The Informal Financial Sector is generally the financial activities that occur outside the control of government agencies. It includes the financial operations that go on without official regulations and policies. These enterprises are not completely organized but they play an important role in the financial sector. Most people in this sector save their money in a traditional manner by hiding it somewhere in their house, or burying it in their yard, or carrying it around in a pouch around their waist.
Osusu (Esusu) Scheme in Informal Financial Sector
The Osusu scheme which is a form of rotational savings is popular in the informal finance sector. It is the most widely practiced among the low income earners, traders and artisans in the country. An Osusu collector goes around to the participants on a daily, weekly or monthly basis and collects the agreed-upon instalment of money from each person. This contribution of money is added to a pool from which every participant gets a payment at an agreed upon time. This practice promotes saving culture. It is most beneficial for those people who do not have a safe place to store their money at home or do not have access to the banking sector. They can simply save their money by adding it to the pool and collect it when needed. They can then use the money for investment or purchasing in bulk and can therefore increase their financial stability and further their business.
Money Lending business in Informal Financial Sector
Money lending is another part of Informal Financial Sector in which no third party intervenes between the money lender and the borrower. The transaction is based on trust between the two parties and sometimes involves witnesses and a written contract. The loans range from interest free loans given to family members to interest based loans given by reputed money lenders. Usually, they belong to a Money Lender Association of some sort. They are an important part of the Informal Financial Sector.
Non-Governmental Organizations (NGOs) in the Informal Finance Sector
NGOs play an essential role in the Informal Finance Sector by acting as intermediaries between the formal finance sector and the borrowers. Examples of such groups are:
- Community Development Trust Fund
- Community Women Association of Nigeria
- Live Above Poverty
- Farmers Development Union
- Women Farmers Association
All these NGOs make credit more accessible to investors and business people.
Integration of Informal Finance Sector
The establishment of Peoples bank and Community banks in rural areas in the past along with Micro-finances and the recent Financial Inclusion drive of the Central Bank of Nigeria (CBN) is all part of efforts by government to consolidate and regulate the Informal Finance Sector so as to provide a channel of surplus resources for the financial progress of the underdeveloped areas of the country. As the Informal Finance Sector is there to fill the gap created by lack of access to banks, it is important that it be recognized and supported by the government.
Financial reforms made in the recent past have kept the Informal Finance Sector in mind, with the aim to propagate and integrate it so as to create an overall smooth running financial sector of the country.
Informal Finance Sector in Nigeria: http://covenantuniversity.edu.ng/Profiles/Osabuohien-Evans/BANK-CONSOLIDATION-AND-INFORMAL-FINANCIAL-SECTOR-IN-NIGERIA-ANALYTICAL-PERSPECTIVE