The Western African country of the Federal Republic of Nigeria is bordered by Niger to the north, Chad and Cameroon to the east, the Gulf of Guinea to the south, and by Benin to the west. The most populous country in Africa, Nigeria has an area of 923,768 sq. km (356,669sq. mi.). Its name is derived from that of its major river, the Niger. Abuja is the capital and Lagos is the largest city. Initially composed of a number of ethnically based kingdoms and states, the area of modern Nigeria was brought under British rule in 1906. It became an independent state on October 1, 1960.

The performance of the Nigerian economy has not been satisfactory, despite its enormous potentials for growth and development. Although the country is endowed with a sizeable natural resource base and financial resources accruing from the oil sector, it is still considered poor with a low per capita income and a ranking quite low according to its Human Development Index (HDI). The 1995 UNDP Human development report estimated that the life expectancy in the country is about 50 and that the human development index is 0.406 -- which ranks Nigeria as number 141 out of 174 countries in the world. The situation has been aggravated during the last decade by attempts to restructure the economy. Consequently, about 40% of the population is estimated to be living in absolute poverty with about 80% of living in the rural areas. The gap between the rural and the urban, formal and informal sectors continues to grow rather than diminish with increasing economic growth and development.

A World Bank study revealed that poverty in Nigeria is highest in rural areas. The number of rural poor is roughly twice that of the urban poor. The average per capita expenditures of a rural poor household were one-fifth of the non-poor in 1992. Of the extremely poor, 85 per cent lived in rural areas and more than two-thirds lived on farms. Nonetheless, the number of rural poor declined from 26.4 million in 1985 to 22.8 million in 1992, while it rose in the towns and cities from 9.7 million in 1985 to 11.9 million in 1992. Additionally, the depth of poverty declined from 19 to 16% in rural areas, while it increased in urban areas from 9 to 12%, consequently, increasing extreme poverty substantially in urban areas.

Microfinance

The crippling combination of corruption, crime, and poor physical infrastructure has kept local entrepreneurs from creating enough jobs within the Nigerian microfinance sector. Today roughly two out of every three Nigerians live below the poverty line, and half the population remain unemployed. According to a World Bank study, any successful strategy to improve living conditions in Nigeria must include three simultaneous courses of action:

1. a strong and focused emphasis on economic growth;
2. better access by the poor to social services and adequate infrastructure; and
3. targeted interventions to protect low-income populations or the most vulnerable.

The Government of Nigeria identified microfinance as an effective tool in achieving these objectives because it enables poor people to expand their businesses, increase their revenues, and augment employment, thereby contributing to the economic development of the country. For these reasons, UNCDF has committed itself to helping the Government realize its objectives in developing the microfinance sector in Nigeria, mainly through the initiation of the MicroStart Nigeria Project.

The MicroStart Nigeria project was established as a part of the UNDP global MicroStart pilot programme in 2000 to enhance the access of low-income microentrepreneurs, particularly women, to appropriate financial and non-financial services. MicroStart expected to achieve its aims by building the capacity of participating local organizations to provide microfinance services on an operationally sustainable basis and setting in place a permanent mechanism for transfer of technology in to the sector. Consequently, the Association for Social Advancement (ASA), a Bangladesh microfinance organization that is known for its sustainable approach to micro lending through simple and cost-effective management, was selected as the International Technical Service Provider (ITSP) for the programme in January 2000.

After an extensive assessment of 49 local organizations, eight promising NGOs were chosen by ASA to participate in the three-year programme. During Phase I of the project, ASA was successful in building the institutional capacities of the eight partner MFIs, which received guidance and training from ASA and followed similar policies and standardized procedures for delivering microfinancial services. The participating institutions have also managed to rapidly scale-up outreach, while achieving managerial and financial sustainability and three likely ‘break through organizations’, LAPO, JDPC, DEC, that have the possibility of becoming major service providers in their geographic areas have been assisted through the programme. According to the May 2002 midterm evaluation report of MicroStart Nigeria, the “ASA methodology has proven to be successful in the Nigerian context thus far and have been cost-effective with respect to results”.

Based on the recommendations of the MicroStart mid-term technical review and in support of the objectives of the Second United Nations Country Cooperation Framework for the period (2002-2006), UNCDF is in the process of launching a second phase of the programme that will continue to build on progress made in Phase I with a focus on scaling-up outreach to reach 100,000 active clients and building local capacity by winnowing out non-performers and investing selectively in the most sustainable MFIs, namely, LAPO, JDPC, and DEC.