REVIEW OF MICRO FINANCE AS A STRATEGY FOR POVERTY REDUCTION IN NIGERIA

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. 

TO GET THIS COMPLETE MATERIAL

PRICE:

Pay #5,000 Naira, (i.e. the price for this material) into our account.

ACCOUNT DETAILS:
Bank: Ecobank
A/c No: 2691085510
Name: Martins Chima

NEXT STEP:
Send your teller no, name and email address to 07030722911. We will confirm your payment within 3hrs (working hours) and you will receive the ebook and software immediately after confirmation through your e-mail.

We will also send a text message to your mobile phone number informing you that we have sent you the COMPLETE MATERIAL.


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.                
                                                                           
TO GET THIS COMPLETE MATERIAL

PRICE:

Pay #5,000 Naira, (i.e. the price for this material) into our account.

ACCOUNT DETAILS:
Bank: Ecobank
A/c No: 2691085510
Name: Martins Chima

NEXT STEP:
Send your teller no, name and email address to 07030722911. We will confirm your payment within 3hrs (working hours) and you will receive the ebook and software immediately after confirmation through your e-mail.

We will also send a text message to your mobile phone number informing you that we have sent you the COMPLETE MATERIAL.


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. 

TO GET THIS COMPLETE MATERIAL

PRICE:

Pay #5,000 Naira, (i.e. the price for this material) into our account.

ACCOUNT DETAILS:
Bank: Ecobank
A/c No: 2691085510
Name: Martins Chima

NEXT STEP:
Send your teller no, name and email address to 07030722911. We will confirm your payment within 3hrs (working hours) and you will receive the ebook and software immediately after confirmation through your e-mail.

We will also send a text message to your mobile phone number informing you that we have sent you the COMPLETE MATERIAL.
Share on Google Plus

Declaimer - MARTINS LIBRARY

NB: Join our Social Media Network on Google Plus | Facebook | Twitter | Linkedin