COVID-19 in the African Continent

Sustainable Development and Socioeconomic Shocks

Evans Osabuohien, Gbadebo Odularu, Daniel Ufua, Romanus Osabohien, Evans Osabuohien, Gbadebo Odularu, Daniel Ufua, Romanus Osabohien

• Publisher: Emerald Publishing Limited
• Year: 2022
• Print ISBN: 9781801176873
• eBook ISBN: 9781801176880
• Topic: Economics
• Subtopic: Development Economics
• Index: Economics

COVID-19 in the African Continent examines the development, achievements, and challenges that have resulted owing to COVID-19 pandemic and how these precarious socioeconomic situations are being managed in African countries. This book explores the range of interventions aimed at mitigating the effects of COVID-19 by offering an in-depth understanding of the disruptive impacts of COVID-19 on the African continent.

This edited collection underscores the nature and effects of non-health-related challenges such as environmental complexities and possible solutions to socioeconomic shocks caused by the COVID-19 pandemic along with other social, political, and economic distortions. Providing readers with a profound insight of the critical societal consequences of these challenges in African economies, this book covers the macroeconomic policy approaches adopted by government and non-governmental organisations to boost post-COVID-19 recovery and enhance a systemic process to facilitate the prospects for addressing socioeconomic shocks across the continent.

Section III
Sectoral Development and Trade in Post-COVID-19 Africa

Chapter 10

Finance Schemes and Small Business Development in Nigeria

Akintoye Victor Adejumo, Oluwabunmi O. Adejumo and Uchenna R. Efobi

Abstract

Informal associations are typical features of farm and non-farm ventures especially within rural communities. Owing to the informality of these associations, members of the groups usually evolve strategies to cope with different kinds of economic and social shocks such as the COVID-19 pandemic or unexpected economic recessions. Accordingly, entrepreneurship and non-farm business development in rural areas require massive finance input, which this group largely lacks owing to agrarian activities which is the main source of revenue. Therefore, to inform rural development policies, this chapter draws on the interrelationships that exist between finance options (including formal, informal and social networks) and small business development. Using the World Bank Living Standards Measurement Survey – Integrated Surveys on Agriculture (LSMS-ISA), the analytics identifies informal financing and social networks as leading alternatives to formal financing option in rural businesses. Therefore, we suggest that the government institutions recognise and formalise informal finance systems. This will not only aid access to government interventions and programmes, but foster collaborations with existing formal institutions and investors for sustainable rural business financing.

Keywords: Finance; rural areas; shocks; farm and non-farm ventures; business development; social networks

Introduction

Globally, majority of the rural poor are part of the 1.4 billion people living in extreme poverty (Arthi, Beegle, De Weerdt, & Palacios-Lopez, 2018). Achieving business development and entrepreneurship growth for rural dwellers, which are mostly agrarian, is an important rural development policy path. This is to help households overcome vulnerability that can arise from exogenous events like weather variability, pandemics like flu or COVID-19, input price shocks, poor market access and other shocks from rural economic activities that affect agricultural outputs.

Accordingly, entrepreneurship and business development in rural areas require massive financial input since this unique set of individuals lack capital considering the fact that agriculture is their main source of revenue (Arthi et al., 2018). Besides, the farming sector is predominantly non-competitive, labour intensive and susceptible to external and exogenous shocks, thereby exacerbating the poverty situation and capital crunch of this group (Arthi et al., 2018; Efobi, Atata, & Ajefu, 2020). In Nigeria, the credit gap between micro, small and medium enterprises (MSMEs) as in other developing countries is large, with over 70% of these business group lacking access to credit (World Bank, 2018). For instance, about 74% and 82% of micro and small businesses are either unserved or underserved credit for their operations (World Bank, 2017).

Moreover, in Nigeria, 75%–80% of the extreme and moderate poor resides in the rural area, and majority of this population are women and children that are mostly agrarian (Uduji, Okolo-Abasi, & Asongu, 2019), and who are further given their financial exclusion. Financing option for this group (rural dwellers) will be of particular importance for a coping mechanism in determining alternative income sources other than smallholding and subsistence farming, which is vulnerable to exogenous shocks. Yet, financing in the rural setup may be largely defined by the social, cultural and even religious orientation of the individuals, as opposed to formality (Ellis, Lemma, & Rud, 2010; Guerin, Morvant-Roux, Roesch, Moisseron, & Ouid-Ahmed, 2011). This implies that it is important to consider the impact of the finance options available to rural business activities.

Studies have largely considered the formal financial system in driving business and industrial growth (Ayyagari, Demirguc-Kunt, & Maksimovic, 2010; Kaidi, Mensi, & Amor, 2019). For instance, Nagler and Naude (2014) stand out in this regard by focusing on the determinant of non-farm entrepreneurship in rural sub-Saharan Africa (SSA), while emphasising the importance of credit to the development of these ventures. Others like Bezu and Barrett (2012), Bezu, Barrett, and Holden (2012), and McKenzie (2017) contribute to this growing literature. All these authors acknowledge the importance of finance in non-farm business development in rural setups.

There is also a growing advocacy for alternative finance options for businesses, especially in rural areas of developing countries (Efobi & Orkoh, 2018; McKenzie, 2017; Mohieldin & Wright, 2000). Hence, this chapter examines plausible options to explore formal finance, informal finance and social support networks in Nigeria. The contribution of this chapter lies in understanding the different finance options available to rural individuals for business development. These financing schemes are not only relevant for socioeconomic shocks that could confront rural businesses, but these funding options can foster better-targeted finance intervention in achieving business development in the agricultural and non-agricultural sector rural areas in developing countries. The considered financial options are neither necessarily exhaustive nor exclusive, as they appear intertwined in practice and can be consolidated upon to advance credit access in rural Nigeria. This is an important factor to consider in the broader debate on financial development for sustainability.

The chapter is sectionalised as follows after the introduction; the next discusses finance in rural Nigeria and small business development. Sequel to this, are some of the institutional financing options for socioeconomic shocks and business development in rural Nigeria; after which some analytics are included for subsequent discussions of the challenges and prospects for actualising sustainable financing in Nigeria.

Finance in Rural Nigeria and Small Business Development

Financing systems in rural Nigeria appear to be less intense and competitive compare to the urban centres given the low spread of formal finance institutions. Nonetheless, three levels of finance system are prevalent in this region. They are the formal system, semi-formal or informal-formal, and the informal systems (Karakara & Osabuohien, 2020; Osabuohien & Ola-David, 2018). While the formal systems are registered financial institutions with the government; the semi-formal institutions include savings scheme of businessmen vis-à-vis the activities of roaming collectors (Areo, Gershon, & Osabuohien, 2020). Roaming collectors, are those individuals that gather monetary contributions based on agreed collection pattern of either daily or weekly deposits. Some of these collectors register with the government and bank their collections to lend credence to their activities and give their clients a sense of assurance as regards their contributions or savings, while some other collectors may not register and lodge their collections in the bank due to lack of trust in the formal financing system, which Osabuohien and Duruji (2007) referred to as financial dualism.

The informal financing systems are those who are not mainstreamed within the formal sector. This system mainly concerns individuals of common trade, business or other social connections, who evolve different types of schemes aimed at promoting a specific outcome like business, trade or social capital. For instance, there are indigenous savings and credit financing schemes, which are locally designed for mutual and group benefits of its members one of such is the saving practice in South-western Nigeria. In this region (South-Western Nigeria), these savings-credit practice known as Esusu,...

Table of contents

• Cover
• Title
• Copyright
• Table of Contents
• List of Tables and Figures
• About the Contributors
• Foreword
• Acknowledgements
• Introduction
• Section I: COVID-19, Socioeconomic Shocks and Development in Africa
• Section II: Performance of Africa’s Health and Educational Sectors in the ‘New Normal’
• Section III: Sectoral Development and Trade in Post-COVID-19 Africa
• Section IV: Post-COVID Economic Resilience and Development in Africa
• Section V: Services and Sustainable Development in Post-COVID-19 Africa
• Index