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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