ABSTRACT
This research project sought to empirically
examine the impact of microfinance institutions on poverty in Nigeria. To
conduct this research, structured questionnaire was used. The questionnaire
consisted of 25 questions which focused on the 4 areas of microfinance and
poverty in Nigeria. The questionnaire consisted questions which could be
answered in a dichotomous (yes/no) and in likert manner. The main purpose and
intent behind designing the questionnaire in such a simple way was to make it
easy for the selected samples to respond and thereby get a higher response to
the questionnaire. To evaluate the impact of microfinance institutions on
poverty level in Nigeria, a quantitative method was adopted. These methods
include; percentage and chi-square analyses. The result shows that the contribution of micro
credit has impacted on poverty reduction among the poor. This study shows that
microfinance programmes have the potential to alleviate poverty especially in
increasing level of income and reducing vulnerability. This will promote people
economic capacity and bring sustainable development. It is, therefore, recommended that microfinance
banks should improve accessibility of their services to poor by relaxing their
terms and conditions on accessing services, especially loans. And MFIs should
widen their market by introducing new products, such as house loans,
agricultural loans, education loans and loans for initial capital. This will
make borrowers access relevant loan products to meet appropriate objectives.
TABLE
OF CONTENTS
Title page i
Certification ii
Dedication iii
Acknowledgement iv
Table of contents v
List of Table vii
Abstract viii
CHAPTER ONE: INTRODUCTION
1.1 Background to the
Study 1
1.2 Statement of the Problem 4
1.3 Objectives of the Study 6
1.4 Research Hypothesis 7
1.5 Methodology 7
1.6 Relevance of the Study 8
1.7 Scope and Limitations of the Study 9
1.8 Organization of the Study 10
1.9 Definitions of Terms 10
CHAPTER TWO: LITERATURE REVIEW
2.0 Introduction 12
2.1 Concept of Poverty 12
2.2 Poverty
Profile in Nigeria 17
2.3 Definitions of Small and Medium Scale
Enterprises 20
2.4 The Roles of Small and Medium Enterprises in
Economic Growth 23
2.5 SMEs, Entrepreneurship and Poverty
Alleviation 28
2.6 Small and Medium Scale Enterprises in
Nigeria 32
2.7 Microfinance Banks 37
CHAPTER THREE: THEORETICAL FRAMEWORK AND RESEARCH
METHODOLOGY
3.1 Introduction 38
3.2 Theoretical
Framework: Theory of Culture of Poverty 38
3.3 Research
Design 41
3.4 Research Method 41
3.5 Population 43
3.6 Sampling Techniques and
Sample Size 43
3.7
Survey/
Questionnaire 44
3.8
Method of Analysis 46
CHAPTER
FOUR: PRESENTATION OF RESULT
4.1 Demographic characteristics of the
Respondents 47
4.2 Credit Accessibility 51
i.
Sources of Startup
Capital of the Respondents 51
ii.
Satisfactoriness of Credit Conditions 53
iii.
Effect of
Microfinance on People’s Standard of Living 55
4.3 Chi-Square
Analysis 57
CHAPTER FIVE: SUMMARY, RECOMMENDATIONS AND
CONCLUSION
5.1 Summary of Major Findings 60
5.2 Policy Recommendations 62
5.3 Conclusion 65
5.4 Scope for Further Research 65
REFERENCES
APPENDIX
List
of Tables
Table 4.1: Demographic characteristics of
the respondents
Table 4.2: Information regarding source
of start-up capital
Table 4.3: Percentage distribution of the
respondents with regard to getting of Information about the credit scheme
Table
4.5: condition of credit
Table 4.6: expensiveness of credit screening process
Table 4.7: effect of
micro credit on businesses
Table 4.8 Percentage distribution of the respondents
with regard to the frequency of response on the level of business profitability
Table 4.9 Percentage distribution of the respondents
with regard to the frequency of response on effect of credit on household welfare
Table 4.10: chi square table
Table 4.11: chi square table
CHAPTER
ONE
INTRODUCTION
1.1 Background to the Study
Poverty
is the major problem in most developing economies. In these economies, it is argued
that among others absence of access to credit is presumed to be the cause for
the failure of the poor to come out of poverty. Meeting the gap between demand
and supply of credit in the formal financial institutions frontier has been
challenging (Von Pischke 1991). In fact, the gap is not aroused merely because
of shortage of loan-able fund to the poor rather it arises because it is costly
for the formal financial institutions to lend to the poor. Lending to the poor
involves high transaction cost and risks associated with information asymmetries
and moral hazards (Stiglitz and Weiss 1981). Nevertheless, in several
developing economies governments have intervened, through introduction of microfinance
institutions to minimize the gap then allow the poor access credits.
One of
the main policy objectives for the establishment of microfinance banks in
Nigeria was to assist small and medium scale enterprises in Nigeria in raising
their productive capacity and level of employment generation, thus alleviating
poverty and enhancing human capital development. According to Haque and Yamao
(2009), poverty alleviation through microcredit is now well recognized all over
the world as microcredit propagandists, governments, donors, development
agencies and others have an increasing interest in using the microcredit medium
to advance the course of poverty reduction as well as enhance human capital
development. In a bid to utilize the benefits of microcredit in alleviating
poverty and enhancing human capital development in Nigeria, the Central Bank of
Nigeria (CBN) formulated the micro finance policy and framework in 2005. The
December 2005 policy statement establishing Micro finance banks in Nigeria was
laudable and well-intentioned as the microfinance industry was fast becoming
the next “frontier” for the financial service industry to provide and promote
the grant of microcredit.
According
to the CBN policy and regulatory framework for microfinance banks in Nigeria,
released in December 2005, and from the appraisal of existing microfinance
oriented institutions in Nigeria, a major reason for establishing micro finance
banks anchored on the facts produced by the baseline economic survey of small
and medium scale enterprises in Nigeria conducted in 2004 which indicated that
the 6,498 industries covered employed a little over one million workers.
Considering the fact that about 18.5 million (28% of the available work force)
Nigerians are unemployed, the employment objective/role of the SMEs is far from
being realized. Based on the National Economic Empowerment and Development
Strategy (NEEDS) objectives of empowerment of the poor and the private sector,
the provision of needed financial services became imperative to enable them
engage or expand their present scope of economic activities and generate
employment. Delivery services as contained in the strategy would be remarkably
enhanced through additional channels which the microfinance banking framework
would provide as it would assist small and medium scale enterprises in Nigeria
in raising their productive capacity and level of employment generation (CBN,
2005).
The
impact of microfinance on poverty reduction has been measured in terms of
several dimensions, such as improved income, employment and household
expenditure, and reduced vulnerability to economic and social crises. These
measurements have tended to focus on a specific geographic area, an institution
or a small client group and are difficult to generalize or draw conclusions
that reach across borders, income levels, gender or socio-economic status (Honohan,
2004). Meyer (2002) noted that financial
sustainability and welfare
impact of microcredit can also be appraised. Hulme (2000) argues that
knowledge about the achievements of such microcredit initiatives remains only
partial and is contested.
1.2 Statement
of the Problem
Capital
is one of the important tools for business enterprise. Without capital no
business can run or flourish. In a country like Nigeria, problem of capital is
very acute. In rural Nigeria, the only source of capital is village moneylenders,
whose rate of interest is very high. So, microcredit is essential for their
income generation. By providing poor people with credit for micro enterprise it
can help them work their own way out of poverty. And by providing loans rather
than grants the micro-credit provider can become sustainable by recycling
resources over and over again.
Over the past few years, there has been an
impressive increase in the number and volume of government programs that seek
to encourage the unemployed, the young, welfare recipients and disadvantaged
groups of the population to set up their own, very small business. Also, every
known regime recognizes the importance of promoting micro enterprises as the
basis of reducing poverty, and unemployment and promoting economic growth. As a
result, several micro credit institutions were established to enhance the
development of SMES. Such micro credit institutions include the Nigerian Bank
for Commerce and Industry (NBCI), National Economic Reconstruction Fund
(NERFUND), the People’s Bank of Nigeria (PBN), the Community Banks (CB), and
the Nigerian Export and Import Bank (NEXIM), and the liberalization of the
banking sector.
Unfortunately, records indicate that the
performance of SMES in Nigeria has not justified the establishment of this
plethora of micro-credit institutions. The
sector has stagnated and remains relatively small in terms of its contribution
to GDP or to gainful employment, poverty alleviation rural development etc.
activity mix in the sector is also quite limited- dominated by import dependent
processes and factors.
The
impact of these micro credit programmes on poverty reduction and creation of
entrepreneurial ability among the micro enterprises is a perplexing question.
This is because, in the opinion of some eminent economists, it has not created
entrepreneurship development in Nigeria (ogunjiuba et al, 2004). In
theory, access to credit is supposed to enhance households' ability to manage
scarce
resources more effectively and
protection against risk and provision for the future. It is on basis of this assertion that many
governments and donor agencies emphasize development of programs directed
particularly to owners of micro-enterprises (Webster, 1991).
The
assessment of the impact of microcredit on poverty alleviation in Nigeria is
very scarce, if non-existent. It is important to know whether the basic
objective of establishing microfinance banks in Nigeria can be achieved. The
questions of interest then are; how has the microfinance banks improved the
standard of living? Can loans given out actually assist in poverty alleviation
in the country? Are the poor given utmost priority in credit allocation? This
study fills this gap and provides recommendations for way forward.
1.3 Objectives of the Study
The
major objective of this study is to examine the impact of micro credit on
poverty alleviation in Nigeria.
Te
specific objectives of the study are to;
a- Evaluate
the performance of microcredit on poverty alleviation in Nigeria in Nigeria.
b- Appraise various government policies targeted at
alleviating poverty
c- identify
challenges faced by microfinance banks in giving loans to small and medium
scale enterprises; and,
d- Based
on empirical findings suggest the way forward for the reducing poverty through
the use of microfinance banks in Nigeria.
1.4 Research
Hypothesis
The hypotheses to be
tested in this study are;
H0: Microcredit has no significant effect on poverty
reduction in Nigeria
H1:
Microcredit has a significant
effect on poverty reduction in Nigeria
1.5 Methodology
·
Sources
and instrument of Data Collection
Data will
be drawn from administering structured questionnaires which will be
administered to beneficiaries of microcredit drawn in the Lagos metropolis. The
questionnaire shall be close-ended aimed at helping respondents provide answers
that will be tailored to providing answers that will be further analyzed.
·
Method
of Data Analysis
The
data collected shall be analyzed using simple percentages. Simple percentage
has the advantages of clearly indicating the weight in absolute terms. This
method is chosen due to its simplicity and clarity to interested parties who
may not have adequate knowledge with more complex analytical tools. Also, to
test whether microcredit impacts on poverty level, chi-square is used.
1.
6 Relevance of the Study
Issues regarding the
impact of micro credit on micro enterprises have received increased attention
in the literature. However, there is scanty work of this type in Nigeria,
especially, in the area of evaluating the impact of micro credit on micro
enterprises and poverty reduction in the period of global financial crisis and
banking reform. It is; therefore, hope that this study will fill the gap by
providing information on the effect of credit on micro enterprises in Nigeria.
The research work will lead to a clear understanding of the role of other macro
economic and social factors in determining the success of micro enterprises in
Nigeria. It is hoped that findings from this study will be very useful to
policy makers, investors, researchers, corporate managers, and other stakeholders
in an effort to shape micro credit institutions in Nigeria. The result of the
study will provide insight to further future research into this field of study
and would be useful for the policy makers in repositioning the existing
microfinance institutions to achieving robust industrial sector and economic
growth in Nigeria.
Also, with widespread poverty and
several efforts of most developing nations’ government to tackle poverty, it is
indeed necessary to see how these nations succeed. Since the traditional banks
operations appears not to cater for the needs of the poor in the economy, it
becomes interesting to see how micro finance banks can achieve this feat with
their involvement in granting microcredit. In most developing economy like
Nigeria, the poverty level is high this has led to low standard of living of
the citizenry, reduced average life span and high infant mortality rate. It is
obvious that a reduction in pervading poverty rate will indirectly increase
standard of living, increased life span of the average citizen and a reduction
in infant mortality rate.
1.7 Scope and Limitations of the Study
The study will center
on the operations of Micro finance Bank in Nigeria and the extent and
microcredit impacts on poverty alleviation in Nigeria. The case study area for
the study is Lagos state. Also, attention is given to manufacturing firms. One
of the limitations of this study is time and cost. The available time is short
for the writer to cover large number of small and medium scale. Also, cost in term
of finance could be very high.
1.8 Organization of the Study
This research is divided into five chapters. Following
this chapter is chapter two which focuses on literature review. Chapter three will deal with theoretical
framework and research methodology. Chapter four is based on empirical
analysis. And Chapter five is based on summary of findings, recommendations and
conclusion.
1.9 Definitions of Terms
§ Microfinance:
Microfinance is an economic development
approach that involves providing financial services, through institutions, to
low-income clients, where the market fails to provide appropriate services. The
services provided by the Microfinance Institutions (MFIs) include credit saving
and insurance services. Many microfinance institutions also provide social
intermediation services such as training and education, organizational support,
health and skills in line with their development objectives.
§ Micro-credit:
Micro-credit is the extension of small loans to
entrepreneurs, who are too poor to qualify for traditional bank loans.
Especially in developing countries, micro-credit enables very poor people to
engage in self-employment projects that generate income, thus allowing them to
improve the standard of living for themselves and their families.
§
Micro finance
Institutions (MFIs):
A microfinance institution is an organization,
engaged in extending micro credit loans and other financial services to poor
borrowers for income generating and self employment activities.
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