THE IMPACT OF MICROFINANCE ON WELFARE AND POVERTY ALLEVIATION IN SOUTHWEST NIGERIA

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THE IMPACT OF MICROFINANCE ON WELFARE AND POVERTY ALLEVIATION IN SOUTHWEST NIGERIA

ABSTRACT

The study presented empirical findings on the impact of Microfinance on welfare and poverty alleviation in Southwest Nigeria.  It also examined Microfinance as key to poverty alleviation and economic development.  It assessed the extent to which Microfinance Institutions had successfully helped the poor to improve their standard of living and social status.  The study employed multiple regression analysis of the Ordinary Least Square (OLS) technique of estimation in order to make tentative predictions concerning outcome variable.  The Linear Probability Model was also adopted in the study.  This study establishes that Microfinance

Programme have impacted the businesses and lives of the beneficiaries (Microfinance Clients) in several positive ways particularly in their economic circumstances. It also gave them access to essential life-enhancing facilities and services.  It suggested that Microfinance Institutions in Nigeria should seek long-term capital from the Pensions and Insurance companies so that they can grant larger volumes of loans to greater number of their clients.  They should also strive to put in place procedures, policies and products that would ensure gender responsiveness and equity. In order to enhance healthy competition among the Microfinance Institutions, there should be a mandatory policy for the Microfinance Institutions to publish their interest rates and other charges at frequent intervals. This would improve the levels of efficiency of the Microfinance Institutions.

TABLE OF CONTENT

CHAPTER ONE: INTRODUCTION                 Pages

1.1  Background of the Study……………………………………. 1

1.2  Statement of the Research Problem……………………………….  4

1.3  Research Question ………………………………………….  5

1.4  Objectives of the Study ……………………………………. 6

1.5  Statement of Research Hypotheses ………………………………..  6

1.6  Significance of the Study …………………………………… 7

1.7  Scope of the Study …………………………………………. 7

1.8  Outline of the Thesis …………………………………….. 8

1.9  Method of Data Collection & Analysis…………………………..8CHAPTER TWO: LITERATURE REVIEW

2.1  Introduction……………………………………………. 10

2.2   Microfinance: A Review of Background, Operations and Structure/Models ……  10

2.2.1  Brief Historical Background ………………………………… 10

2.3       Review of Microfinance Models ………………………………. . 13

2.4        Review of Empirical Studies ………………………………….  16

2.4.1    Microfinance Experience in United States of America………………….  16

2.4.2    Microfinance Experience in Europe……………………………. 17

2.4.3   Asian/Latin America………………………………………. 18

2.4.4   Africa……………………………………………….. 26

2.4.5  Nigeria……………………………………………… 34

2.4.6  Lending Activities of Microfinance Banks in Lagos State in 2011 to Empower

The Poor …………………………………………….   38

2.5  Roles of Microfinance in MSMES…………………………….. 39

2.5.1.  Some Innovative Ideas …………………………………….  39

2.5.2.  Interventions of Non-Governmental Organizations (NGOs) …………….. 42

2.5.3.  Funding Services for Microfinance Banks ……………………….. 44

2.5.4.  Key Success Factors in Nigeria ……………………………… 47

2.5.5.  Sustainability of Microfinance Institutions ……………………….. 49

2.5.6  Challenges Confronting Microfinance Institutions …………………… 50

2.6       A Global Perspective on Microfinance………………………….  53

2.6.1  Global Status of Microfinance Worldwide ……………………….  53

2.6.2  Steady Growth of Microfinance Institutions Globally ………………… 55

2.6.3  Lending Portfolio of the Larger Microfinance Institutions in Africa as at 2005 …  56

2.6.4  Activities of Borrowers Financed by Microfinance Institutions in Bangladesh …. 58

2.6.5  Microfinance Performance in Nigeria …………………………… 60

2.7       Some Individual Experiences………………………………     67CHAPTER THREE: RESEARCH METHODOLOGY. ………………………. 72

3.1  Introduction……………………………………………. 72

3.2  Theoretical/Conceptual Framework ……………………………. 72

3.2.1  Theoretical Framework ……………………………………. 72

3.2.2.  Conceptual Framework ……………………………………. 77

3.3.  Research Methodology ……………………………………. 81

3.3.1  Research Design ………………………………………… 81

3.4  Population and Sample Design ……………………………….. 81

3.5   Sampling Technique ………………………………………. 82

3.6  Data Collection and Sources of Data ……………………………   83

3.7  Reliability of Instrument …………………………………..   83

3.8  Questionnaire …………………………………………   83

3.9  Model Specification ………………………………………. 84

3.10   Analytical Technique………………………………………   88

4.0  CHAPTER FOUR: DATA ANALYSIS AND DISCUSSION OF REPORTS.  89

4.1  Some Characteristics of the Respondents …………………………. 89

4.1.1Microfinance Institutions (MFIs) and their Characteristics in the Study Area   90

4.1.2  Socio-economic characteristics of customers of MFIs …………… 92

4.2.  MFIs and Microcredit Dispersion among Respondents ………………..   99

4.2.1  Level of Patronage of MFIs by Respondents ……………………… 100

4.2.2.  Types of Accounts Maintained with MFIs ………………………… 103

4.2.3.  Analysis of Loans Facilities Received ……………………………  104

4.3  Loan Demand in Microfinance Institutions ………………………   110

4.3.1  Volume of Loan Demanded by Respondents among the MFIs ………    110

4.3.2  Determinants of Loan Demand ………………………….. 114

4.3.3  Loan Demand Probability Function ……………………….  118

4.4  Microfinance Banks and Personal Welfare among Respondents …………..  124

4.4.1   Utilization of Loan Facilities Received from the MFIs ……………. 124

4.4.2   Savings, Earnings and Personal Welfare of Respondents   …………..  132

4.4.2.1 Savings …………………………………….   132

4.4.2.2 Earnings…………………………………….    135

4.4.3  Determinants of Income Distribution Among Respondents ………….     141

4.5     Microfinancing and  Micro-Enterprise Growth ……………………….  148

4.5.1  Microfinancing and the Growth of Sales Revenue ……………….  148

4.5.2  Microfinancing and Growth of Employment …………………..  150

4.6      Main Summary of the Analysis ………………………………   153

CHAPTER FIVE: Summary, Findings, Conclusions and Recommendations …….   154

5.1  Summary …………………………………………….. 154

5.2   Findings ……………………………………………..155

5.3       Conclusion of Study …………………………………….. 160

5.4       Policy Implications and Recommendations ……………………… 162

5.4.1 For Microfinance Bank …………………………………162.

4.2 For Government ……………………………………….163

5.5  Contribution to Knowledge …………………………………. 163

5.6  Suggestions for Future Research ……………………………… 164

References ………………………………………………… 165

List of Tables.

Table 2.1: Total Cost of Administering Loan. ……………………………. 50

Table 2.2: Number of MFIs and Total Clients Reporting to Microfinance Submit …….. 55

Table 2.3: Lending Profile of Some African MFIs. ………………………… 57

Table 2.4: Sub-Sectoral allocation of disbursement of funds by microfinance institutions in

Bangladesh. …………………………………………. 59

Table 2.5: Distribution of Microfinance Banks by Geo-Political Zones as at Dec.  , 2008..   62

Table 3.1: List of Variables and Descriptions …………………………… 86

Table 4.1: Some Characteristics of Sampled Microfinance Banks ………………   91

Table 4.2: Average Number of Employees at Inception and Now………………    92

Table 4.3: Distribution of Respondents by Age Group ……………………………. 93

Table 4.4: Distribution of Respondents by Highest Educational Qualification ……………. 94

Table 4.5: Occupation Distribution of Respondents by occupation …………………….   95

Table 4.6: Distribution of Respondents by Gender and Marital Status …………….     96

Table 4.7: Distribution of Respondents by Status in the Household ……………………98

Table 4.8: Distribution of Respondents by Nationality and State of Origin ………….. 98

Table 4.9: Distribution of Respondents by Religious Affiliation ……………….     99

Table 4.10: Names of the Microfinance Banks Patronized by Respondents ………………   100

Table 4.11: Distribution of MFI Customers by the Type of Banks Patronized …………….   100

Table 4.12: Distribution of MFIs by Some Selected Characteristics of Respondents ….     102

Table 4.13: Year Savings (Personal) Account was Opened ………………….     104

Table 4.14: Distribution of Respondents by Whether or not Loan has Ever Been Received  106

Table 4.15: Distribution of Respondents by Loan Received after Savings Account was

Opened ……………………………………………106

Table 4.16: Quality of Service on the Savings Account …………………….    107

Table 4.17: Distribution of MFIs by the Quality of Service Offered on Savings Account .. 108

Table 4.18: Distribution of MFIs by the Average and Total Loan Advanced to Customers . 119

Table 4.19: Distribution of Respondents by Loan Status ……………………   119

Table 4.20: Distribution of Respondents by Volume of Loan Obtained ………………   112

Table 4.21: Loan Demand Function …………………………………     116

Table 4.22: Distribution of Respondents by Whether or not they have ever Received any Loan

Facilities. ………………………………………….    119

Table 4.23: Linear Probability Function for Loan Request from MFI ……………    122

Table 4.24: The Distribution of MFIS by the Average Amount of Loan Granted to Customers 125

Table 4.25: Frequency Distribution of Respondents by the Percentage Utilization of first loan

Received …………………………………………..  126

Table 4.26: Frequency Distribution of Respondents by the Percentage Utilization of Second

Loan Received ……………………………………….  127

Table 4.27: Frequency Distribution of Respondents by the Utilization of Third Loan Received    128

Table 4.28: Distribution of Loan Usage Pattern Among Respondents ……………  128

Table 4.29: Distribution of Respondents by Patterns of Loans Utilization …………    131

Table 4:30: Volume and Percentage Change ……………………………. 134

Table 4.31: Distribution of Respondents by Average Nominal Income before and after Loan

Facility was Received ………………………………….. 136

Table 4.32: Distribution of Respondents by Weekly Earnings Before and After Receiving

Loan Facilit ies from MFIs and by Some Selected Characteristics……… 137

Table 4.33: Growth Rate of Nominal Weekly Income …………………….. 138

Table 4.34: Percentage Changes Within Income Groups ……………………. 139

Table 4.35: Descriptive Statistics of the Variables Used in the Models ………….. 142

Table 4.36 (a): Model Summary …………………………………….142

Table 4.36 (b): Regression Coefficients of the Distribution of Income …………….143

Table 4.37: Anova Table for the Regression Estimate in Table 4.34 …………….. 143

Table 4.38: Model Summary ………………………………………. 145

Table 4.39: Regression Coefficient of Income Distribution Functions ……………  146

Table 4.40: ANOVA Table for Models 1 to 4 ……………………………. 147

Table 4.41: Frequency Distribution of Micro-Enterprises by Nature of Business ……..  148

Table 4.42: Distribution of Weekly Sales Revenue and Its Growth Rate by Some Selected

Characteristics of Enterprises and Entrepreneurs …………………   149

Table 4.43: Frequency Distribution of Micro-Enterprises by Number Employed Before

Microfinancing and After ………………………………..   151

Table 4.44: Distribution of Employment Level and its Growth Rate by Some Selected

Characteristics of Enterprises and Entrepreneurs …………………  152

Table 4.45: Distribution of Respondents by their Perception on Microfinancing and Poverty

Reduction …………………………………………..153

APPENDICES ……………………………………………….172

Appendix A: Questionnaire: Bank Officials……………………..177

Appendix B: Questionnaire: Bank Customers……………………………. 180

List of Abbreviations and Acronyms

ACGS ” Agricultural Credit and Grant Scheme

ADB ” African Development Bank

ASHO ” Anambra Self Help Organization

BOI ” Bank of Industry

BIDS ” Bangladesh Institute of Development Studies

CAMELS

(C) Capital Adequacy

(A) Asset Quality

(M) Management

(E) Earnings

(L) Liquidity

(S) Sensitivity to Market Risk

CB ” Community Banks

CBN ” Central Bank of Nigeria

CGAP ” Consultative Group to Assist the Poorest

CMFB ” Covenant Micro Finance Bank

COWAD ” Community Women and Development

DEC ” Development Exchange Centre

EEC ” European Economic Commission

EMPL ” Employment

FADU ” Farmers Development Union

FCF ” Full Cycle Fund

GDP ” Gross Domestic Product

GFF ” Good Faith Fund

GPP ” Global Poverty Publicat ion

HND ” Higher Nat ional Diploma

IFAD ” International Fund for Agricultural Development

JD ” Jordanian Dollar

LAPO ” Lifting Above Poverty Organization

LOP ” Levels of Profit

MAIN ” Microfinance African Institutions Network

MDGs ” Millennium Development Goals

MFBs ” Microfinance Banks

MFIs ” Microfinance Institutions

MSMEs ” Micro Small and Medium Scale Entreprises

NACB ” Nigerian Agricultural and Cooperative Bank

NACRDB ” National Agricultural Cooperative and Rural Development

Bank

NDE ” National Directorate of Employment

NDIC ” Nigerian Deposit Insurance Corporation

NEEDS ” National Economic Empowerment and Development

Strategy

NGO ” Non Governmental Organization

OSI ” Open Society Institute

PAR ” Portfolio At Risk

PB ” Peoples Bank

PRSP ” Poverty Reduction Strategy Paper

RBP ” Rural Banking Programme

ROA ” Return On Asset

SEAP ” Self Reliance Economic Advancement Programme

SHG ” Self Help Group

SMEs ” Small and Medium Scale Entreprises

TEACH ” Training, Education And Credit Health

VEF ” Village Entreprise Fund

WDI ” Women Development Init iat ive

WSEP ” Women Self Employment Project.

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