THE ROLE OF MICRO FINANCING IN POVERTY ALLEVIATION IN NIGERIA
ABSTRACT
       The study examined the role of micro financing in poverty alleviation in Nigeria.  It sought answers to the following research questions: Is there any relationship between micro-financing and poverty reduction? Is there any relationship between micro-financing and employment creation? Is there any relationship between micro-financing and savings mobilization?  What are the major constraints to the growth of micro-financing in Nigeria? The study adopted the cross – sectional survey research design using the questionnaire as the research instrument.
The questionnaire consisted of two main parts: The classification section (Bio-data); and a section that featured items on the core subject matter of the research: “The role of micro financing in Poverty Alleviation in Nigeria.” The question-response format for items in the core subject matter was of the Likert-type five-point scale with options ranging from a region of strong agreement (Strongly Agree) through a neutral zone (Not Sure) to a region of strong disagreement (Strongly Disagree).This study used the credit and micro-credit in particular for alleviating poverty.
The population of the study consisted of clients of three microfinance institutions in Benin metropolis. Systematic sampling technique was used in selecting the respondents and research data were analyzed using descriptive and inferential statistics. The research findings are as follows: micro financing has had a significant impact on Poverty alleviation in Nigeria; micro financing enhances employment creation in Nigeria; and micro-financing has not had any significant impact on savings mobilization in Nigeria. The study revealed that micro financing helps in poverty reduction with a mean score of 150.0, standard deviation of 14.6561 and standard error of 6.5544. As regarding the employment creation, the study also shows that micro financing helps in employment creation given the mean score of 164.50 with a standard deviation of 12.3693 and a standard error mean of 6.1. Finally, on saving mobilization, a Leven’s test for equality of variances had a calculated F- statistic of 2.579 with an associated probability of 0.184, thus suggesting that the test was not significant, since the value of the computed significant probability of 0.184, is not less than 0.05. Thus, suggesting that micro financing does not significantly affect savings mobilization in Nigeria.
In the final analysis, these findings agree with that of Hulme and Mosley (1996), OECD (1995), Khandker (1989), 1998) and zeller and Sharma (2000).
TABLE OF CONTENTS
CHAPTER ONE
INTRODUCTION     -    -    -    -    -    -    -    -    -
1.1    Background of the Study    -    -    -    -    -    -    -
1.2    Statement of the Research Problem    -    -    -    -    -
1.3    Research Questions    -    -    -    -    -    -    -    -
1.4    Objectives of the Study    -    -    -    -    -    -    -
1.5    Statement of Research Hypothesis    -    -    -    -    -
1.6    Poverty index    -       -         -       -        -        -          -                    
1.7    Significance of the Study    -    -    -    -    -    -    -
1.8    Scope of the Study    -    -    -    -    -    -    -    -
1.9    Limitation of the Study    -    -    -    -    -    -    -    
CHAPTER TWO
LITERATURE REVIEW    -    -    -    -    -    -    -    -
2.1    Introduction    -    -    -    -    -    -    -    -    -
2.2    Microfinance Institutional Models    -    -    -    -    -
2.3    The Relationships between Microfinance and Poverty    
2.4    Effect of Microfinance on Employment and Enterprise Development    -    
2.5    Characteristics of Microfinance Institution in Nigeria    -
2.6    Microfinance and savings Mobilization    -    -    -    
2.7    Government Policy and Regulatory Environment of Microfinance in
Nigeria        -    -    -    -    -    -    -    -    -
2.8    Theoretical Framework    -    -    -    -    -    -    -
2.9    Poverty Indices    -    -    -    -    -    -    -    -    -           
CHAPTER THREE
RESEARCH METHODOLOGY    -    -    -    -    -    -    -
3.1    Introduction    -    -    -    -    -    -    -    -    -
3.2    Research Design    -    -    -    -    -    -    -    -
3.3    Sources of Data    -    -    -    -    -    -    -    -
3.4    Instrumentation     -    -    -    -    -    -    -    -
3.5    Population of the Study    -    -    -    -    -    -    -
3.6    Sampling Framework    -    -    -    -    -    -    -
3.7    Data Analysis Methods    -    -    -    -    -    -    -
3.8    Model Specification    -    -    -    -    -    -    -    -    
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS    -    -    -    -    -
4.1    Introduction    -    -    -    -    -    -    -    -    -
4.2    Data Presentation    -    -    -    -    -    -    -    -
4.3    Test of Hypothesis    -    -    -    -    -    -    -    -
4.4    Research Inference    -    -    -    -    -    -    -    -
CHAPTER FIVE
SUMMARY, DISCUSSION OF FINDINGS, CONCLUSIONS,
AND RECOMMENDATIONS    -    -    -    -    -    -    -
5.1    Summary of Findings    -    -    -    -    -    -    -
5.2    Discussion of Findings    -    -    -    -    -    -    -
5.3    Conclusions    -    -    -    -    -    -    -    -    -
5.4    Suggestions for Further Studies    -    -    -    -    -
5.5    Recommendations    -    -    -    -    -    -    -    -    
REFERENCES    -    -    -    -    -    -    -    -    -    
APPENDIX    -    -    -    -    -    -    -    -    -    -    
1.0    Request for your Assistance in Completing a Questionnaire -    -    
2.0    Questionnaire    -    -    -    -    -    -    -    -    

LIST OF TABLES
      Table                                        Page
1.    Bio-Data    -    -    -    -    -    -    -    -    
2.    Research Questions    -    -    -    -    -    -    -    
3.    Poverty Reduction Vs Micro financing    -    -    -    -
4.    Employment Creation Vs Micro financing    -    -    -    -
5.    Savings mobilization Vs Micro financing-    -    -    -    -    
CHAPTER ONE
INTRODUCTION
1.1    BACKGROUND OF THE STUDY
            One of the major development problems facing the world today is the growing phenomenon of poverty.     The poverty situation in Nigeria is quite disturbing. Both the quantitative and qualitative measurements attest to the growing incidence and depth of poverty in the country. The situation however, presents a paradox considering the vast human and physical resources that the country is endowed with. The quantitative poverty assessment by the Federal Office of Statistics (FOS,1999), based on the analysis of a series of national consumer surveys over a 16 year period (1980-1996), shows that the incidence of poverty rose drastically between 1980 and 1985 on one hand and between 1992 and 1996 on the other, but decreased between 1985 and 1992. The 28.1 percent poverty incidence of 1980 translated to 17.7 million poor people in the country, whereas there were 34.7 million poor people in 1985 with an incidence of poverty of 46.3 percent. Despite the drop in the poverty incidence in 1992 to 42.7 percent, the population of the poor was 39.2 million; about 5 million more than 1985 figures. By 1996, 67.1 million people were in poverty with an incidence of poverty of 65.5 percent. The situation of poverty as at 2001 would have worsened, as there has not been any significant improvement in the quality of life (welfare) of the majority of the people. The bitter reality of the Nigerian poverty situation according to NISER (2003) is that more than 40 percent of Nigerians live in conditions of extreme poverty, spending less than N320.00 per capita per month. This expenditure would barely provide a quarter of the nutritional requirements for healthy living. As revealed by the survey, rural poverty increased by 22- percentage point in the period 1980-1985. Although this decreased slightly between 1985 and 1992, it soared in the following four- year period 1992-1996. In any case however, the percentage of the rural poor increase from 28.3% in 1980 to 69.8% in 1996 (FOS, 1999). Many countries in the world have been placing increasing emphasis on microfinance as a tool for poverty alleviation, economic and socio-political empowerment. According to Peralta (2003), it is estimated that over 1.3 billion people live on less than one dollar per day, and one billion people cannot meet basic requirements. Furthermore, “315 million people (one in every two people) in sub Saharan Africa survive on less than one dollar per day and 184 million people (33% of the African population) suffer from malnutrition” (UNDP, 2002). The alleviation of poverty is necessary for economic development. Most of researchers have pointed out that, financial development and poverty alleviation have a positive relationship. The provision of financial facilities for every person who needs financial facilities will boost economic development and reduce poverty and also have inverse relationship. However, most poor people suffer from a lack of financial facilities because formal finance institutions are reluctant to supply financial facilities for these people because of market failures and the lack of collateral. Therefore, financially destitute people depend on informal sources with high interest rates and other barriers for finance which push them to be poorer in the long term. However, without such sources, their lives may be more miserable since they cannot even meet their current financial requirements.
Therefore, it is worthwhile to introduce risk managed financial services for the poorest of the poor. Though it is a common belief that the provision of financial services for the poor is not a profitable business. However, some successful microfinance institutions have shown that the provision of financial services to the poor is a profitable business while these institutions remain as self sufficient institutions.
    Globally, microfinance is regarded as one of the most effective and flexible strategies in the fight against global poverty (Kefas, 2005). It is believed that ppoverty can be alleviated through savings, investment and increase in the output of goods and services.
    According to Central Bank of Nigeria (2005) the size of the un-served market by the existing financial institutions is large. The average banking density in Nigeria is one financial institution outlet to 32, 700 inhabitants. In the rural areas, it is 1:57,000, that is, less than 2% of rural households have access to financial services. This reveals the existence of huge gap in the provision of financial services to a large proportion of the active but poor and low income groups. Also, the aggregate micro credit facilities in Nigeria account for about 0.2 percent of GDP, which is less than one percent of the total credit to the economy (CBN, 2005). Poor people can and do save contrary to general misconceptions. However, owing to the inadequacy of appropriate savings opportunities and products, savings have continued to grow at a very low rate, particularly in the rural areas of Nigeria. Most poor people keep their resources in kind or simply under their pillows. Such methods of keeping savings are risky, low in terms of returns, and undermine the aggregate volume of resources that could be mobilized and channeled to deficit areas of the economy. Improved access to credit can enable the poor to finance productive activities that allow income generation, consumption, savings, as well as investment. This is considered as a route out of poverty for the non-destitute chronic poor.
    Against this background, this study is undertaken with the main objective of examining the role of microfinance in poverty eradication, in Nigeria; it also attempt to find out the contribution of micro finance towards economic development of the nation.
1.2    STATEMENT OF THE RESEARCH PROBLEM
    Microfinance providers tend to forget their main objective is social development and not profit creation. The principle of ‘one micro entrepreneur to one micro loan’ is overlooked by profit-hungry MFIs who end up targeting the same individual for many loans and cause multiple borrowing (also known as credit pollution). This is a major problem because at the end of the day, that individual gets burdened by mounting interest payments and is pushed deeper into the folds of poverty.
    According to Shreiner (2001:1), “Microfinance as an effort to improve the access to loans and to savings services for poor people, is currently being promoted as a key development strategy for promoting poverty eradication and economic empowerment”. Traditional financial institutions have failed to provide adequate saving and credit services to the poor, and microfinance institutions and programme have developed over the years to fill this gap (United Nation, 2000).  In addition, research on the actual roles of microfinance as a tool for poverty eradication and economic development remain slim, in part owing to the difficulty in monitoring and measuring this impact.
    Lack of adequate loan funds, inadequate institutional capacities, poor coordination, little or no participation of the beneficiaries in the planning of microfinance programmes, lack of effective training programme for both beneficiaries and operators of the programmes are some of the reasons behind the ineffectiveness of microfinance as a strategy for alleviating poverty in Nigeria. Another very serious problem militating against microfinance is the attempt by governments to use it as a tool to gain political favour and stability rather than for the primary purpose of enhancing economic activities among the poor, so as to improve their overall standard of living.
    The entire situation outlined above, has contributed to the lack of access to sufficient capital by the rural poor and thus inhibited them from venturing into other economic activities like small-scale industries and businesses.
    This study is an attempt to investigate the role of microfinance in bringing credit to the door step of the poor who do not have access under the conventional financial system and the overall effect on poverty eradication in Nigeria.
1.3    RESEARCH QUESTION
    From the foregoing, it becomes pertinent to raise and address certain research questions which will guide effectively the course of this study. The following questions therefore, form the core of this research.
1)    Is there any significant relationship between micro financing and poverty reduction?
2)    It there any relationship between micro financing and employment creation?
3)    Is there any relationship between micro financing and savings mobilization?
4)    Are there major constraints to the growth of micro financing in Nigeria?

1.4    OBJECTIVES OF THE STUDY
    The main objective of this study is to examine how micro-financing can be used as an effective instrument or strategy to alleviate the high level of poverty in Nigeria. Other subsidiary objectives are as follows:
1)    To determine whether there is any significant relationship between microfinance and poverty reduction.        
2)    To determine whether there is any relationship between micro-financing and employment creation.
3)    To determine whether there is any relationship between micro-financing and savings mobilization.
4)    To determine the major constraints to the growth of micro financing in Nigeria.
1.5    STATEMENT OF RESEARCH HYPOTHESES
    In this study, the following hypotheses would be formulated and tested:
HO1: There is no relationship between micro financing and poverty reduction.
HO2: There is no relationship between micro financing and employment creation.
HO3: There is no relationship between micro financing and savings mobilization.
1.6    POVERTY INDEX
      The poverty indices for this study are:
(i)    level of income
(ii)    access to credit facilities
(iii)    level of information (awareness level) on where and how to access credit facilities.  
The above indices were also used in the studies of Khandker (1998), World bank (2001),  Hulme and Mosley (1996) and Ray (1998).
1.7    SIGNIFICANCE OF THE STUDY
    The core problems of widespread poverty, growing inequality, rapid population growth and rising unemployment all find their origins in the stagnation and often retrogression of economic life in rural areas (Todaro, 1992:249).
    This is why we consider it most justifiable to undertake an in-depth investigation into the operations and impact of micro-financing, as an instrument for reducing poverty, which enhances the diversification of economic activities.
    The findings from this study will enable the government to know the impact of other various policy measures on the micro-financing and to guide the realization of the objects of such policies and programme. If such findings are accepted and implemented by the government, this will pave the way for more constructive reforms and so help in eliminating impediment, to the growth and development of microfinance institutions in Nigeria.
    Finally, this study will lay the foundation for other academic and research students to carry-out further research on the role of micro financing and poverty alleviation in Nigeria.   
1.8    SCOPE OF THE STUDY
This study is examining the role of micro financing in poverty alleviation in Nigeria with focus on selected MFIs in Benin-City metropolis. The selected MFIs comprises of Lift Above Poverty Organisation (LAPO), Ighomo Microfinance Bank Limited and Okuta Microfinance Bank Limited. The choice of these institutions was necessitated as they play a leading role in micro-financing-services viz-a-vis anti poverty campaign and they are the most favorites and most patronized microfinance bank with an outstanding record of credit facilities granted to clients in Edo state. More also, out of every five persons in Benin City, three are likely to indicate their preference for these three microfinance banks. This choice therefore will enable the researcher gain deep insight into the subject under investigation. The results of this study will be generalized for all the microfinance institutions in Nigeria.
1.9    LIMITATIONS OF THE STUDY
In this study, we have indentified two major limitations. These are: First, the uncooperative attitude and poor responses of respondents since much reliance is on the information to be elicited from the respondents. It is not practicable to obtain 100% accuracy of the data required for analysis from the respondent.
The second limitation has to do with the extent to which the findings can be generalized beyond the cases to be studied at the units of inquiry. The number of cases is too limited for broad generalizations. Nonetheless, the perceived similarities in the mode of operations of all the MFIs may be relied upon to mitigate this limitation.