MICROFINANCE INTERVENTIONS AND HOUSEHOLD POVERTY DYNAMICS IN NIGERIA: A LONGITUDINAL STUDY (2011–2024)

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Microfinance Interventions and Household Poverty Dynamics in Nigeria: A Longitudinal Study (2011–2024)



Abstract

Alleviating poverty has appeared to be at the forefront of the economic policies of so many national economies in the world. It is referred to as the ability of human beings to lead lives they have reason to value and to enhance the substantive choices they have, and this can only be achieved in the context of well-functioning institutions committed to social security. Poverty reduction can be attained by stimulating economic growth to increase incomes and expand employment opportunities for the poor; undertaking economic and institutional reforms to enhance efficiency and improve the utilisation of resources; and prioritising the basic needs of the poor in national development policies. One of the key notable ways of alleviating poverty is the use of microfinancing because it transcends the avenues of getting financial services to poor households and businesses. This study centred on investigating the impact of microfinance on poverty alleviation in Nigeria. As such, annual time series data, which covered the period from 2011 to 2024, was utilized. Also, the study was estimated using the autoregressive distributed lag (ARDL) model. Findings from the results of cointegration show that there is the existence of cointegration between microfinance and poverty alleviation in Nigeria. Also, the ARDL bounds test shows that long-run relationships exist between microfinance and poverty alleviation in Nigeria. Evidence also revealed from the ARDL results that microfinance has a significant positive long-run impact on poverty alleviation in Nigeria. The result of the short-run dynamics shows that the speed of the adjustment was measured at 35% in the short run. The study therefore recommended that to effectively alleviate poverty in Nigeria, microfinance institutions should foster partnerships with SMEs, organise training for SMEs on how to obtain loans and credits, as well as how to utilise loans obtained effectively to maximise products and services to alleviate poverty.






Table of Content


CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

1.2 Statement of Problem

1.3 Objective of the Study

1.4 Research Questions

1.5 Research Hypotheses

1.6 Scope of the Study

1.7 Significance of the Study


CHAPTER TWO

REVIEW OF RELATED LITERATURE

2.1 CONCEPTUAL REVIEW

2.1.1 Per Capita Income

2.1.2 Small and Medium Enterprise (SMEs) Growth

2.1.3 Microfinance Credit      

2.1.4 Overview of the Microfinance Policy in Nigeria

2.1.5 Microfinance Policy and Poverty Alleviation

2.1.6 Microfinance Policy and SMEs Growth

2.2 THEORETICAL REVIEW

2.2.1 The Microfinance Theory- Grameen Model

2.2.2 The Human Capital Development Theory

2.2.3 The Empowerment Theory

2.2.4 The Cultural and Geographical Poverty Theories

2.2.4.1 The cultural theory of poverty

2.2.4.2 The geographical poverty theory

2.3 Empirical Review

2.5 Research Gap 


CHAPTER THREE

RESEARCH METHODOLOGY

3.1 Research Design

3.2 Definition of Variables

3.3 Model Specifications


CHAPTER FOUR

DATA PRESENTATION, ANALYSIS AND INTERPRETATION

4.1 Data Presentation

4.2 Testing for Stationarity

4.3 Testing for Cointegration

4.4 Testing for Long-Run Relationships

4.5 Testing for Stability

4.6 Analysis of the ARDL Long-Run Impact

4.6 Estimation of ARDL Short-Run Dynamics

4.7 Discussion of Findings


CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1 Summary

5.2 Conclusion

5.3 Recommendations

Reference

Appendixes: Regression Results

 

 








 CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Alleviating poverty has been a goal every national economy cherishes most because it makes their economy regain its vitality and makes the economy to be robust in achieving its objectives. According to United Nations (UN), poverty entails more than the lack of income and productive resources to ensure sustainable livelihoods. Its manifestations include hunger and malnutrition, limited access to education and other basic services, social discrimination and exclusion, as well as the lack of participation in decision-making (UNSDPF, 2022). Globally, nearly half of the world’s population currently lives in poverty, defined as income of less than US $2 per day, including one billion children. Of those living in poverty, over 800 million people live in extreme poverty, surviving on less than US $1.25 a day (UN, 2022), and they lack access to proper nutrition, clean drinking water, and adequate health services. In a recent publication by national poverty eradication and UN sustainable development cooperation framework (UNSDPF, 2022) “over 40.1% of the population live below the poverty line (376 Naira – less than 1 dollar a day) with significant geographic disparities. Around 86.9 million Nigerians are now living in extreme poverty”. To be more elaborate, over 54 per cent of Nigerian children for instance live in multidimensional poverty, while, over 60% of the poorest people in Nigeria approximately involves 52 million women living on the clutches of extreme poverty (UNSDPF, 2022). Pertinently, the rising poverty in Nigeria originated due to high level of illiteracy, high mortality rate, high rate of unemployment among youth, and lack of infrastructural development (UNSDPF, 2022). 

The issue of poverty has been a major concern to many nations of the world, most especially, developing countries like Nigeria and the government and institutions around the world have implemented several measures of poverty alleviation. However, throughout the world, poor people are excluded from the formal financial systems as they are seen as not capable to meet the basic requirement of the formal financial system. The poor then developed a wide variety of informal financial systems like Ajo, Esusu, and other cooperative arrangements to meet their financial needs. Microfinance is then created to fill the gap between the poor and the rich accessibility to loan and credit facilities (Li, 2019; Irobi, 2008). Microfinance is the provision of financial service to the economically active poor who are un-served by the formal financial service provider Ewubare and Okpani (2018). This implies that microfinance helps extend required financial services to the people who are classified as the most vulnerable in the society who cannot afford to assess financial services offered by commercial banks. Furthermore, the role of the microfinance has particularly help in alleviating poverty and led the Federal Government of Nigeria to adopt it as the main source of poverty reduction in Nigeria, mandating the Central Bank of Nigeria (CBN) to develop appropriate policy and framework for the operations of the microfinance banks in the country.

Strands of literatures have made remarkable contributions in analysing the relationships between microfinance and poverty alleviation in Nigeria (see: Onwumere, Imo and Ugbam, 2012, Taofeek 2015, Onyele and Onyeachi-Onyele 2020, Chomen 2021, Christensson 2017, Chughtai, Zaheer, and Taj 2015) among others. Notably, Simanowitz (2003) and Bamisile (2006) reported that despite the apparent success of microfinance banks and the efforts of supply-led policies and financial liberation, there are still important gaps to be filled by these institutions in Nigeria. Anyanwu (2004) observed that microfinance banks have not been able to adequately address the gap in terms of credits, savings and other financial services required by the poor in Nigeria. This study therefore joins the existing literature by investigating the impact of microfinance on poverty alleviation in Nigeria. This study utilized the autoregressive distributed lag model (ARDL) for the analysis of the relationship between microfinance and poverty. The remaining chapters of the research work were organized as follows. Chapter two treats the literature review, chapter three discussed the methodology, chapter four handled the empirical results and discussion of findings, chapter five contains the summary, conclusion and policy recommendations.  


1.2 Statement of the Problem

The problem of poverty is not peculiar to Nigeria, it is a worldwide problem hence the eradication of poverty as one of the Millennium Development Goals. Studies show that the poor are bankable and willing to borrow. Microfinance banking concept is to provide financial services to the poor. This concept has helped in the reduction of poverty in many developed and some developing economies of the world, since it was introduced in Nigeria in 1988 with the establishment of people's bank. Microfinance bank has been operated for over four decades in Nigeria, yet poverty persists as the population of Nigeria increases (CBN, 2005). There is evidence that the percentage of the core poor increased from 62% in 1980 to 93% in 1996, whereas the moderately poor only rose from 34.1%in 1992 to 56% in 1996 and declined to 28.9% in 2005 and even as at 2022, over 41% of the Nigerian population are poor (UNSDPF, 2022). The proportion of total income spent on food by the core poor and moderately poor was approximately 75% and 73%respectively, while the non-poor category spent about 53% of their total income on food (CBN, 2005).

In the light of the above, Nigeria as a nation is obviously backward. Poverty has been a scourge of the Nigerian people. The United Nations Development reports, (CBN, 2005) state that the Nigerian economy has been suffering from severe digression since the mid1980s. Its Gross domestic Products (GDP) which was US$93.3 billion in 1980 is currently less than a quarter of what it was twenty-five years ago". Nigeria is ranked among the poorest countries in the world (CBN, 2005), and the number of those living in poverty has continued to increase over the years. Several reasons accounted for this situation, the large concentration of the populace in the rural areas, the subordinate status of the female population and many years of neglect of the rural areas in term of infrastructural development and lack of information on how the Government is run. The task of poverty reduction has been a particularly daunting one for all developing countries and, more so in Nigeria and microfinance banks were the concepts intended by the government to reduce poverty in Nigeria, since it worked in Bangladesh and many other developing and developed countries of the world, though it has its problems in Nigeria but its prospects are good if the concept is properly applied and monitored to ensure compliance. The microfinance bank become more relevant since the laudable objectives of the specialized banks was seems to be failing due to the poor policy implementation and inadequate funding, as their impact on the welfare of the poor in quantitative terms is little felt.

Thus, despite the implementation of various poverty alleviation strategies and programs in Nigeria, poverty remains a significant challenge even with the activities of microfinance in poverty reduction and this affects a large proportion of the populace. In recent years, microfinance has gained attention as a potential tool to empower the poor and promote economic development in the Nigerian context. However, the effectiveness and true impact of microfinance on poverty alleviation in Nigeria are not well understood, necessitating an in-depth investigation to inform policy formulation and program implementation. However, as a developing country with a diverse socio-economic landscape, Nigeria faces unique challenges in poverty reduction. With a large informal sector and limited access to formal financial services, microfinance institutions (MFIs) have emerged as key actors in providing financial services to the poor and underserved populations. However, it remains unclear whether these microfinance programs effectively reach the target population in Nigeria and whether they truly contribute to poverty reduction efforts. Hence, this study dwell more on investigating the impact of microfinance on poverty alleviation in Nigeria.


1.3 Objectives of the Study

The broad objective of this study is to examine the impact of microfinance on poverty alleviation in Nigeria for the period of 2011 to 2024. The specific objectives are:

a)      To ascertain the impact of microfinance bank loans on poverty alleviation in Nigeria.

b)      To investigate the impact of branches of deposit-taking microfinance institutions on poverty alleviation in Nigeria

c)      To assess the impact of number of borrowers from deposit-taking microfinance institutions on poverty alleviation in Nigeria.


1.4  Research Questions

Following from the aforementioned objectives, the following research questions are derived thus:

a)      To what extent does microfinance bank loans has impacted on the poverty alleviation in Nigeria?

b)      How far has the branches of deposit-taking microfinance institutions influenced the poverty alleviation in Nigeria?

c)      Does asses to the number of borrowers from the deposit-taking microfinance institutions impact on poverty alleviation in Nigeria?


1.5 Research Hypotheses

The relevant hypotheses to be tested are stated below:

H01: Microfinance bank loans do not have significant impact on the poverty alleviation in Nigeria.

H02: The branches of deposit-taking microfinance institutions do not have significant impact on the poverty alleviation in Nigeria.

H03: The number of borrowers from the deposit-taking microfinance banks does not have significant impact on the poverty alleviation in Nigeria. 


1.6 Scope of the Study

This study focuses on examining the impact of microfinance on poverty alleviation in Nigeria from 2000 to 2024. Nigeria, being the most populous country in Africa with a diverse socio-economic landscape, presents a unique context for studying the effectiveness of microfinance interventions. The geographical scope of the study includes multiple regions across Nigeria, encompassing both urban and mainly rural areas. By analysing data collected from secondary sources, this study aims to provide insights into the impact of microfinance on poverty reduction across different geographical settings in Nigeria during the specified period.

The study will also utilize a quantitative data analysis approach which involves examining existing data records, such as average household income, microfinance institution records, records of SMEs, and national-level poverty data; this is in order to assess the trends and patterns of microfinance usage and its relationship with poverty levels in Nigeria. Additionally, by focusing on the period from 2000 to 2024, this study aims to capture important developments, policy changes, and trends related to microfinance and poverty alleviation in Nigeria over the past decade.


  1.7 Significance of the Study

1.      Government/Financial regulators: the findings of this study will provide useful information that will enable the government to enact and appraise the effectiveness of the poverty reduction policies. Also, the findings in this study can also enable financial regulators like the CBN as apex regulatory arm of the financial system to formulate strategies and efficient policies with respect to poverty alleviation.

2.      Public: members of the society will also benefit from this study, because it will serve as a catalyst for education especially for the rural poor dwellers and those concerned about the welfare of the economically active poor.

Academia: in general, the study will be most beneficial to students of knowledge in the academia, as the foremost stakeholder. It will also serve as a reference point for further research studies.


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