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

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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................................8 

CHAPTER 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....................................     67  

CHAPTER 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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