Revealed: Reason for Rise and Rise of Esusu

The less than average performance of Nigeria’s economy is as a result of the rapid growth of the informal financial sector that often, ubiquitous, invisible and irregular economic activities outside the purview of government regulation, Nigeria CommunicationsWeek can now reveal.
Investigations revealed that the activities of this sector have far reaching effects on the whole economy especially because of the shadowy nature of business there.
The most common type of the informal finance is the Esusu in Yoruba, lsusu or Utu in Igbo and different names in different parts of the country.
Though some Esusu operate with written laws; most are without modus operandi and there is no guarantee that contributions (mostly fixed amount periodically or accumulated funds) will reach the beneficiaries.
Nigeria CommunicationsWeek gathered that the general practice is that the Esusu associations contribute a fixed amount periodically and give all or part of the accumulated funds to one or more member(s) in rotation until all members have benefited from the pool.
Elsewhere, I A. H. Ekpo and 0. J. Umoh, both financial experts discovered that there are also informal money lenders, saving and credit associations and credit unions.
Money lenders are believed to be highly exploitative with high rates of interest through which they extract economic surplus provided by peasant labour, capital and land.
“The saving and credit associations as well as credit unions operate in more formalised ways than the Esusu associations. They may or may not be registered under any legislation,” they added.
The rapid growth of the informal sector was encouraged by formal financial institutions which attached stringent conditions to certain practices like granting of loans as well as inability of funds made available by existing banks to reach the poor segment of the population.
The frequent collapse of financial institutions also increased the relevance of the informal financial institutions while most people prefer to keep their money under their pillowcases and under mattresses.
The activities of the informal finance sector have profound impact on the whole economy accounting for 75 per cent of the money outside the banking system.
Femi Akinware, CEO, Tagattitude Nigeria told Nigeria CommunicationsWeek that  if a significantly higher percentage of money in circulation is brought into the banking system, there would be a lot more activities in the economy.
“There would be a lot more lending, a lot more business support and a lot more formal economy and our GDP will bring the country the hope of delivering her promises,” he said
Nodding in agreement, Ekpo and Umoh said that the informal sector in Nigeria has no tendency to wither, adding that it must be sustained for optimum contribution to the growth of the economy.
They called on the government to encourage and empower the informal sector through the provision of conducive policy and physical conditions.
As the condition is being awaited, retail banking has been identified as a way to bring money into the banking system, focusing on households and small businesses.
Michael Lafferty, chairman, Lafferty Group, a financial advisory group based in London  said the realization that people are “mini – companies” with same need to save, borrow and make payments,  call for informal  savings and loan institutions.
He charged Nigerian banks not to make same mistakes as banks in the West whose profits were majorly from investment banking.
But since trust has been lost in the micro finance sector, the Central Bank of Nigeria (CBN) has proposed new loan provisioning regimes and a framework for collateral adjustments for lost facilities to adjust to the current economic realities necessitating lending to the critical sectors of the economy.