EVALUATION OF MICRO-FINANCING AS A STRATEGY FOR POVERTY ALLEVIATION IN NIGERIA

CHAPTER ONE

INTRODUCTION

1.1 Background of the study

Microfinance is the provision of financial services to lower-income populations, such as loans, savings, insurance, money transfers, and payment facilities (Awojobi, 2014). It may also be put to constructive use, such as investments, seeds, or extra operating cash for small businesses. It may, on the other hand, be used to cover immediate family expenses such as food, education, housing, and health care. Microfinance is a powerful instrument for impoverished people's economic empowerment and poverty alleviation (Ayoade & Agwu, 2015). Microfinance has evolved into a paradigm for making loans available to the poor, as well as a policy framework for governments, non-governmental organizations (NGOs), and international development organizations. Although, in Nigeria, the poor have been utilizing traditional ways to obtain financial services on their own, such as collective savings, "ajo," and "esusu." In assessing the effectiveness of microfinance banks in reducing poverty, Yahaya et al. (2011) point out that financial services for the poor were developed by Friedrich Wihlm Raiffeisen in the eighteenth century to combat the exploitation of poor people by money lenders, and the model quickly spread to other parts of the world. In his study of the origins of microfinance in Nigeria, Seibel (2003) recalls how revolutions in rural and microfinance have occurred. According to him, microfinance, rural and urban banking began in Germany 150 years ago as a form of self-help in an informal setting, with the first credit society established in Hamburg in 1778, the first community bank established in 1801 and the first urban and rural coop established in 1802. In the 1970s, microfinance was reformed as a development strategy for poverty alleviation. With Grameen Bank, Yunus pioneered the concept of micro-financing (Ayuub 2013). The Grameen bank claims that 5% of its customers live over the poverty line every year; nevertheless, a number of financial professionals have criticized the bank's high interest rate, implying that the bank is motivated by profit rather than the stated goal of providing low-interest loans to the poor. Seibel (2003) criticizes the notion of microfinance as a temporary measure for reducing poverty in developing countries, noting that each country has its own microfinance origins and that the notion that microfinance began in Bangladesh two decades ago is a myth, according to Seibel, who acknowledges that the “origin of microfinance to recent initiatives missed not only the microfinance but also the microfinance to recent initiatives missed not only the microfinance to recent Microfinance was created with the intention of providing loans to the underprivileged in order to help them escape the cycle of poverty. In certain developing nations, microfinance has been utilized to help people get out of poverty. Some academics, on the other hand, argue that microfinance does not alleviate poverty, but rather allows some microfinance customers to become bank debtors. Nigeria is the world's seventh biggest crude oil exporter, with over 70 million people living below the poverty line. Nigeria has no cause to remain poor, given the enormous income it has received from crude oil exports for over 40 years, since crude oil was first found in commercial quantities in Olobiri, Bayelsa state. Nigeria is a nation endowed with fertile land, oil and gas, people and material resources, a country that has all it needs to be a worldwide superpower, yet the opposite is true (Achimugu et al.,2012). Poverty in Nigeria would have been eradicated if the nation had made better use of its abundant natural resources. The introduction of the Structural Adjustment Programmes (SAP) in Nigeria in the late 1980s exacerbated the country's poverty; during this time, many people from the formal economy migrated to the informal economy as a result of retrenchment exercises carried out in most federal government establishments. The Structural Adjustment Programmes (SAPs) arrived in Nigeria in 1986 with the goal of strengthening the economy, but they failed miserably and contributed to the country's growing poverty. According to World Bank findings, rural areas are always associated with poverty. Oyeranti and Olayiwola (2005) provide a breakdown of rural poverty in Nigeria, stating that urban poverty increased from 3% in 1980 to 25.2 percent in 1996, while rural poverty increased from 6.5 percent in 1980 to 31.6 percent in 1996. According to the latest United Nations Development Programmes (UNDP) Human Development Index study in Nigeria, 68 percent of Nigerians live on less than $1.25 a day (UNDP, 2013). According to the federal government of Nigeria's vision 2010 committee report, poverty is defined as a state of deprivation or denial of basic choices and opportunities needed to enjoy a decent standard of living. Poverty can also be defined as a condition in which a person is unable to meet minimum requirements of basic needs such as food, health, housing, education, and clot. According to the World Bank and the Department for International Development (DFID), poverty is defined as individuals lacking access to resources, putting them in a state of despair, hopelessness, and precariousness, exposing them to economic shocks as a result of political, economic, and cultural marginalization (Acha, 2012). Because poverty is a global issue that is not unique to Nigeria, many international organizations, governments, and non-governmental organizations (NGOs) have been experimenting with ways to fight the global rise in poverty. In its millennium development summit in 2000, the United Nations proposed eight millennium development objectives, one of which was to eradicate extreme poverty and hunger from the globe. Other international agencies, such as the International Labour Organization (ILO), the United Nations Development Programme (UNDP), the Food and Agriculture Organization (FAO), and the Asian Development Bank (ADB), have developed poverty-fighting methods, yet poverty persists.

1.2 Statement of research problem

The collapse of the community banking program, as well as many prior government microfinance initiatives, was due to the difficulties they encountered. Many of these issues continue to plague microfinance banking. Microfinance banks in Nigeria have a number of challenges, one of which is the near lack of essential infrastructure. This absence of fundamental infrastructure exacerbates the banks' operating problems, which are already burdened by high operational expenses due to their type of business. Microfinance banks' transaction costs are often greater than those of traditional banks since they deal with a large number of small customers. Unfortunately, these institutions are also need to spend extra expenses in order to get power and water. The lack of adequate roads, particularly in rural regions, affects their reach. All of these factors combine to raise operating costs and put businesses at a competitive disadvantage. Another issue impeding the growth of microfinance banks is a lack of banking culture in rural regions and among the urban poor. Traditionally, these individuals borrow money from friends and family and return the same amount borrowed throughout the course of the loan, regardless of the length of time the loan is outstanding. As a result, they struggle to comprehend the concept of interest payments on bank loans. The research will go over all of this and more.

1.3 Objectives of the study

The primary objective of the study is as follows

1.     To find out the causes of poverty in Nigeria.

2.     To find out if micro financing  has helped in the alleviation of poverty in Nigeria.

3.     To find out how to improve on micro financing in other to help reduce poverty in Nigeria.

1.4 Research Questions

1.     What are the causes of poverty in Nigeria?

2.     Has micro financing helped in the alleviation of poverty in Nigeria?

3.     How can micro financing be improved in other to help reduce poverty in Nigeria?

1.5 Significance of the study

The significance of this study cannot be underestimated as:

l  This study will examine Evaluation Of Micro-Financing As a Strategy For Poverty Alleviation In Nigeria

l  The findings of this research work will undoubtedly provide the much needed information to government organizations,micro finance banks and academia.

1.6 Scope of the study

This study examines evaluation of micro-financing as a strategy for poverty alleviation In Nigeria. Hence selected micro finance banks in Lagos  state will be used as case study

1.7 Limitations of the study

This study was constrained by a number of factors which are as follows:

 just like any other research, ranging from unavailability of needed accurate materials on the topic under study, inability to get data

Financial constraint , was faced by  the researcher ,in getting relevant materials  and  in printing and collation of questionnaires

Time factor: time factor pose another constraint since having to shuttle between writing of the research and also engaging in other academic work making it uneasy for the researcher

1.8 Operational definition of terms

Micro finance:  a type of banking service provided to unemployed or low-income individuals or groups who otherwise would have no other access to financial services

Strategy: a plan of action designed to achieve a long-term or overall aim.

Poverty alleviation: a set of measures, both economic and humanitarian, that are intended to permanently lift people out of ‎Employment

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