Indigenous Usury System And Informal Microfinance In Ibadan, Nigeria

ABSTRACT

Informal microfinance is one of the veritable sources of venture finance in developing

countries. While informal microfinance such as rotating savings and credit associations, and

cooperative associations have received significant scholarly attention, limited research has

been conducted on the features that sustain Indigenous Usury System (IUS) in Nigeria. The

IUS provides informal credit to small scale businesses and low income earners at

prohibitively high interest rates that have attracted negative and exploitative perceptions of

the system. The study, therefore, examined the features (relevance, accessibility, usage,

network, repayment schedule and sanctions) that have sustained contemporary IUS in Ibadan,

Nigeria.

Rational choice theory guided the study while exploratory research design was adopted.

Ibadan city was selected as the study area because of the preponderance of IUS. The study

population was indigenous usury lenders and lendees. Usury lenders were identified through

snowballing. Five Key Informant Interviews (KIIs), 10 In-depth Interviews (IDIs) and two

case studies were conducted with usury lenders. Usury lendees were categorised into traderlendees

and formal worker lendees. The trader-lendees were purposively identified from three

most popular modern markets in Ibadan - Gbagi, Bodija and Agbeni. Formal worker-lendees

comprised formal sector workers (civil servants, teachers and bank workers). Twenty and 30

IDIs were conducted with formal sector lendees and trader-lendees respectively. Five KIIs

and two case studies were carried out with trader-lendees. Eight Focus Group Discussions

comprising four sessions each for traders-lendees and formal worker-lendees were also

conducted. Data were content analysed.

The relevance of IUS in contemporary informal microfinance was predicated on the

subjective, but contextual rational interpretation of the system as benevolence (aanu). The

IUS readily met the financial needs of lendees, which they considered inaccessible in formal

finance institutions. Contextual negative impressions of potential default and possible

coercive sanctions by lenders inadvertently sustained the IUS. Access to IUS fund was

dependent on referral from a trusted guarantor (trader-lendee), reputation of a lendee‟s

organisation (formal sector workers) and good credit history. Usury lenders financed both

economic (trading and contract finance) and social (burial ceremonies, children education,

health and international migration expenses) ventures. Financing depended on the rational

evaluation of the venture vis-à-vis the likelihood of loan repayment. Lenders assisted traderlendees

through business advice, customer reference and patronage. Repayment interest rates

ranging from 5.0% to 10.0% were charged on the monthly principal balance outstanding, thus

resulting in an exploitative aggregate annual interest rate of 60.0% and 120.0% respectively.

Repayment default attracted sanctions such as police arrest, incarceration, property seizure,

blacklisting, social stigmatisation and physical assault. Despite associated high interest rates

and punitive coercion, lendees tended to place more premium on the timeliness and

availability of the loan when needed.

Informal usury system remained a major source of finance for lendees despite its exploitative

nature due to its accessibility which gives it an interpretation of contextualised magnanimity.