Rural Informal Savings and Credit Associations as Risk Managers and the Lessons for the Design and Execution of Rural Credit Schemes in Nigeria

This paper investigates the hypothesis that rural informal savings and credit associations persist, remain popular and flourish because they are able to resolve the problems of information asymmetry, transaction costs and related risks that are handled poorly or not at all by formal finance and rural credit schemes. Data for the paper emanated from two empirical studies of traditional savings and credit associations in south-eastern Nigeria, the initial study in 1993 and a follow-up study in 1998. The traditional savings and credit associations appear able to cope well with the risks associated with asymmetric information, transaction costs and moral hazard, through sustained locally valued diverse financial and non-financial services, expense-reducing techniques, locally adapted integrated loan guarantees and contract enforcement, and flexibility and convenience of loan services. While it is unrealistic to expect formal finance to emulate the risk coping techniques of these associations, it can and should at least learn from them and harness them. In addition to policy instruments that would reduce the information asymmetry, transaction costs and enforcement problems, the enhancement of complementary institutional and financial linkages between formal financial intermediaries and these associations are integral components of a dependable strategy to expand the frontiers of rural formal finance. Ce document analyse l’hypothese selon laquelle les associations rurales informelles d’epargne et de credit perdurent, restent populaires et se developpent parce qu’elles sont capables de resoudre les problemes d’asymetrie de l’information, de frais de transaction et des risques connexes que les programmes formels de financement et de credit rural ne reglent pas de maniere satisfaisante ou ignorent completement. Les donnees utilisees sont empruntees de deux etudes empiriques sur les associations traditionnelles d’epargne et de credit du Sud-est du Nigeria. La premiere etude a ete effectuee en 1993 et la seconde, un prolongement de la premiere, en 1998. Les associations traditionelles d’epargne et de credit semblent en mesure de faire face aux risques lies a l’asymetrie de l’information, aux frais de transaction et au risque moral, a travers des services financiers et non financiers durables, diversifies et localement apprecies, des techniques de reductions des depenses, des programmes integres et adaptes aux conditions locales de garanties de prets et d’application des dispositions contractuelles ainsi que des services de prets souples et pratiques. Sil n’est pas realiste de s’attendre a ce que les programmes de financement formels imitent les techniques utilisees par ces associations pour faire face aux risques, ceux-la devraient tout tirer des enseignements de la reussite de celles-ci et les mettre a profit. Outre les instruments de politique qui reduiraient l’asymetrie de l’information, les frais de transaction et les problemes d’application des dispositions contractuelles, le renforcement des liens de complementarite institutionelle et financiere entre les intermediaires financiers formels et ces associations fait partie integrante d’une strategieeiable d’expansion de la portee du financement rural formel.