THE ROLE OF THE CENTRAL BANK OF NIGERIA IN THE REDUCTION
OF THE UNEMPLOYMENT RATE IN NIGERIA FROM 2000 TO PRESENT
Unemployment is one of the major macroeconomic problems faced by Nigeria. Unemployment rate in 2000 was 18.1 percent, this was reduced to 12.2% in 2002 and 11.9% in 2005 (Akintoye, 2008). Although the figures have reduced in five years, the 11.5% is still a considerable number of the Nigerian population.
There are many definitions of unemployment one of which is the definition given by the International Labor Organization (ILO). Their definition is limited and may not at all perfectly apply to the cultural constraints in Nigeria but nevertheless it is perceived to be encompassing. The unemployed according to the definition, are the economically active population who have no work because they lost their jobs and or have left work, they are thus available to work and are looking for employment. (Akintoye, 2008)
Just very recently, the Central Bank of Nigeria (CBN) urged the state governments to partner and support the Entrepreneurship Development Center (EDC). EDC is one of CBN’s initiatives to reduce the incidence of poverty and the rate of unemployment. EDC offers entrepreneurial training in enterprise development to include basic principles in management, developing a business, growing a business, and creating employment through the business. (People’s Daily, 2011)
This recent initiative is in line with the microfinance program of the Federal Government through the CBN. The CBN Act 24 of 1991 [as amended] and the Bank and Other Financial Institutions Act [BOFIA] 25 of 1991 [as amended] confer to the CBN the key role in the microfinance program for the informal sector (CBN, n.d.).
Microfinance is the provision of access to micro-credit to the poor who do not have the means to access the same from conventional financial institutions (CBN, n.d.) because of lack of assets for collateral. The microfinancing program is aimed to reduce unemployment to the poor especially the informal sector and provide them with access of small loans or credits. The microfinancing program can reduce unemployment through the informal sector provided that it is well-managed and supported (Akintoye, 2008).
The Informal Sector includes those who create their own employment but are not accounted in the statistics of the employment (Todaro 1997 cited by Akintoye, 2008). They are engaged in the production and distribution of goods and services to generate for themselves some income inspite of the fact that they are constrained in terms of capital, technical know-how and physical and human capability (Sethuraman, 1981 in Akintoye, 2008). The economic activities of the informal sector are not included in the GDP (Farrel in Akintoye, 2008) which brings us to the legality issue, that is, if they comply with the “judicial, regulatory and institutional framework” (Feige 1990 in Akintoye, 2008).
The roles of the CBN in microfinance are multifaceted. These includes an establishment of a National Microfinance Consultative Committee (NMCC); crafting of clear microfinance policy; periodic review of the microfinance policy and guideline; mainstreaming micro financing and promoting harmony and a level playing field; interlinking micro financing programs with development banks, financial institutions and microfinance banks; channeling of microfinance funds to microfinance banks; advocating of interest rates that is determined by the market; and implementing training programs to all involved stakeholders. (Akintoye, 2008).
Microfinancing has a role in reducing unemployment and combating poverty. In the case of Nigeria microfinance is pushed as a strategy by the Federal government to reduce unemployment through the Central Bank of Nigeria however there are problems and issues that hamper the effective implementation of the project and the efficient distribution of micro credit to the unemployed.
The CBN’s microfinancing program has attracted 439,902 borrowers in 2009. (Mix Market, n.d.). This is a staggering number and is less than one million out of the 40 million that need the microfinance service. This is even worsened by the fact that micro-credit facilities are only a meager .20 percent of Nigeria’s GDP. Lending and pay rates are also a mad contradiction, with 100% interest for lending and 5% for savings. Micro-credit goes to the commercial sector (78.4%) instead of the agricultural (14.1%) and manufacturing sector (3.5%) which are more vital sectors of the economy. The problem of distribution is that microfinance is concentrated on the south and eastern part neglecting the northern part consisting of the Muslims who are the poor majority of the population. (Aliyu-Dahinu and Zubair, 2008)
If the issues above are addressed through the concerted efforts of the Federal Government and the CBN and also through a focused implementation of CBN of its mandate in microfinancing, more unemployed and the poor will have access to credit and remove them from the drudgery of unemployment and poverty.
REFERENCES
Akintoye, IR., 2008. Reducing Unemployment Through the Informal Sector. A Case Study of Nigeria. European Journal of Economics, Finance and Administrative Science. Issue 11 (2008). [online] Available at: < http://www.eurojournals.com/ejefas_11_10.pdf> [Accessed 6 May 2011].
Aliyu-Dahinu M., and Zubair, H., 2008. Microfinance in Nigeria and the prospects of introducing its Islamic version there in the light of selected Muslim countries’ experience. MPRA Paper No. 8127. [online] Available at: < http://mpra.ub.uni-muenchen.de/8127/1/MPRA_paper_8127.pdf> [Accessed 6 May 2011].
Central Bank of Nigeria, n.d., Microfinance. [online] Available at: <http://www.cenbank.org/devfin/microfinance.asp> [Accessed 6 May 2011].
Mix Market, n.d. Microfinance in Nigeria. [online] Available at: <http://www.mixmarket.org/mfi/country/Nigeria?gclid=CMPNheq-06gCFdMQHAodQz0DhQ> [Accessed 6 May 2011].
People’s Daily, 2011.
Credit:ivythesis.typepad.com
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