MONARCH MICRO
FINANCE INSTITUTION WAS USED AS THE BASIS FOR THIS STUDY
CHAPTER ONE
INTRODUCTION
1.1 Background
of the Study
Throughout the world, poor people are excluded from
formal system. Exclusion ranges from partial exclusion in developed countries
to full or nearly full exclusion in Less developed countries (LDCs). Absent
access to formal financial services, the poor have developed a wide variety of
informal community based financial arrangement to meet their financial needs.
Microfinance is created to fill this gap (Irobi, 2008).
Microfinance pertain to the lending
of small amount of capital to poor entrepreneurs in order to create a mechanism
to alleviate poverty by providing the poor and destitute with resources that
are available to the wealthy, alert at a small scale. According to Anyanwu
(2004), microfinance bank is not just providing capital to the poor, but to
also combat poverty at an individual level, it also has a role at institutional
level. It seeks to create institutions that deliver financial services to the
poor, who are continuously ignored by
the formal banking sector.
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When the President Olusegune Obasanjo administration
came into office on the 29th May 1999, it paid attention to poverty
reduction.
During the regime preceding this
administration the World Bank tried to focus on poverty reduction in Nigeria
and so commissioned a study on poverty assessment in Nigeria.
The study not only profiled poverty
but also established quantitatively the trend of poverty encroachment to
development from 1980 to 1996. The study
showed that poverty level in Nigeria has been extremely high, with about
two third (2/3) of the population living below the poverty line in 1996.
This situation, the study indicated
could have been worse but for the dampening effect the period 1985 to 1992
had on poverty; when the rising trend of
the earlier period was reversed before the upward movement resumed again.
Specifically, poverty level went up
to 50% between 19980 and 1985, from 28.155 to 46.3%. Between 1985 and 1992,
there was a drop of about 4% points to 42.7%. However, by 1996, the level
jumped up to 65.6% and increase of more than 50% of the 1992 figures.
(SOURCE:
CBN ECONOMIC & FINANCIAL REVIEW, vol. 39 No.4, Akanji O. O.)
In absolute figures, however, the population in
poverty continued to rise over the 16 year period. Despite the drop in poverty
level in 1992, high population growth resulted in an increase of about 5
million in the population in poverty over the period 1985-1992. The estimated
number of the poor therefore rose from 18 million in 1980 to million in 1985,
to 39 million in 1992 and to 67 million in 1996. By the end of 1999 estimated
poor rose to 74.2 million. The movement in the per capital household
expenditure (Pce) over the period determined this pattern of poverty.
(SOURCE: CBN ECONOMIC & FINANCIAL
REVIEW, vol. 39 No.4, Akanji O. O.)
At the global level, the World Bank
devote the “World Development report 2000/2001: “Attacking poverty” to the
subject based on new evidences and a deeper understanding of the meaning and
causes of poverty. The report argued that major reductions in world poverty are
indeed possible. It shows that economic development continuous to be central to
success in reducing poverty, but that poverty is also an outcome of economic,
social and political processes that interact with and reinforce each other in
ways that can ease or exacerbate the state of deprivation in which poor people
live.
Consequently, the report concluded
that to conquer poverty requires action at the local, national and global levels
–to expand poor people’s opportunities, empower them, and increase their
security. This project work therefore will establish the need to empower the
poor, which has been estimated to be on the increase through the operation of
micro-finance as a strategy for poverty reduction. Also to be considered are
the conceptual framework, the review of some country experiences of micro
credit programs, the efforts put n place in Nigeria and by the World Bank group
and the International Monetary Fund (IMF), the microfinance model and the
principles that will make it work in the Nigeria context considering Nigerian
experience on financial intermediation.
1.2 STATEMENT
OF PROBLEM
The continuous rise in population and poverty level in
Nigeria has given rise to much attention being focused on the significant roles
being performed by micro financing as a key to poverty reduction. However,
these vital roles have been bedeviled with a growing vacuum and bottlenecks
created in the general strategies for poverty reduction programmes prevalent in
the Nigeria economy.
However, despite government poverty
reduction programmes in the past, there arises the questions as to:
(1) Whether they actually contribute to
poverty reduction in Nigeria? Thus, regardless of these poverty alleviation
programmes of the government, the problem still remains that so many people
still live below the poverty line and the living condition of most Nigerians do
not seem to improve, rather it worsens. For this reason, this work is going to access
microfinance as a strategy for poverty reduction in Nigeria.
1.3 Objective
of the Study
As indicated earlier, the main focus
of this study is to:
i.
Examine whether
micro finance contributes to poverty reduction in Nigeria.
ii.
Review some
country experiences of micro credit programs.
iii.
Offer the micro
finance model and the principle that will make it work in the Nigeria context.
1.4 Test
of Hypothesis of the Study
In order to find answers to the
research questions, the following hypothesis are necessary;
i. H1: Microfinance is a strategy for poverty
reduction in Nigeria.
ii. H0: Microfinance is not a strategy for poverty
reduction in Nigeria.
1.5 Significance of the Study
It is hoped that the results of this study will prove
extremely invaluable to a wide variety of parties, notable among which are:
The Government: The result of this study would help government at
all levels to judiciously follow or monitor the micro credit programmes it
enunciates and make sure that it gets to the peasant poor group in the society
because over the years the program has functioned in such a way that the micro
credit system was essentially directed at meeting the needs of elites whereas
the programme is largely for small peasant poor group.
The Society: with the operation of a revolving loan scheme
(Esusu) which is common in Nigeria, funds could be mopped up for an individual
to establish a small scale business to meet his/ her daily needs thereby
reducing the level of poverty in the society and also avoiding involvement in
other social vices.
The
microfinance institutions (MFIs); the result of this work will help
microfinance institutions to have a more coherent knowledge of the poor and
also have a closer relationship with the poor because they are the purveyor of
micro-credits to the poor.
The Researcher: BY the end of this
work, the researcher would have been exposed to the need to empower the poor
which has been estimated to be on the increase, and also to some micro-finance
models and to some country experiences of future micro credit programs.
Future
Researchers: Future researcher will find the work as a useful reference
material.
1.6 Scope
of the Study
This study covers the entire review
of micro finance as a strategy for poverty reduction in Nigeria using monarch
micro finance Institution as the basis for this study.
1.7 Limitations
of the Study
In the effort of accomplish the task of producing this
project, the researcher grappled with various shades of problems. These
problems spanned from human to non-human and made up of the following.
a. Time Constraint: as a student worker,
several academic and office demands contend for the limited time available.
This implies that non of the competing exercises could be effectively handled
without the other being worse off based on this; effective exploitation and
careful study of micro finance as a strategy for poverty reduction were not
undertaken.
b. Finance:
This research work were limited by finance. This significantly affected the
study population and indeed the sample size of the research. The inflationary
trend of the Nigerian economy could not help matters either.
c. Attitude
of Some Respondents: Some problems
ere encountered by the researcher in the process of gathering information for
the study. Such problems include the uncooperative attitude of some micro
finance institutions and operations when visited to obtain information with the
pretense that the disclosure of such information could jeopardize the reputation
of their employer.
d. Low
literature Rate: The material constraint was as a result of ht
newness of the topic which made impossible to have published work on it rather
the researcher laid hands on CBN Economics and Financial Review vol. 39 No.4,
Seminar papers/workshops material, as well as pieces of information collated
via the internet.
CHAPTER TWO
REVIEW OF RELATED LITERATURE
We have used this chapter to review most of the works
which scholars and researchers who are interested in the field of micro-finance
in Nigerian government have done. However, only those that have relevance to
the study have been considered.
A through search through literature paints our study
as virgin, more especially in the Nigerian setting. Consequently related rather
than precise literatures are reviewed. This is not to rule out that researches
have not been done in this area. Some who may have carried out researches on
micro-financing beyond concept may not have properly published their results.
2.1 Conceptual
Framework
Understanding how to alleviate
poverty is a central concern of development economics.
Bruno Squire and Ravallion (1995)
indicated that there are ample evidences that policies designed to foster economic
growth significantly reduce poverty, but that policies aimed specifically at
alleviating poverty are also important. For example, programs that provide
credit and build human capital try to eliminate the causes of poverty. Such
program can have a short-run or long-run perspective.
Timothy Besley 91997) took a
short-run perspective on program design for alleviating poverty, assuming that
income-earning abilities are fixed. He took two disparate approaches to program
design which he called the technocratic and the institutional.
The technocratic approach usually
associated with economists focusing on targeting, exploring the theoretical and
empirical implications of trying to direct limited resources to people wit the
greatest need. These efforts emphasize the difficulties of identifying target
groups and use creative approach to program design that substitute for detailed
information required to achieve first-best results.
Central to such exploitations are
the incentive efforts of program design, which underscores the need to know key
behavioural parameters, such as labour supply responses in order to formulate
policy.
The institutional approach is more
common among non-economists. For them the question of why program for the poor
do or do not work has much more to do with social institutions than with policy
design. In this view antipoverty policies fail, because the poor lack political
power or because administrative incompetence or corruption keeps governments
from delivering services. Thus improving the lives of the poor requires
developing institutions, improving government performance, and changing
political structures and attitudes towards the poor.
The gulf between these two
perspectives is evident in their views of the role of non-governmental
organizations (NGOs), in poverty alleviation programs. The technocratic
approach rarely refers to NGOs, while the institutional approach considers them
vital to that attack on poverty in developing countries. The increasing concern
with better targeting in poverty alleviation program stems from governments
desire to minimize the cost of achieving poverty alleviation objectives. This
desire is an implication of models in which tax payers, as financiers of
transfer programs, seek fiscally efficient methods of helping the poor-that is,
they want program to be designed in a way that minimizes the financial burden
imposed. Thus the insights from the technocratic literature are legitimate
concerns in a well-defined decision-making model of antipoverty policy.
A commonly accepted model of program
design, the cost-minimizing approach, addresses a number of salient features in
current debates about transfers to the poor. Moreover, it is consistent with
the desire for targeting. It is also a useful first step toward developing a
positive theory of transfer to the poor.
The model by Besley (1992) and Coate
(1995) makes no pretense at realism. The model is a useful vehicle for
clarifying thinking about a number of issues relating to poverty alleviating
programs. The model views society as composed of two groups: those who make
transfer (the rich) and those who receive them (the poor). The model
assumptions are as follows:
That the rich care only about
consumption of the poor and not their utility. The rich control government and
its objective is to design a poverty alleviation programs that is financed
through taxes paid by the rich.
There must be voluntary
participation by the poor in poverty alleviation program, which means that the
poor must be willing to take any benefits intended for them.
(SOURCE:
CBN ECONOMIC & FINANCIAL REVIEW, vol. 39 No.4, Akanji O. O.)
However, certain transfers to the
poor such as food-for-work program in India and Bangladesh had been proved to
enhance the efficiency of credits markets by using the coupon as collateral.
For example in Bangladesh and Srilanka, a poverty program allowed people who
participated in a loan program to pledge their rice ration coupon as collateral
and as a result, borrowers’ repayment rates increased substantially (Sanderatue
1986).
In addition, in the private informal
credit market, 45% of households pledge the ration cards that gave them access
to subsided “fair price” shops (plateau el al 1980). It has been proved by
plateau that households that pledge their coupons gained greater access to
capital. Thus transfer can perform two distinct roles. In the first, it helps
to reduce poverty while in the second, as collateral, it is like a catalyst
changing agents’ scope for opportunistic behaviour and improving the operation
of credit markets.
The literature on economic theory of
credit markets and saving decision in economics characterized by incomplete
markets and imperfect information is growing.
The most current literature after
stigliz and Weiss (1981) are Alderman and Poxan (1992) who provided a new theoretical
foundation for policy interventions to correct market failure.
Bu studying the institutional
arrangements through which financial transactions take place, it showed that
credit transactions reflect the economic environment in which they occur. In
Africa, the economic environment is largely characterized by risks, with
unpredictable variations in income as a result of weather and other exogenous
processes.
In the absence of complete insurance
markets, credit transactions take on a special role in allowing resource
transfer in response to income shocks.
This work therefore considers the
concepts discussed so far to proffer the basic principles for using the credit
market, micro-credit in particular as a strategy for alleviating poverty. But
before proffering solutions the work will view country experiences of
micro-finance program as a strategy for
poverty alleviation.
2.3 Review
of Nigerian Experiences of Finance Program for
the Poor
In order that we appreciate the successes and failures
of those program we are going to review, it is pertinent to bring to focus the
various breakthroughs that have made
micro-finance program an imperative to alleviation poverty.
(SOURCE:
CBN ECONOMIC & FINANCIAL REVIEW, vol. 39 No.4, Akanji O. O.)
The delivery of financial services to poor and low-
income people changed significantly during the past decade. First, and perhaps
the most important long standing and fundamental assumptions about the bank
ability of the poor have been overturned based on well-documented experience in
banking with the poor in a selection of developing countries as noted by Akanji
(2000).
Akanji (2000), also noted that a
small number of highly effective micro finance programs have demonstrated that
low-income units can use small loans productivity, repay their bank fully and
on time when given reason to do so, can and are willing to pay high real
interest rates for their loans and so save and often need savings services as
much as or more than credit services. These findings correct earlier notions
that the poor cannot use credit effectively, do not have the capacity to repay
loans, cannot afford to pay high interest rates that reflect the cost of real
cost of funds, and not generate sufficient surplus funds to enable them to
save.
Secondly, a shift in thinking is
within the effort being made for delivering credits and savings to the poor.
This is being conceptualized as extending the reach of national financial
systems to include low income customers. For example, financial sectors are
being redefined to include non-bank financial institutions as well as banks.
This framework differs radically from the long-standing practice of separating
micro finance programs from financial sector development and including it
within “Project” context for social welfare services for the poor. In this
view, micro finance institutions fit within a continuum of financial and,
infact represent an essential component of an integrated financial system that
serves the majority of citizens.
This new paradigm necessarily has
far-reaching placations:
i.
Links between all
financial institutions on the continuum become far more important.
ii.
The need to
revise banking regulations to include non-bank financial institutions arises,
and
iii.
A new
legitimacy is granted to financial institution that serve the poor and to their
clients who come to represent an enormous new market for financial services
rather than a hefty welfare burden.
A third breakthrough as noted by Akanji (2000) has
been the development of new lending technologies that are effective both in
reaching large number of institutions towards financial sustainability.
These technologies are designed to deliver small loans
with terms and conditions that meet the need of poor clients, to lower lenders’
transaction costs, and to increase revenues by using full-cost interest rates
and high loan repayment rates.
As noted by Akanji (2000), the forth important change
is that microfinance institutions are now expected to attain high levels of (if
not full) financial sustainability within a reasonable period of time. The
generation of credit programs were fueled by a constant supply of donor funds
and paid little attention to operating costs, loan losses and the expense of
auxiliary services. Efficiency and cost recovery were not priorities for
service providers or for international donors. As a result, credit programs had
minimal outreach because credit funds were limited to donor funds repayments
rates were poor, financial intermediation was stunted because cheap credit
discouraged the mobilization of local deposits and credit was concentrated in
the hands of privileged and less-than creditworthy borrower who successfully
pursued these subsidized loans.
Over the past decade a handful of pioneer micro
finance institutions have demonstrated not only the bank ability of the poor
but also the potential for sustainability of financial institution that serve
the poor. Full financial sustainability is revealed when administrative, loan
loss, inflation and financial costs are covered entirely by revenues.
(SOURCE:
CBN ECONOMIC & FINANCIAL REVIEW, vol. 39 No.4, Akanji O. O.)
According to Akanji (2000), the fifth development of
significance is the new focus on mobilizing savings among the poor.
Micro-finance institution increasingly is under pressure to mobilize savings,
and there is some contention among practitioners about the wisdom of this
trend. It is clear that savings services are needed urgently by large number of
poor people around the world to protect their incomes and to serve as an
alternative to the assumption of debt. Savings deposits also offer micro
finance institutions a valuable source of sustainable local funds.
2.4 Experience
of Some Microfinance Models
Aryeetey (1995) noted that there are
basically formal and informal models of purveying micro credit to the target
group. The most successful had been the informal model because several
developing economies where poverty is high, some individuals, households and
regions remain isolated from markets and from mechanisms for borrowing and
lending or insuring against risk.
Consequently, informal lenders tend
to target the poor (including women) albeit not always successfully, attempts
by better financed innovative schemes to target the same poor people have been
no more successful. The issue therefore is no long simple one o targeting or
not targeting, but of how to equip institutions that can reach the poor at
least cost (that is informal lender) to extend their reach.
2.4.1 The
Informal Model
Besley, Coate, and Lonry (1993), noted that the
informal model is built around group concept. The model works in a situation
where groups whose commitment to savings and credit are weak and look up to
donor sponsored credit. While this works better with a group that voluntarily
come together to form a revolving savings and credit association, it develops
managerial problem where the group are not cohesive and not voluntary.
i. The Gramman Bank experience started
with the group concept-informal lending to the poor. It was started to assist
landless people in Bangladesh to obtain credit, which could not be obtained
through the formal commercial banks credits facilities. The program was
successful because the groups were cohesive and voluntarily formed.
The program has since been linked to
formal micro credit model. It operates using modality of collective guarantees,
close supervision and peer pressure from other members of the Gramman group.
The model had been quite successful as a bank for the poor and as a social
movement based on principles of awareness and training, which has facilitated
active participation of the poor.
As at 1999, the Gramman Bank had
provided its services to about 1.5 million poor, unified about 60,000 small
village Banks in the linkage process and about $480 million to its clients for
small scale trade, construction, bank up funds, or local production credit as
well as for emergency funds.
(SOURCE:
CBN ECONOMIC & FINANCIAL REVIEW, vol. 39 No.4, Akanji O. O.)
ii. Non Governmental Organizations (NGOs)
approach is also grouped as informal model as it tends to adapt the Gramman
principles and usually is gender specific and sectionally motivated. There are
women groups, farmers union, traders union etc. in Ghana and Gambia, the most
successful micro credit programs are women finance association. The programs
were reported to have high rate of repayment.
In the Gambia experience, the
program rewarded depositors at above market rate of interest which was 20-50
per unit in 1999. The high interest rate was not fixed by the formal
institution but by the village assemblies. The assemblies meet to decide on the
composition and responsibilities of credit committees, the interest rates and
the types of savings instruments. Although, the Ghana and Gambian programmers
operate as an informal credit model, the quality of service could be compared
to the financial market.
(SOURCE:
CBN ECONOMIC & FINANCIAL REVIEW, vol. 39 No.4, Akanji O. O.)
iii. ESUSU: Esusu is a revolving loan scheme
in Nigeria and entrenched in most West African Countries operating as an
informal micro-credit programme. The groups formed to operate the revolving
schemes are voluntarily. Members make fixed contributions of money at regular
intervals. At each interval, one member collects the entire contribution from
all. Every member takes a turn until the cycle is completed, and then it starts
again. For a person who takes their turn late, Esusu functions as a savings
mechanism. The Esusu are very strong program that have assisted the target
group to alleviate poverty particularly among market women in rural/urban
markets. Each Esusu group has a recognized leader and Esusu are often used as a
model by NGOs trying to establish micro finance programme in urban setting.
2.4.2 The
Formal Model
The formal
micro-finance model is built around formal financial institutions such
as the commercial banks, rural/village/community bank etc. Most of the formal
institutions that purvey credit to the poor had not been successful. The reason
adduced for their failure had been limited knowledge of the poor and no closer
relationship between the formal institution and the informal institution. The
Gramman experience is an example of that model that has been able to transform
from informal to formal model of purveying micro-credit to the poor.
The credit need of the poor has been
found to be very small compared to what the formal model can possibly attend to
and also the reoccurring problem of no collateral. The formal micro credit
operators have found that per-clients costs are high and expensive to reach
groups of clients physically and in part because poorly developed
infrastructure increases the expense of delivering even basic needs.
In addition, most programs offering
micro-finance services have a small capital base and do not have access to the
level of financing that would be required for significant scaling up. This is
the reason why commercial banks and development banks could not really purvey micro-credit
and could not be used as the second best to informal lending. The case of
Nigeria Agricultural and Cooperative Bank, Nigeria Industrial Development Bank,
People’s Bank were quite recent and confirmed the enormous problems of using
the formal model as a strategy to alleviate poverty.
(SOURCE:
CBN ECONOMIC & FINANCIAL REVIEW, vol. 39 No.4, Akanji O. O.)
2.4.3 The
Linkage Model
The framework for linking informal
saving collectors to the formal institutions formed the basis of the
breakthrough discussed earlier. In view of the banks’ readiness to acquire more
information about the informal sector and making serious efforts at
strengthening group schemes encourage the successful turn around of
micro-credit programs. An example is the merger of the Nigeria Agricultural and
Cooperative Bank (NACB), Peoples Bank of Nigeria and Family Economic
Advancement Program (FEAP) to form Nigeria Agricultural Cooperative and Rural
Development Bank (NACRDB). Also the Bankers Committee initiative which was
supported by the CBN, for banks to set aside 10% of their profit before tax for
equity investment in small scale industries will be tangential to alleviating
poverty through the lending window or through joint ventures.
In Ghana, the framework for linking
informal saving collection to the largest commercial bank was done by the
collectors forming a registered association with which the bank deals. This
linkage has led to an increase in the proportion of Esusu depositors that gain
access to credit facilities from Esussu collectors. The loans to deposits in
the Ghana model rose from 9% to 60% in the two years of operations. The scheme
was based on observation that increased lending by collectors often led to
larger numbers of depositors.
Linkage that has been made with the
new institution NACRDB should be enhanced by designing policy to overcome the
observed obstacles such as distrust, inadequate knowledge about informal agents
and prejudice, all of which create risky environment for formal banks linking
up with informal micro-credit activities.
(SOURCE:
CBN ECONOMIC & FINANCIAL REVIEW, vol. 39 No.4, Akanji O. O.)
2.4.4. Donors
Model
Donors have played a very strong role in the micro
credit program, particularly international donors such as NNDP, though the
NGOs. The alternative micro-credit delivery model proposed by Umoh Gabriels and
Itoro O. Ibanga (1997) called “The Ekpuk (family) model worked perfectly well
within an extended family structure, particularly proven successful in some
villages in Akwa Ibom State.
However, this system of credit
delivery need to be encouraged to work through formal credit institutions as
much as possible, such as the community banks and NACRDB. It will help to
support the development of strong non-bank financial institution with less risk
of default.
(SOURCE:
CBN ECONOMIC & FINANCIAL REVIEW, vol. 39 No.4, Akanji O. O.)
2.5 Efforts
at Micro-Credit Delivery to the Poor
1. Nigerian Government Efforts and Problems:
By the understanding of the level of
poverty in Nigeria, government attempted with several micro-credit programs to
alleviate poverty. Programs/project such as Agricultural Development Programs
(ADPs), National Directorate of Employments (NDE), Better Life for Rural
Dwellers (later named Family Support Program), the Directorate of food, roads,
and Rural infrastructure (DFRRI) were pursued during 1986 to 1999.
Other institutions that have also
attempted purveying micro-credit were the rural banking scheme (1977-1990),
Peoples’ Bank 91987-1990); Community Bank (now micro-finance Banks) 1990 to
date. In addition, the central Bank of Nigeria (CBNs) Agricultural Credit
Guarantee Scheme which came into existence since 1977. Although all the
programs were directed at improving the productive base for sustainable growth,
most of the efforts at purveying micro-credit to alleviate poverty were poor.
The programs in terms of rescores
endowment were dominated by government who gave paternalistic subventions in trickles.
The way the programs had functioned over the years was such that credit system
was essentially directed at meeting the needs of elites whereas the program is
largely for small peasant poor group.
The semi-bank agencies in the
system, some of which were created precisely to redress the weaknesses of the
existing system were saddled with myriads of problems especially inadequate
funding as well as lack of appropriate skills to mobilize/ identify the poor
and cannot therefore provide the essential remedy in a sustainable way.
The most serious problem in the
agencies set to provide credit (NACB, etc) was the fact that they lacked
adequate professional staff.
CBN (1986) credit study shared that
some 64% of personnel of NACB were administrative staff. Lending procedure were
tortuous, with extremely demanding forms for completion by uniformed and
illiterate farmers and the target group who are basically seeking relatively
small loans.
(SOURCE:
CBN ECONOMIC & FINANCIAL REVIEW, vol. 39 No.4, Akanji O. O.)
1. Bilateral/
Multilateral Institution Efforts
The World Bank Group and the International Monetary
Fund’s efforts at assisting countries to understand the poverty situation in
the economy, assess the level and determine to reduce the level, knowing that
most developing economies are held back with debt obligations, have proved
quite successful in most developing countries. It has helped Nigeria to open up
again discussions with our creditors and have enabled us reschedule our debt at
very accommodating concessions at the Paris Club Group of Creditors.
The World Bank and the IMF
determined in 1999 that nationally owned participatory poverty reduction
strategies should provide the basis for all their concesisonal lending and debt
relief under the enhanced Heavily Indebted Poor Countries (HIPC) initiative.
This approach builds on the principles of the comprehensive development papers
on poverty Reduction strategy by country authorities for submission to the Bank
and funds board.
There are core principles underlying
the development and implementation of poverty reduction strategies and these
are as follows:-
i.
Country-driven,
involving broad-based participation by civil society and the private sector in
all operational steps.
ii.
Result-oriented,
and focused on outcomes that would benefit the poor.
iii.
Comprehensive in
recognizing the multi-dimensional nature of poverty, but also prioritizing so
that implementation is feasible, in both fiscal and institutional terms;
iv.
Partnership-oriented,
involving coordinated participation of development partners (bilateral,
multilateral and non-government).
Based on a long-term perspective for poverty
reduction, the World Bank created no blueprint for building a country’s poverty
reduction strategy. Rather they established key processes which should reflect
a country’s individual circumstances and characteristics.
2.6 Micro-Finance Model for Nigerian Poverty
Alleviation Strategy
Starting from the conceptual dimension of transfers of
wealth and transfers through government fiscal operation, one will want to
agree that in the current dispensation the country can afford realistically to
adopt a model of transfer from the rich through the government fiscal operation
and from the government through deliberate fiscal allocation to the poor to
implement program that will alleviate poverty.
Nigeria must pursue a progressive
micro finance model. The program must be such that will assist the totality of
the needs of those groups that will participate. The credit must facilitate
production (economic activities), consumption (hunger etc), social/welfare
(health, education etc). The program must be such that can serve as seed
capital to provide fund for the development of promising ideas or products
including the development of prototype.
There are many school leavers with
promising ideas and many handicraft workers who need only small seed capital to
move out of poverty. The program must be such that can finance start-ups by
providing funds for commercial production and marketing, developed ideas and
products. It should be available to finance expansion of commercially
viable/successful business in order that the operator will not skink back into
poverty.
Consequently, micro finance model
for Nigeria should be such at would have, the linked institutional framework
coupled with fiscal support for effectiveness. The services must ensure that
following:
a.
Operations are
concentrated in rural areas and focus on the micro enterprises.
b.
Ensure working
capital loans. As regards credit, most micro-entrepreneurs need working capital
loans.
c.
Do not include
restrictions concerning the use of loan, allow for guarantee that matches their
capacities such as personal guarantees and peer pressure.
However, in implementing the strategy through the new
institution, it would be quite instructive to utilize the result of the poverty
assessment in order to establish priorities for financing.
First,
identify the region with high level of poverty and organize them into cohesive
groups.
Secondly,
determine what transfer program you want to adopt. For example, grain coupon
etc. Which could be used as collateral to access micro-credit which could
alleviate poverty.
These
regions would form pilot project with adequate supervisory, monitoring and
evaluation teams, for replicating in other regions. More importantly is the
need to have financial regulatory authority to be used as collateral to access
micro-credit which could alleviate poverty.
These
regions would form pilot project with adequate supervisory, monitoring and
evaluation terms, for replicating in other regions. More importantly is the
need to have financial regulatory authority to be part of the team for
effectiveness and for completeness considering the amount dispensation of
universal banking.
(SOURCE:
CBN ECONOMIC & FINANCIAL REVIEW, vol. 39 No.4, Akanji O. O.)
2.7 Principles
for Effective Micro-Finance Institution
The experience of micro-finance lending in Nigeria had
not been quite successful from the formal model approach. Inadequate
information will prelude making a categorical statement of the success of
informal model.
However, most poor groups seem to
appreciate informal lending. In order that the proposed model where we have
linked institution to purvey credit work successfully.
The following principles should be
considered to avoid the pitfall of the past institutions;
i.
Simplify
services; make the credit program customer-friendly. Use a simple application
process (often not exceeding one page) appropriate to low levels of literacy
and numeracy and streamline operations to minimize staff time per loan.
ii.
Offer small
initial loans; start with very small loans appropriate for meeting day to day
financial requirement of micro enterprises and motivate repayment by offering
large loans as incentives for repeat customers.
iii.
Offer short-term
loans; initial loans of three to six months with frequent repayment periods.
iv.
Localize
services, focus on scale, locate close to entrepreneurs (in small scale
industrial estates, village etc). select staff from local communities,
including people with lower levels of education (and salaries) rather than from
staff in formal banks. Locate where there is a critical mass of client in order
to reduce transaction costs. Micro finance programs reach sustainability in
part by making large volume of loans.
v.
Shorten turn
around time, limit the time between loan application and disbursement. Since
the majority of micro-loans are for working capital, speed is ideal for
borrower and saves administrative costs for lending institutions. Turn around
time can be lowered by relying in solidarity groups to screen client and by
decentralizing loan approval.
vi.
Motivate
repayment; motivate repayment via group solidarity and joint liability. Group
lending is efficient because it externalizes costs. Character-based lending to
individuals 9as opposed to groups) can be effective where the social structure
is cohesive and there is little potential for political abuse.
vii.
Recognize that
the poor do save; credit program are more sustainable where they are financed
with personal savings. Savings are often half of informal finance. However,
accepting deposits is labour intensive and therefore quite costly. Moreover,
unstable programs can rob the poor of their savings. Great care must be taken
when an institution accepts fiduciary responsibilities.
viii.
Charge full-cost
interest rates (Factoring in inflation, loan losses and delinquency and the
cost of loan funds). The administrative costs of lending to the poor require
interest rates that are substantially higher than rates charged by commercial
banks. Micro entrepreneurs have shown a willingness to pay high rates for
services that meet their needs.
(SOURCE:
CBN ECONOMIC & FINANCIAL REVIEW, vol. 39 No.4, Akanji O. O.)
CHAPTER THREE
3.0 Research
Methodology
This chapter has been used to give account of the
procedure adopted in the gathering and analysis of data. It restates the
research question and hypothesis and explains the research design, the study
population, sampling design and procedures, data collection instrument,
administration of the data collection instrument and procedures for processing
collected data.
3.1 Research
Design
Based on the nature of our study, we
used the survey approach. The phenomenon our study is micro-financing as a
strategy for poverty reduction in Nigeria. We developed and administered
questionnaires to our chosen sample as well as personal observation of the researcher.
Most of the questionnaires where administered to micro-finance operator or
managers in the local environment, like the Monarch Micro-Finance Bank and
State Audit Staff Credit Thrift and Co-operative society (CTCS) and
beneficiaries of micro-credits or loans.
3.2 Characteristics
of the Study Population
Because of the nature of the population of interest,
we stratified the population into three basic strata, which we consider
relevant for the study.
The first stratum is the
micro-finance banks which represent the formal model in micro-financing. The
second stratum is the Non-Governmental Organizations (NGOs) like co-operative
societies. The third is the beneficiaries of micro-credits. The essence of our
stratification was to give some sense of homogeneity.
3.3 Sample
Size Selection
From the population of study, our sample size was
selected. Our sample size is a selected group assumed to have represented the
entire population in all ramifications. Our choice of the sample size o the
basis of random sampling- a situation that gives every subject in a population
and equal chance of appearing in the selection.
The
respondents selected are either operators in the Micro-finance institutions or
beneficiaries of micro-credit who really understood the import of
micro-financing. We used 50 respondents as our sample size. Those samples size
represents 25% of the entire population.
Table 3-1 Distribution of Questionnaire
According to the three Basic Groups
S/N
|
GROUP
|
NO
|
NO. OF QUESTIONNAIRES TO BE
DISTRIBUTED (25%)
|
1.
|
Formal
Institutions
|
120
|
30
|
2.
|
Informal
institutions
|
30
|
8
|
3.
|
Beneficiaries
|
50
|
12
|
TOTAL
|
200
|
50
|
3.4 Source
of Data
(A)
Primary
Information that was received from the formal
institutions, informal institutions and beneficiaries of micro-credit
facilities constituted the primary data. The following instruments were used in
the collection of primary data.
(i) Questionnaires
A questionnaire was designed for the
groups under study. Questions contained in the questionnaire were intended to
ascertain how micro-financing has helped to reduce the level of poverty in
Nigeria and the possible ways of improving or encouraging micro-financing in
Nigeria.
(ii) Observation
The researcher made some personal
observation as an operator in the informal micro-finance institute. This
enabled him to observed how operators of micro-credit and their clients relate.
(b) Secondary
In order to enhance the quality of
information in the research work, the researcher made use of CBN publications,
newspaper, internet and workshop/seminar papers and also an extensive use of
the private library of the Office of the State Auditor –General, Ebonyi State.
3.5 Design
and Administration of Questionnaire
A set of questionnaires was designed
and administered on 50 expected respondents. The questions contained in the
questionnaires were structured in such a manner that it consists of prepared
list of specific questions and a choice of possible answers in the form of
“Yes” or “No”.
3.6 Data
Analysis Techniques
The Chi-square method of data analysis will be
employed in this work and also in testing the hypothesis of the study.
He
formula for chi-square (X2) is thus:
X2
= ∑ (0-E)2
E
Where:
X2 = Chi-square
D = actual observed
frequency
E = Expected frequency
Decision Rule:
The null hypothesis (H0),
of independence may be rejected at the X level of significance if the computed
value X2 for (R-1) (C-) degrees of freedom is greater than the
tabulated X value.
Where:
R = number of rows
C = number of columns
The Chi-square as qualitative
research paradigm basically seeks to make explicit the implicit structure and
meaning of human experience.
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CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
4.1 Introduction
In this chapter, the data collected
from the respondents are presented with the aid of tables. We partly made use
of percentages for our analysis, and we have adopted composite presentation
method in doing so.
We used the last part of the chapter
to test hypothesis we formulated I chapter one. In testing the hypothesis, we
adopted the Chi-square method of analysis. Chi-square is one of the statistical
tools we mentioned in chapter three to be used in our analysis.
Table 4-1
Number of questionnaires distributed and
Collected
Respondents
|
No Distributed
|
No returned
|
% Returned
|
% not Returned
|
OPTRs
|
38
|
34
|
68
|
8
|
BENEs
|
12
|
10
|
20
|
4
|
Total
|
50
|
44
|
88
|
12
|
Source:
field survey data of 2010
Where:
OPTRs represents Operators of micro-finance
BENEs
represents beneficiaries of
micro-finance
Table
4-1 contains data on the distribution and collection of questionnaires. As can
be seen from the table, a total of 38 questionnaires, OPTRs, were distributed
to the operators of microfinance out of which 34 representing 68% where duly
completed and returned. Also, a total of 12 questionnaires, BENEs, were
distributed to the beneficiaries of microfinance out of which 10 representing
20% where completed and returned. Thus, the total number of questionnaire
distributed is 50 with 44 (88%) of them duly completed and returned. Only 6
(12%) of the questionnaires were not returned. Therefore, completed and
returned questionnaire have been used for analysis and evaluation of the
reasons why micro finance is a strategy for poverty reduction in Nigeria.
Although all the questions asked in
the questionnaire is to help in the verification of the research objectives,
only those questions that are most important to the problems identified are
used in the analysis.
Table 4-2
Sex Distribution
Sex
|
No of Respondents
|
% of Respondents
|
Male
|
28
|
63.64
|
Female
|
16
|
36.36
|
Total
|
44
|
100
|
From the questionnaires distributed,
it was found that 28 respondents representing 63.64% were male and 16
respondent representing 36.36% were female
Table 3
Educational Qualification
Sex
|
No of Respondents
|
% of Respondents
|
FSCC
|
5
|
11.36
|
SSCE
|
18
|
40.91
|
ND
|
9
|
20.46
|
HND/B.Sc
|
12
|
27.27
|
Total
|
44
|
100
|
From the table above, it was found that 5 respondents
representing 11.36% were FSLC holders, 18respodents representing 40.91% were
SSCE holders, 9 respondents representing 20.46% were ND holders and 12
respondents representing 27.27% are HND/BSC holders.
Table 4-4
Operators and Beneficiaries
Respondents
|
No Of Respondents
|
% of Respondents
|
OPTRs
|
34
|
77.27
|
BENEs
|
10
|
22.73
|
Total
|
44
|
100
|
From the above table, 34 respondents among the
questionnaire located representing 77.27% where operators of microfinance and
10 respondents representing 22.73% were beneficiaries of micro-credits.
Table 4-5
Question no
5: How would you rate the level of poverty in Nigeria?
Responses
|
OPTRs
|
BENEs
|
No of Responses
|
% of Responses
|
Very
High
|
26
|
7
|
33
|
75
|
High
|
8
|
3
|
11
|
25
|
Low
|
0
|
0
|
0
|
0
|
Total
|
44
|
100
|
The above table shows that, 33 respondents
representing 75% thinks that the rate of poverty is very high in Nigeria, 21
respondents representing 25% thinks that the rate of poverty is high in Nigeria
and 0% has no idea.
Table 4-6
Question no 6: Do you think micro-finance will help to
reduce the level of poverty in Nigeria?
Responses
|
OPTRs
|
BENEs
|
No of Responses
|
% of Responses
|
Yes
|
34
|
8
|
42
|
95.45
|
No
|
0
|
2
|
2
|
4.55
|
No
idea
|
0
|
0
|
0
|
0
|
Total
|
44
|
100
|
From the above table, 42 respondents representing
95.455 think that micro-finance will help reduce poverty in Nigeria, 2
respondent representing 4.55% says no and 0% has no idea.
Table 4-7
Questions no7: Do you think government poverty
reduction programs actually contribute to poverty reduction in Nigeria?
Responses
|
OPTRs
|
BENEs
|
No of Responses
|
% of Responses
|
Yes
|
8
|
29
|
37
|
84.09
|
No
|
5
|
2
|
7
|
15.91
|
No
idea
|
0
|
0
|
0
|
0
|
Total
|
44
|
100
|
The table shows that, 37 respondents representing
84.09% says yes to questions No7, 7 respondents representing 15.91% says No and
0% 5 says No idea.
Table 4-8
Question No9: Do you think micro-finance is a major
strategy for reduction of poverty from the grass root in Nigeria?
Responses
|
OPTRs
|
BENEs
|
No of Responses
|
% of Responses
|
Yes
|
34
|
7
|
41
|
93.18
|
No
|
0
|
2
|
2
|
4.55
|
No
idea
|
0
|
1
|
1
|
2.27
|
Total
|
44
|
100
|
The table above shows that, 41 respondents
representing 93.18% says yes that micro-finance is a major strategy for poverty
reduction in Nigeria, 2 respondents representing 4.55% says no and 1
respondents representing 2.27% has no idea.
Table 4-9
Question No 11: Do you think Government budgetary
provisions of subvention to micro –finance programs will help reduce poverty?
Responses
|
OPTRs
|
BENEs
|
No of Responses
|
% of Responses
|
Yes
|
31
|
8
|
39
|
88.64
|
No
|
3
|
2
|
5
|
11.36
|
No
idea
|
0
|
0
|
0
|
0
|
Total
|
44
|
100
|
From the above table, 39 respondents representing
88.64% says yes, that government budgetary provision of subvention to
micro-finance programs will help reduce poverty, 5 respondents representing
11.36% says no and 0% has no idea.
Table 4-10
Question No 13: Do you think both operators and
beneficiaries of micro-finance need training/ awareness campaign no the
importance of micro-finance programs to the Nigerian society?
Responses
|
OPTRs
|
BENEs
|
No of Responses
|
% of Responses
|
Yes
|
34
|
9
|
43
|
97.73
|
No
|
0
|
1
|
1
|
2.27
|
No
idea
|
0
|
0
|
0
|
0
|
Total
|
44
|
100
|
The table above shows that, 43 respondents
representing 97.73% think that both micro-finance operators and beneficiaries
needs training/ awareness, 1 respondent, representing 2.27% thinks otherwise
and 0% has no idea.
Table 4-11
Question no 15: Do you think peer groups or personal
guarantees can serve as collateral to the granting of loan to the poor?
Responses
|
OPTRs
|
BENEs
|
No of Responses
|
% of Responses
|
Yes
|
28
|
10
|
38
|
86.36
|
No
|
6
|
0
|
6
|
13.64
|
No
idea
|
0
|
0
|
0
|
0
|
Total
|
34
|
10
|
44
|
100
|
The above table shows that, 38 respondents
representing 86.36% says yes to personal guarantee/peer groups as collateral
tot eh granting of loan to the poor, 6 respondents representing 13.64% says No
and 0% has no idea.
4.2 Hypothesis
Testing
As previously stated, we used the
chi-square as the statistical tool in analyzing the data generated. The
hypothesis of the study is hereby tested with this tool.
The figures used for the test is from the relevant
table in the previous section of the chapter.
Hypothesis
H0: Micro-finance is a strategy for poverty
reduction in Nigeria
H1: Micro-finance is not a strategy for
poverty reduction in Nigeria.
Question
number 9 in table 4.8 is relevant for this hypothesis shown in table 4-12A and
4-12B below coincidence level was as were at 5% error margin.
Table 4-12 Observed and Expected
Frequencies fro table 4-8
Responses
|
OPTRs
|
BENEs
|
No of Responses
|
% of Responses
|
Yes
|
34
|
7
|
41
|
93.18
|
No
|
0
|
2
|
2
|
4.55
|
No
idea
|
0
|
1
|
1
|
2.27
|
Total
|
34
|
10
|
44
|
100
|
Source: computed form table 4.8
The
expected frequency is calculated thus:
∑ fi = nr x nc
N
Where
∑ fi = Expected frequencies
Nr =
Marginal total for row
Nc =
marginal total of column
N =
Net total
OPTRs
= 34 x 41
44 = 31.68
34x2
44 = 1.55
34x1
44 = 0.77
BENEs = 10 x 4
44 = 9.32
10x2
44 = 0.45
10x1
44 = 0.23
Table 4.12B Observed and Expected
Frequencies for Table 4-8
0
|
E
|
0-E
|
(0-E)2
|
(0-E)2
E
|
34
|
31.68
|
2.32
|
5.38
|
0.17
|
0
|
1.55
|
-.155
|
2.40
|
1.55
|
0
|
0.77
|
0.77
|
0.59
|
0.77
|
7
|
9.32
|
2.32
|
5.38
|
0.58
|
2
|
0.45
|
1.55
|
2.40
|
5.33
|
1
|
0.23
|
0.77
|
0.59
|
2.57
|
Total
|
10.97
|
Interpretation
(a) The Chi-Square calculated i.e X2
= (0-E)2 = 10.97
E
(b) Calculating the degree of freedom (d.f.)
from the above
Table:
= (R-1) (C-1)
= (3-1) (2-1) = 2
X2
tab 2 d.f with 5% error margin is 5.99
Decision:
Since
X2 cal (10.97) > X2 tab (5.99) reject
H0: That micro finance is a strategy for
poverty reduction in Nigeria
4.3 Discussion
of Findings
The result above shows that micro-finance is a major
strategy for the reduction of the high rate of poverty in Nigeria.
Consequent upon this, government should endeavor to
encourage the informal model of purveying micro-credit to the poor group in the
society.
Worthy of note also is the issues of budgetary
provision of subvention to micro-finance programs.
CHAPTER FIVE
SUMMARY,
CONCLUSION AND RECOMMENDATIONS
5.1 Summary
This work has established that micro-finance is indeed
a strategy for poverty reduction. More importantly is the model of purveying
credit to the poor as discussed in 2.4 of this work.
It is a progressive strategy for
Nigeria to have developed a strong linked institution by merging the formal,
semi-formal and informal institutions that has in the past purveyed credit to
the poor under one umbrella.
5.2 Conclusion
Looking ahead to the future of
micro-finance programs in Nigeria, several conclusions could be drawn.
First, there is significant room for
improvement within the current programs using principles and practices established in this work.
Second, the unique conditions in
Nigeria of having the best of time in revenue generation through oil win fall,
efforts must be made to strengthen the institution that have been merged, to
also reduce poverty level before the 2015
election. The higher the levels of poverty in any democratically run
economy, the lower the score for good governance.
Third, micro-finance could still be
run by other financial institution inspite of the linked merger.
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