NIyi Jacobs
In a climate of soaring interest rates, Nigerian families and small businesses are increasingly seeking financial relief outside traditional banking institutions. Many have turned to cooperative societies, thrift collections, and other informal financing practices like Esusu. Driven by double-digit interest rates from Deposit Money Banks (DMBs), ranging between 15% and 35%, a growing segment of the population has opted for these semi-formal financial services, which offer a less costly means of accessing funds for essential needs such as healthcare, education, and housing.
The shift away from banks follows a wave of interest rate hikes initiated by the Central Bank of Nigeria (CBN). Since February 2024, the Monetary Policy Committee (MPC) has progressively raised the Monetary Policy Rate (MPR), aiming to curb inflation and manage liquidity in the economy. The MPR has jumped from 22.75% to a record 27.25% within months, a staggering 850-basis-point increase under CBN Governor Yemi Cardoso. This has left DMBs with little choice but to raise their borrowing rates, impacting consumers across the board, especially those reliant on loans for personal expenses or small businesses.
Escape from High Rates: Cooperatives and Thrift Practices Thrive
Unlike traditional banks, which pass on these costs to consumers through high fees and interest, cooperative societies and Esusu practitioners charge far lower rates. Rates for loans through cooperatives range from 8% to 14.4%, a significant relief for families already stretched by Nigeria’s rising cost of living. Cooperative societies, therefore, have become attractive alternatives, especially for Nigeria’s middle- and low-income earners, who face steep rates on personal loans, auto loans, and even salary advances.
“Our poll showed six out of ten middle-class and low-income Nigerians now approach cooperative societies or Esusu groups instead of banks,” noted a source from Business Hallmark. “The quick approval times, dividend benefits, and manageable charges make cooperatives particularly appealing.”
These benefits are particularly evident among Nigeria’s workforce. Over 70% of civil servants reportedly belong to at least one cooperative society, while over half of private-sector employees participate in staff-owned cooperatives, according to Business Hallmark findings. In these circles, cooperative members enjoy added incentives, like annual dividends on their contributions and other perks that extend beyond the low-interest loans.
A Direct Line of Credit and Community-Based Safety Nets
The setup of cooperative societies and thrift systems offers members more than just financial relief; it provides a community-based safety net. Members like Bola Ogunmodede, a cooperative society member in Ogun State, highlighted how the cooperative allowed him to secure a N5.7 million loan to complete his home, which had been stalled for years due to financial constraints.
Similarly, the informal, communal nature of Esusu and thrift practices gives members flexible ways to save for future needs. By setting aside funds for targeted expenses like school fees or rent, contributors ensure that they avoid the high-interest trap of traditional bank loans. As one contributor explained, the system allows them to organize their financial lives without fear of high fees or accumulating debt.
Cooperative Societies’ Appeal Intensifies Amid Loan Buyouts
Some cooperatives have stepped up their efforts to attract customers, particularly by rolling out schemes to buy out bank loans and replace them with more favorable terms. Marketing agents from these cooperatives reach potential customers directly, visiting markets, offices, and other community spaces to pitch their services. Life Saver Cooperative Multipurpose Society, for instance, has actively marketed its loan consolidation services, inviting Nigerians to consolidate their bank loans at a 12% annual rate—far lower than many DMBs.
“Successful applicants often get a loan that allows them to clear their existing bank debt, then take on a new repayment schedule that’s more manageable,” explained Johnson, a marketing agent for Life Saver Cooperative. These strategies are effective, partly because cooperative societies don’t depend on costly customer deposits like commercial banks do, allowing them to offer consistent, low-interest loans.
The Cost Structure of Banks vs. Cooperatives
The cooperative system also benefits from a different cost structure. Unlike DMBs, which must pay high interest to large depositors, cooperative societies rely mainly on member contributions. This structure shields cooperatives from the external funding pressures that banks face, enabling them to retain low-interest rates. While banks are forced to raise loan rates to cover the higher costs of customer deposits, cooperatives maintain stability, largely because they return profits to members in the form of dividends rather than high interest.
As a result, many Nigerian families view cooperative societies not just as a credit source but as a profitable investment. “By being a member for years, you’re essentially building a reserve,” noted a member of Oshodi-Isolo Excel Cooperative Society in Lagos. The combination of savings, affordable credit, and dividends provides families with a more sustainable way to manage their finances.
Why Nigerians Prefer Cooperative Societies Over DMBs
The drive toward cooperative societies and thrift practices underscores the appeal of accessible, affordable financial solutions in a time of economic uncertainty. Nigerian borrowers are weary of the high costs associated with DMB loans, which often include various processing fees, maintenance charges, insurance, and management fees—all of which contribute to overall borrowing costs that can reach 40%. Cooperatives, on the other hand, are seen as community-based institutions that offer fairer terms and lower fees, making them more attractive to those with modest incomes.
The trend has also caught the attention of Nigeria’s financial regulators, who are monitoring the cooperative sector’s rapid growth. A Lagos State Ministry of Commerce, Industry, and Cooperatives official explained that the sector’s reliance on member contributions instead of costly deposits is one reason it remains competitive. “Cooperatives have not needed to adjust rates significantly, giving them an edge over banks and quick loan apps that must pass on higher costs to consumers.”
Rising Popularity of Esusu as an Alternative Savings Mechanism
Esusu, or Ajo as it is also known, has also seen renewed popularity. This informal system allows groups of people to pool resources, with each member taking a turn to access the entire pot of savings. The method, free from administrative fees, appeals to Nigerians looking to meet periodic expenses without tapping into high-cost loans.
The flexibility and community support embedded in the Esusu system have made it an attractive option, especially for individuals in need of a cash flow buffer for emergencies or large purchases. For many Nigerians, Esusu offers a structured, low-cost way to save for essential needs like school fees or rent. Members agree to a schedule of contributions that suits their plans, and in many cases, can arrange to adjust their timing if a sudden need arises.
A Changing Landscape in Nigeria’s Financial Sector
The growing shift to cooperative societies and Esusu underscores a changing landscape within Nigeria’s financial sector. While DMBs struggle with rising interest rates and customer attrition, alternative financial services are positioning themselves as viable, community-based options. The trend reflects broader economic challenges, including inflation and high living costs, which have driven Nigerians to find affordable alternatives to traditional banking.
As cooperative societies continue their charm offensive, wooing new members and buyout opportunities, their position within Nigeria’s financial ecosystem is likely to strengthen. For many Nigerians, these semi-formal and informal financial institutions offer not only access to credit but a pathway to financial stability, positioning them as critical players in a challenging economic environment.
