Microfinance and Poverty Reduction: An Empirical Evidence from Benin Metropolis South-South of Nigeria

TABLE OF CONTENTS

Dedication

Acknowledgements

List of Abbreviations

LISTS OF TABLES

CHAPTER ONE Introduction
1.1 Background to The Study
1.2 Statement of the Problem
1.3 Objectives of the Study
1.4 Definition of Key Concepts
1.5 Significance of the Study

CHAPTER TWO Conceptual Issues in Poverty
2.1 Definition and Meaning of Poverty
2.2 Measurement of Poverty
2.3 Incidence of Poverty in Nigeria
2.4 Poverty Reduction Strategies in Nigeria

CHAPTER THREE Conceptual Issues in Microfinance
3.1 General Overview of Microfinance/Microcredit Scheme
3.2 Definition and Meaning of Microfinance
3.3 Growth of Microfinance in Nigeria
3.4 Justification for the Establishment of Microfinance Banks in Nigeria
3.5 Empirical Literatures on Microfinance
3.6 Theoretical Framework

CHAPTER FOUR Research Methodology
4.1 Research Design
4.2 The Area of Study
4.3 Population of Study
4.4 Sample
4.5 Sample Size
4.6 Methods of Data Collection
4.7 Data Analysis

CHAPTER FIVE Data Analysis, Interpretation and Discussions of Results
5.1 Question one: Socio-Economic and Demographic Characteristics of Microfinance Scheme Beneficiaries
5.2 Question two: The Impact of Microfinance on the Living Standard and Wellbeing of the Beneficiaries
5.3 Question three: The Policies, Regulatory and Supervisory Frameworks That... Guide Microfinance Banks in Nigeria
5.4 Question four: Problems/Challenges Hampering the Successful Implementation of the Microfinance Scheme
5.5 Discussion of Results

CHAPTER SIX Recommendation and Conclusion
6.1 Recommendations
6.2 Conclusion

REFERENCES

Appendix 1 Questionnaire Guide

Appendix 2 Interview Schedule for Managers/Directors of Micro Credit Outfits

Appendix 3 Focus Group Discussion Guide for Leaders of Registered Unions of Micro Finance Banks

Appendix 4 List of Registered Micro Finance Banks in Benin City

List of Abbreviations

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LISTS OF TABLES

Table 1.2.1: Poverty Incidence in Nigeria (1980-2010)

Table 2.3.1: Urban/Rural Poverty incidence in Nigeria (1980 – 2004)

Table 2.3.2: Poverty Incidence by States (1996 & 2004)

Table 2.3.3: Poverty Incidence in Nigeria by 10 Different States with Highest & Lowest Poverty Rate

Table 2.3.4: Human Development Index for Some Selected Countries

Table 3.1.1: Global Microfinance Statistics (2009-2010)

Table 3.5.1: Summary of some of Empirical Work in Asia and Latin America

Table 5.1.1: Age of Respondents

Table 5.1.2: Sex of Respondents

Table 5.1.3: Marital Status of Respondents

Table 5.1.4: Education Background of Respondents

Table 5.1.5:Religion of Respondents

Table 5.1.6: Occupation of Respondents

Table 5.1.7: How many times have you borrowed from Micro-Finance Institution(s)

Table 5.1.8: How many of your children are still in school

Table 5.2.1: I feed better than I used to do

Table 5.2.2: I am now able to buy my children's books and pay their fees

Table 5.2.3: I have been able to buy more equipment and household items

Table 5.2.4: I Now Wear Better Clothes than Before

Table 5.2.5: I am able to save some money now unlike before

Table 5.2.6: My business has grown/expanded than before

Table 5.2.7: I can now treat myself better when sick than before

Table 5.2.8: My neighbors and friends have more respect for me now than before

Dedication

This book is dedicated to God almighty and to the loving memory of my late Father, Mr. Simon Ekogiawe Edegbe who died on the 9th of December 1994. You were a loving and caring dad, continue to Rest in Peace.

Acknowledgements

First and foremost I want to thank almighty God for his grace and protection all through the period of this Study. I want to also thank Dr. Ernest Ugiagbe for his mentorship which increased my interest in carrying out this study. Also, sincere gratitude goes to Prof., Dr. Schwengel, Dr. Schumacher, and Pablo Nemina for taking their time to read through this work and offering very useful comments. This work would not have been possible without these useful comments and corrections to the draft.

I also acknowledge the support of managers and customers of the various microfinance banks visited for granting me audience during the fieldwork of this study. My appreciation also goes to Diplomica Publishing House for publishing this work.

I must not fail to thank my mother, my siblings and also the Idehen family especially Omorodion Idehen for all their concern, love, prayers and support throughout the period of this study. May the Good Lord bless you all. Special thanks to all my great friends especially Richard, Charity, Sampson, Jafe, Nnamdi, Steve, Marvin, Nosa and above all my mentor and big brother Dr. Ernest Ugiagbe for their support and encouragement.

Freiburg, Germany

August, 2013.

Keywords: Poverty, Microfinance, Microfinance Institutions and Benin Metropolis

CHAPTER ONE

Introduction

1.1 Background to The Study

We will spare no effort to free our fellow men, women, and children from the abject and dehumanizing conditions of extreme poverty to which more than a billion of them are currently subjected.

-United Nations Millennium Declaration, September 2000

No society can surely be flourishing and happy of which by far the greater part of the numbers are poor and miserable

- Adam Smith, 1776.

The poverty question is a global phenomenon. It is perhaps one of the greatest challenges facing Mankind today, especially in most parts of the developing world. This Perhaps explains why the eradication of poverty was listed as the first of the eight issues of the millennium development goals. The problem of poverty is more disturbing giving the fact that there is abundant and enormous wealth in the world to adequately meet the needs of every one. Poverty may be defined as a condition of lack and inability to meet adequately the basic needs of life such as Shelter, food, education and health care. Similarly, according to a United Nations statement:

Poverty is a denial of choices and opportunities, a violation of human dignity. It means lack of basic capacity to participate effectively in society.

It means not having enough to feed and clothe a family, not having a
school or clinic to go to; not having the land on which to grow one’s food
or a job to earn one’s living, not having access to credit. It means
insecurity, powerlessness and exclusion of individuals, households and
communities. It means susceptibility to violence, and it often implies living
on marginal or fragile environments, without access to clean water or
sanitation.(UN,2008 quoted in Ucha,2010).

In other words, the problem of poverty is more worrisome in Sub-Saharan Africa with 47.5% of the people living on less than $1.25 and 70% living on less than $2 per day in Sub-Sahara Africa (World Bank, 2008).The figure may have become worse considering the drought that hit parts of horn of (East) Africa in 2011 and the problem of maladministration or poor governance bedeviling the region. In Nigeria the high level of corruption and poor leadership has contributed to exacerbate the problem of poverty. Ucha, 2010 puts it thus: “Unemployment, corruption, non diversification of the economy, income inequality, laziness and a poor educational system can be considered to be some of the key factors contributing to poverty in Nigeria”(p.46).

Given the fact that Nigeria is a country with rich human and natural resources, it is disturbing that majority of her citizens are still very poor. The government has over the years formulated a lot of programs and policies geared towards poverty reduction; however it remains a controversy whether those programs and policies have actually achieved their desired objectives.

1.2 Statement of the Problem

Similarly, existing literatures on poverty corroborates the fact that poverty is growing rather than abating in Nigeria. For instance, according to a recent data released by the national bureau of statistics (NBS), as at 2010, 69.0% of Nigerians (112 million people) were living in poverty an increase from 54.4% in 2004(see table 1.2.1).

Table 1.2.1 Poverty Incidence in Nigeria (1980-2010)

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Also, the World Health Organization/United Nations Children’s Fund Joint Monitoring Program in its 2012 progress report on drinking water and sanitation, ranked Nigeria third behind China and India on the list of countries with the largest population without access to improved drinking water. The report that covered the period from 1990 to 2010 added that 66million Nigerians lack access to pure drinking water ‘while 34 million, about 20 per cent of the country’s population practiced open defecation’(Okpi, 2012) .

In view of the following, the government of Nigeria has over the years especially after the promulgation of the Structural Adjustment Program (SAP) (a reform program aimed at restructuring and diversifying the economy initiated by the Babangida administration) in 1986 formulated a series of programs and policies towards ameliorating poverty. Some of these programs includes: Directorate of Food, Roads and Rural Infrastructures (DFRRI), National Directorate of Employment (NDE), Peoples Bank, National Poverty Eradication Program (NAPEP) and the Micro- credit/finance scheme. Of all the schemes stated above, the micro-finance scheme was vigorous pursued and promoted by the government as an instrument of poverty reduction through the delivery of specific and adequate credits to the poor to enable them fulfill their goals, reduce unemployment, and contribute to national development(Asemota,2010; FRN, 2001).

The micro-finance regulatory framework was first formulated in 2005 to replace all existing community banks and micro-finance institutions and mandating them to convert to micro-finance banks and was required to have a mandatory minimum capital of 20million Naira about $125,000 (CBN, 2005).

This research work is aim at exploring how well the micro-finance banks have contributed to poverty reduction in Nigeria. Specifically, focus will be on beneficiaries of micro-credits from selected MFB’s in Benin metropolis and how it has impacted on their socio-economic advancement.

1.3 Objectives of the Study

The general objective of this study is to examine the impact of micro-finance on poverty reduction in Nigeria using selected micro-finance banks in Benin Metropolis as case study.

The specific objectives are as follows:

1. To find out the socio-economic and demographic characteristics of beneficiaries of microfinance loans in Benin Metropolis.
2. To examine the impact of micro-finance scheme on the living standard and wellbeing of the beneficiaries
3. Examine the possible constraints/ challenges faced by beneficiaries in accessing loans from MFB’s
4. To find out the policy, regulatory and supervisory frameworks which guide micro-finance banks in Nigeria
5. Based on the findings of 1 to 4 above recommend policy objectives and other ways to improve the performance of micro-finance development in Nigeria.

Similarly, this study intends to answer the following research questions:

1. What are the socio-economic and demographic characteristics of micro-finance scheme beneficiaries in the study area?
2. What impact does micro-finance have on poverty reduction and wellbeing of the beneficiaries
3. What are the policies, regulatory and supervisory frameworks which guide micro-finance banks in Nigeria?
4. What are the constraints faced by beneficiaries of micro-finance scheme.

1.4 Definition of Key Concepts

Poverty: A condition of acute deprivation preventing a person from living a life of adequate wellbeing.

Microfinance: Microfinance is defined as the process whereby small loans and credits including other financial products are especially provided to the poor people in the society to enable them engage in micro business/enterprises and other profitable ventures.

Benin Metropolis: A metropolitan city comprising three Local government areas(Oredo, Egor and Ikpoba- Okha) located in the Edo State, South- South of Nigeria

Microfinance Institutions: Are specialized financial institutions set up for the purpose of providing loans to poor people and low income earners for the purpose of micro business.

1.5 Significance of the Study

There has been an intensive global awareness of the impact of microfinance on poverty reduction in recent years. This growing awareness results from the increasing level of global poverty and how it can be curtailed. The successes of the Gramaen Bank which was founded in 1976 in alleviating poverty in Bangladesh and the subsequent award of a Nobel Peace Prize on the bank and the founder, Mohamed Yunus in 2006 have drawn more attention on the usefulness of microfinance as an important anti poverty instrument. Not surprising, the world leaders in inaugurating the millennium development goal pinpoint microfinance as one important tool that would help in actualizing the first goal of halving poverty by 2015. Governments, international organizations and nongovernmental organizations (NGO’s) alike have committed huge financial and human resources in microfinance institutions across especially the developing world towards actualizing this laudable goal.

A study of this nature which dwells on the importance of micro-finance scheme on poverty reduction no doubt will contribute immensely to growing literatures on microfinance and poverty. And the recommendations will be helpful to appropriate government agencies and institutions in fighting and reducing poverty in Nigeria and elsewhere. This study is structured into six chapters. Following this introduction are chapters two and three which discusses conceptual issues on poverty and microfinance respectively. Chapter four focus on the research methodology, while chapter five presents the analysis and interpretation of data. The recommendations and conclusion of the study is presented in chapter six.

CHAPTER TWO Conceptual Issues in Poverty

2.1 Definition and Meaning of Poverty

Poverty is a symptom of an improper society; the people are the victims

-Mohammed Yunus, 2011

Perhaps, one of the most contentious and serious problems facing humanity today is that of poverty. Poverty may include an inability to meet ones physical needs and other kinds of deprivations ranging from people’s lack of housing/ shelter, medical care, education including clothing and physical wellbeing, (Shillington et al, 2009; O’Boyle, 1991; Jitsuchon, 2001). Defining the concept of poverty in absolute terms is in fact difficult because there is no consensus measure or single meaning of poverty and defining who is poor (Rosenfield, 2010; Spicker, 1999; Akindola, 2009). However, some definitions are worth viewing.

According to O’ Boyle (1991, p.1) “Poverty is a problem in unmet human physical needs. That is persons and families in poverty lack the goods and services needed to sustain and support life and the income to purchase the goods or services which would meet those needs”. Weisfeld & Andrzejewski (2008) distinguished between two types of poverty; vis-à-vis income poverty and human poverty. According to them, income poverty is based on the understanding or defining of poverty in monetary income terms, this measure popularly used by the World Bank and the United Nations (UN) is regarded as the poverty line method. According to World Bank, this means that people living on less than $1.25 are in extreme poverty, while those living on less than $2 per day are in moderate poverty. In other words, human poverty includes material deprivation of people. This includes lack of basic needs of life like housing/ shelter, clothing, proper diet and other social deprivations such as “denial of employment, participation in social institutions and education” (Weisfeld & Andrzejewski 2008, p. 2). The World Bank 2000 explained poverty as follows;

Poverty is hunger, lack of shelter, being sick and not being able to see a doctor, not having access to school and not knowing how to read and write, not having a job, fear for the future, living one day at a time. Poverty is losing a child to illness brought about by unclean water. Poverty is powerlessness, lack of representation and freedom from servitude. Poverty is living in abject squalor and hopelessness (World Bank 2000, p. 52).

According to Townsend (2010, p. 99), poverty is defined by an inadequate resources of people which “fall seriously short of the resources commanded by the average individual or family in the community in which they live, whether that community is local, national or international one”. For the World Health Organization (WHO):

Poverty is associated with the undermining of a range of key human attributes including health. The poor are exposed to greater personal and environmental health risks; they are not well nourished, have less information and are less able to access health care. They thus have a higher risk of illness and disability…, The poorest of the poor around the world have the worst health (WHO, 2012).

This definition explains succinctly the devastating health consequences and risks associated with poverty. In a similar vein, the United Nations (UN) defines poverty as “a condition characterized by severe deprivation of basic human needs including food, health, shelter, education, and information. It depends not only on income but also on access to services” (UN, 1999: 57; quoted in Spicker 1999, p. 232).

Furthermore, Spicker (1999), opined that poverty has different meanings ‘linked through a series of resemblances’, he identified 12 clusters of meanings to poverty. The first is that poverty is a ‘material concept’, which means that people are poor because they lack the basic needs of life like shelter, food, clothing and water. The second meaning is that poverty is a pattern of deprivation; by this he means that it is not just as a result of lack of needs but the ‘pattern of deprivation’ and duration of time in which the deprivation persists. The third meaning is that poverty is associated with limited resources; that is, the unavailability of adequate income and resources to meet ones ‘essential needs’. This is particularly true of Nigeria because for instance, there are poor people that can barely afford to pay for transportation to the hospital even if they would get free medical care/service. The fourth definition or meaning according to Spicker is that poverty is as a result of one’s economic circumstances caused by low disposable income. Similarly, the fifth meaning sees poverty as a result of low standard of living of individuals or families falling below acceptable standard or level. Inequality is the sixth meaning of poverty. According to Spicker, people are said to be poor because ‘they are disadvantaged when compared to others in the society’ who are living in wealth and opulence. The seventh meaning which is similar to the sixth is that poverty is defined in terms ones socio-economic class and position in the society. According to Spicker, the social stratification of the society placed some members in a higher position/class and others in lower position/class that have poor means of livelihood and have little or nothing to cater for their needs.

Similarly, dependency, lack of basic security and exclusion are the eighth, ninth and tenth meaning of poverty. The eleventh meaning is Lack of Entitlements; according to Spicker, people are poor and hungry not because there is no food, but because they cannot afford to buy the food that exists. The twelfth and last meaning of poverty according to Spicker is that it is a moral judgment. Piachaud, 1981 quoted in Spicker, 1999 puts it thus; “poverty consists not just of hardship but of unacceptable hardship…, it carries with it an implication and moral imperative that something should be done about it. Its definition is a value judgment and should be clearly seen to be so”. The twelve clusters of meaning of poverty have to do more with the way the term is used by different people ‘rather than with the elements of definitions’ (Spicker 1999, p. 238).

Shillington, et al (2009, p. 2) defined poverty as “a human condition characterized by sustained or chronic deprivation of the resources, capabilities; choices, security and power necessary for the enjoyment of an adequate standard of living and other civil, cultural, economic; political and social rights”. In summary, poverty is defined in this study as a condition of acute deprivation preventing a person from living a life of adequate wellbeing.

The following different definitions bring to fore the different perspectives and understanding of what the concept of poverty is all about. As a result, it will be germane to further espouse on the meaning of this concept of poverty by explaining four different approaches which are; Monetary Approach, Capability Approach, Social Exclusion Approach and Participatory Approach. These approaches serve as a clarification to the various definitions above and also provides an ‘alternative understanding’ of poverty or who is poor? (See Laderchi, Saith,& Stewart 2003).

Monetary Approach

The monetary approach to the understanding of poverty is mostly used by economics to define and measure poverty. This approach sees poverty as a phenomenon caused by lack of adequate monetary finance to meet the daily needs of life. It is popularly called the “Poverty Line” method.

The monetary approach originated from the famous works of Booth and Rowntree in their different studies of London and York in the late nineteenth and early twentieth century respectively. But Rowntree’s work on the survey of York which was undertaken starting from 1899 is generally believed to be the first major scientific study of poverty. According to Laderchi (2006), this research work of Rowntree is “generally described as the first scientific study of poverty mostly because of the high level of sophistication he applied in deriving a modern poverty line and in particular in estimating the minimal food requirements for maintaining efficiency on the basis of recently calculated nutritional standards. Such minimal requirements, together with those necessary for the purchase of clothing and rent, were added up to identify a poverty line, so that households whose income level fell below it were deemed to be in primary poverty” (Laderchi 2006,p. 6).

The Monetary approach has always been used to define and explain poverty in Nigeria; the understanding and definitions by most writers in Nigeria are usually focused on deprivation, inadequacy, consumption and income (Ugiagbe, 2012). This concurs with Tella 1997 (quoted in Ugiagbe 2012, p. 16), “people are poverty stricken when their incomes even if adequate for survival, fall radically behind that of the community… They are degraded, for in the literal sense they live outside the grades or categories which the community regards as acceptable (standard of living)”. Critics of the monetary approach believe that the definition of poverty around a single approach of monetary consideration is not sufficient. Laderchi (2000, pp. 3) puts it thus;”The main problem with the identification of the monetary approach as an analytical category is that different conceptual reconstructions might underlie similar practices, so that equating them with one homogeneous category is not only artificial but possibly misleading” Another problem with the monetary approach is that it focused too much on the ‘material aspects’ of poverty (income and consumption) and neglected the non material aspects which includes ‘quality of life, quality health and educational attainment’ (Odusola, 1997).

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