends.
This is because formal or informal financial services remain crucial in improving people’s livelihoods particularly in a crisis era, a recent survey by FinMark Trust through the i2i initiative, in partnership with Enhancing Financial Innovation & Access (EFInA) said.
According to the report, some Nigerian households experienceced reduced income, lower food consumption, and reduced access to financial and health services following the onset of the COVID-19 epidemic and related lockdowns.
Besides, people need access to affordable savings, credit, payments, insurance, and pension solutions to either increase their ability to take advantage of economic opportunities or build resilience against income shocks.
The report showed that Nigerians reported disruptions in access to financial services following lockdowns. The informal financial service providers catered to 29 per cent of those borrowing, with nearly one-third of informal loans sourced from money lenders.
Without regulatory oversight, borrowing from money lenders can be risky due to potentially high interest rates and the possibility of exposure to aggressive debt collection practices.
The survey, conducted via mobile phones, was commissioned to generate more complete and inclusive data on how the COVID-19 pandemic is impacting lives of Nigerians. The survey is nationally representative of the Nigerian adult population (18+) as more than 1,800 adults were surveyed via telephone, with similar surveys also carried out in Kenya and South Africa.
The EFInA Access to Financial Services in Nigeria survey found that approximately 50 million adult Nigerians earn their income either daily or weekly, and movement restrictions have likely reduced income earning opportunities for some Nigerians.
Again, nearly half of the adults in Nigeria report that income earned in the week prior to the economic lockdown by the Federal Government last April due to the COVID-19 pandemic was smaller than the amount earned in this same time last year.
Beyond the direct impact of COVID-19 on those infected, there is an indirect effect on global health supply chains and access to financial services.
The i2i initiative and EFInA survey conducted via mobile phones, was aimed at generating data on how the COVID-19 pandemic is affecting Nigerians ex-rayed the role of financial services in improving livelihoods is particularly important during a crisis.
The survey showed that people need access to affordable savings, credit, payments, insurance, and pension solutions to either increase their ability to take advantage of economic opportunities or build resilience against income shocks.
However, Nigerians reported disruptions in access to financial services following lockdowns. Eleven per cent of adults reported difficulty remitting through their preferred bank or financial service agent and one in five per cent said their preferred bank or agent was closed or had run out of cash when they were interviewed in mid-April.
Also, nearly one in five adults borrowed money in the two weeks prior to the economic lockdown. Of these, eight per cent have taken up loans from formal financial service providers, mainly digital lenders. Most Nigerians who reported having taken credit borrowed from family and friends. Informal financial service providers catered to 29 percent of those borrowing, with nearly one-third of informal loans sourced from money lenders.
Without regulatory oversight, borrowing from money lenders can be risky due to high interest rates and the possibility of exposure to aggressive debt collection.
Furthermore, 64 per cent of farmers report difficulty in selling crops or livestock. This signifies a threat to food security with the possibility of further hikes in food prices. With disruptions in supply chains, not only will available food not get to the markets, farmers may also not have enough capital for the next planting season if they cannot sell profitably this season.
Nearly half of Nigerian adults report at least one day in the week prior to April 8 a household member ate fewer meals because there was not enough food. The picture is less bleak in Kenya while South African adults report no incidence of decline in meals.
This research has shown differences in the impact of the pandemic across the countries surveyed; similar differences are likely to be evident within countries as well. While initial impact may be felt most in the first states with complete lockdowns, underlying poverty across various regions and rural versus urban spread will also play a role in determining the most hit areas.
For example, Nigeria’s poor are disproportionately concentrated in Northern Nigeria with the North East and North West accounting for 51 per cent (30 million) of adults living below the $2.50 poverty line.
Also, 11 per cent of Nigerian adults reported difficulty remitting through their preferred bank or financial service agent and one in five per cent said their preferred bank or agent was closed or had run out of cash when they were interviewed in mid-April.
High levels of financial exclusion pose two major threats to economies. In the absence of finance, people who are not connected with the formal financial system lack opportunities to maximise their income and expand their businesses.
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