The Impact Of Micro Credit On Poverty Alleviation In Nigeria 

The Impact Of Micro Credit On Poverty Alleviation In Nigeria 

Abstract 

This exploration design sought to empirically examine the impact of microfinance institutions on poverty in Nigeria. To conduct this exploration, structured questionnaire was used. The questionnaire comported of 25 questions which concentrated on the 4 areas of microfinance and poverty in Nigeria. The questionnaire comported questions which could be answered in a dichotomous( yes no) and in likert manner. The main purpose and intent behind designing the questionnaire in such a simple way was to make it easy for the named samples to respond and thereby get a advanced response to the questionnaire. To estimate the impact of microfinance institutions on poverty position in Nigeria, a quantitative system was espoused. These styles include; chance and ki-square analyses. The result shows that the donation of micro credit has impacted on poverty reduction among the poor. This study shows that microfinance programmes have the eventuality to palliate poverty especially in adding position of income and reducing vulnerability. This will promote people profitable capacity and bring sustainable development. It is, thus, recommended that microfinance banks should ameliorate availability of their services to poor by relaxing their terms and conditions on penetrating services, especially loans. And MFIs should widen their request by introducing new products, similar as house loans, agrarian loans, education loans and loans for original capital. This will make borrowers access applicable loan products to meet applicable objects.

Chapter One

Preface

Background to the Study

Poverty is the major problem in utmost developing husbandry. In these husbandry, it’s argued that among others absence of access to credit is presumed to be the cause for the failure of the poor to come out of poverty. Meeting the gap between demand and force of credit in the formal fiscal institutions frontier has been challenging( Von Pischke 1991). In fact, the gap isn’t aroused simply because of deficit of loan- suitable fund to the poor rather it arises because it’s expensive for the formal fiscal institutions to advance to the poor. Lending to the poor involves high sale cost and pitfalls associated with information asymmetries and moral hazards( Stiglitz and Weiss 1981). nonetheless, in several developing husbandry governments have interposed, through preface of microfinance institutions to minimize the gap also allow the poor access credits.

One of the main policy objects for the establishment of microfinance banks in Nigeria was to help small and medium scale enterprises in Nigeria in raising their productive capacity and position of employment generation, therefore easing poverty and enhancing mortal capital development. According to Haque and Yamao( 2009), poverty relief through microcredit is now well honored each over the world as microcredit propagandists, governments, benefactors, development agencies and others have an adding interest in using the microcredit medium to advance the course of poverty reduction as well as enhance mortal capital development. In a shot to use the benefits of microcredit in easing poverty and enhancing mortal capital development in Nigeria, the Central Bank of Nigeria( CBN) formulated the micro finance policy and frame in 2005. The December 2005 policy statement establishing Micro finance banks in Nigeria was estimable and well- intentioned as the microfinance assiduity was fast getting the coming “ frontier ” for the fiscal service assiduity to give and promote the entitlement of microcredit.

According to the CBN policy and nonsupervisory frame for microfinance banks in Nigeria, released in December 2005, and from the appraisal of being microfinance acquainted institutions in Nigeria, a major reason for establishing micro finance banks anchored on the data produced by the birth profitable check of small and medium scale enterprises in Nigeria conducted in 2004 which indicated that the 6,498 diligence covered employed a little over one million workers. Considering the fact that about18.5 million( 28 of the available work force) Nigerians are jobless, the employment ideal/ part of the SMEs is far from being realized. Grounded on the National Economic commission and Development Strategy( requirements) objects of commission of the poor and the private sector, the provision of demanded fiscal services came imperative to enable them engage or expand their present compass of profitable conditioning and induce employment. Delivery services as contained in the strategy would be remarkably enhanced through fresh channels which the microfinance banking frame would give as it would help small and medium scale enterprises in Nigeria in raising their productive capacity and position of employment generation( CBN, 2005).

The impact of microfinance on poverty reduction has been measured in terms of several confines, similar as advanced income, employment and ménage expenditure, and reduced vulnerability to profitable and social heads. These measures have tended to concentrate on a specific geographic area, an institution or a small customer group and are delicate to generalize or draw conclusions that reach across borders, income situations, gender or socio- profitable status( Honohan, 2004). Meyer( 2002) noted that fiscal sustainability and weal impact of microcredit can also be rated. Hulme( 2000) argues that knowledge about the achievements of similar microcredit enterprise remains only partial and is queried.

Statement of the Problem

Capital is one of the important tools for business enterprise. Without capital no business can run or flourish. In a country like Nigeria, problem of capital is veritably acute. In pastoral Nigeria, the only source of capital is vill moneylenders, whose rate of interest is veritably high. So, microcredit is essential for their income generation. By furnishing poor people with credit for micro enterprise it can help them work their own way out of poverty. And by furnishing loans rather than subventions themicro-credit provider can come sustainable by recovering coffers over and over again.

Over the once many times, there has been an emotional increase in the number and volume of government programs that seek to encourage the jobless, the youthful, weal donors and underprivileged groups of the population to set up their own, veritably small business. Also, every known governance recognizes the significance of promoting micro enterprises as the base of reducing poverty, and severance and promoting profitable growth. As a result, several micro credit institutions were established to enhance the development of SMES. similar micro credit institutions include the Nigerian Bank for Commerce and Industry( NBCI), National Economic Reconstruction Fund( NERFUND), the People’s Bank of Nigeria( PBN), the Community Banks( CB), and the Nigerian Import and Import Bank( NEXIM), and the liberalization of the banking sector.

Unfortunately, records indicate that the performance of SMES in Nigeria has not justified the establishment of this plethora ofmicro-credit institutions. The sector has stagnated and remains fairly small in terms of its donation to GDP or to economic employment, poverty relief pastoral developmentetc. exertion blend in the sector is also relatively limited- dominated by import dependent processes and factors.

The impact of these micro credit programmes on poverty reduction and creation of entrepreneurial capability among the micro enterprises is a perplexing question. This is because, in the opinion of some prestigious economists, it has not created entrepreneurship development in Nigeria( ogunjiuba et al, 2004). In proposition, access to credit is supposed to enhance homes’ capability to manage scarce coffers more effectively and protection against threat and provision for the future. It’s on base of this assertion that numerous governments and patron agencies emphasizedevelopment of programs directed particularly to possessors ofmicro-enterprises( Webster, 1991).

The assessment of the impact of microcredit on poverty relief in Nigeria is veritably scarce, if missing. It’s important to know whether the introductory ideal of establishing microfinance banks in Nigeria can be achieved. The questions of interest also are; how has the microfinance banks bettered the standard of living? Can loans given out actually help in poverty relief in the country? Are the poor given utmost precedence in credit allocation? This study fills this gap and provides recommendations for way forward.

Objects of the Study

The major ideal of this study is to examine the impact of micro credit on poverty relief in Nigeria.

Te specific objects of the study are to;

a- estimate the performance of microcredit on poverty relief in Nigeria in Nigeria.

b- estimate colorful government programs targeted at easing poverty

c- identify challenges faced by microfinance banks in giving loans to small and medium scale enterprises; and,

d- Grounded on empirical findings suggest the way forward for the reducing poverty through the use of microfinance banks in Nigeria.

Exploration Thesis

The suppositions to be tested in this study are;

H0 Microcredit has no significant effect on poverty reduction in Nigeria

H1 Microcredit has a significant effect on poverty reduction in Nigeria

Methodology

· Sources and instrument of Data Collection

Data will be drawn from administering structured questionnaires which will be administered to heirs of microcredit drawn in the Lagos megalopolis. The questionnaire shall be close- concluded aimed at helping repliers give answers that will be acclimatized to furnishing answers that will be further anatomized.

· system of Data Analysis

The data collected shall be anatomized using simple probabilities. Simple chance has the advantages of easily indicating the weight in absolute terms. This system is chosen due to its simplicity and clarity to interested parties who may not have acceptable knowledge with further complex logical tools. Also, to test whether microcredit impacts on poverty position, ki- forecourt is used.

1. 6 Applicability of the Study

Issues regarding the impact of micro credit on micro enterprises have entered raised attention in the literature. still, there’s skimp work of this type in Nigeria, especially, in the area of assessing the impact of micro credit on micro enterprises and poverty reduction in the period of global fiscal extremity and banking reform. It is; thus, hope that this study will fill the gap by furnishing information on the effect of credit on micro enterprises in Nigeria. The exploration work will lead to a clear understanding of the part of other macro profitable and social factors in determining the success of micro enterprises in Nigeria. It’s hoped that findings from this study will be veritably useful to policy makers, investors, experimenters, commercial directors, and other stakeholders in an trouble to shape micro credit institutions in Nigeria. The result of the study will give sapience to further unborn exploration into this field of study and would be useful for the policy makers in displacing the being microfinance institutions to achieving robust artificial sector and profitable growth in Nigeria.

Also, with wide poverty and several sweats of utmost developing nations ’ government to attack poverty, it’s indeed necessary to see how these nations succeed. Since the traditional banks operations appears not to feed for the requirements of the poor in the frugality, it becomes intriguing to see how micro finance banks can achieve this feat with their involvement in granting microcredit. In utmost developing frugality like Nigeria, the poverty position is high this has led to low standard of living of the populace, reduced average life span and high child mortality rate. It’s egregious that a reduction in percolating poverty rate will laterally increase standard of living, increased life span of the average citizen and a reduction in child mortality rate.

Compass and Limitations of the Study

The study will center on the operations of Micro finance Bank in Nigeria and the extent and microcredit impacts on poverty relief in Nigeria. The case study area for the study is Lagos state. Also, attention is given to manufacturing enterprises. One of the limitations of this study is time and cost. The available time is short for the pen to cover large number of small and medium scale. Also, cost in term of finance could be veritably high.

Organization of the Study

This exploration is divided into five chapters. Following this chapter is chapter two which focuses on literature review. Chapter three will deal with theoretical frame and exploration methodology. Chapter four is grounded on empirical analysis. And Chapter five is grounded on summary of findings, recommendations and conclusion.

Delineations of Terms

Microfinance

Microfinance is an profitable development approach that involves furnishing fiscal services, through institutions, to low- income guests, where the request fails to give applicable services. The services handed by the Microfinance Institutions( MFIs) include credit saving and insurance services. numerous microfinance institutions also give social intermediation services similar as training and education, organizational support, health and chops in line with their development objects.

Micro-credit

Micro-credit is the extension of small loans to entrepreneurs, who are too poor to qualify for traditional bank loans. Especially in developing countries,micro-credit enables veritably poor people to engage in tone- employment systems that induce income, therefore allowing them to ameliorate the standard of living for themselves and their families.

Micro finance Institutions( MFIs)

A microfinance institution is an association, engaged in extending micro credit loans and other fiscal services to poor borrowers for income generating and tone employment conditioning.