Assessment Of Microfinance Bank On Poverty Alleviation In Nigeria

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Assessment Of Microfinance Bank On Poverty Alleviation In Nigeria


This study is focused on the identification of critical factors that cause poverty in Nigeria and the investigation of the extent to which microfinance institutions have helped in the alleviation of poverty. To identify the critical factors, the researcher adapts the data on reasons for poverty generated by National Bureau of Statistics and employed the method of factor analysis. For the purpose of investigating the contribution made by the microfinance institutions in poverty reduction, the researcher uses the method of chi-square analysis which is found to be most appropriate in explaining the variations between the two variables.

Chapter One


1.1 Background of the Study

Microfinance has gradually developed to be a worldwide movement, no longer being a subject matter of microfinance practitioners alone. Governments, donors, development agencies, banks, foundations, corporations, business communities, civil societies, researchers, universities, consultants, philanthropists and others are taking an increasing interest in it (Sale Huddin and Hukinil, 2004).

The increasing level of acceptance of microfinance among the various groups of stakeholders worldwide presents the following questions: is microfinance becoming popular because it is a good business to make money or is it a powerful tool to fight poverty or is it because of both (Annibale and Bob: 2006). Since the concept was born is Bangladesh almost three decades ago, microfinance has proved its values in many countries, as a weapon against poverty and hunger. It really can change people’s live for the better, especially the lives of those who need it most (Ashmawians El-fouadh: 2006) it has been evidenced worldwide that microfinance helps the poor to overcome poverty and not through charity. It is a financial system that serves the poor with financial services in a most effective and productive way.

The experience of many microfinance institutions so far strongly suggests that it is possible for the institutions to reach the goal of serving people in extreme poverty without having to sacrifice their profitability. This is mostly because microfinance is designed with the poor in mind, while at the same time being founded on market principles of competitiveness, pricing and sustainability. There is nothing wrong in earning money while serving the poor, as long as earning money does not become the prime or the only goal of microfinance providers. Microfinance institutions throughout the developing world are proving small loans to the poor for self-employment and providing to be sustainable enterprises in the fight against poverty (Daley – Harris: 2006).

The global picture regarding microfinance outreach is quite impressive from a mere 7.6million poorest families in 1997, the micro-credit of more than 92million clients by December 31, 2004, this number includes 66.6million families who were among the poorest when they started with a program (Adams and Ivatury: 2004): of these 66.6million poorest clients, 55.7million or 83.6% were served by the 52 largest individual institutions, all with 100,000 or more clients. Among these largest microfinance institutions, 79% is in Asia, 17% are in Africa and only 4% are in Latin America.

Robust economic growth cannot be achieved without putting in place well focused programmes to reduce poverty through empowering the people by increasing their access to factors of production, especially credit. The latent capacity of the poor for entrepreneurship would be significantly enhanced through the provision of microfinance services to enable them engage in economic activities and be more self-reliant, increase employment opportunities, enhance household income and create wealth.

On July 1, 2001, Nigeria joined the ranks of developing nations adopting laws and policies to regulate the microfinance sector. Under the new microfinance policy of the Central Bank of Nigeria, community bank and microfinance institutions must increase their capital base from 5million naira (approximately 42,000 USD) to 20million naira (approximately 169,000 USD). The purpose of this policy is to create microfinance banks that are financially sound, stable, self-sustaining and integral to their communities with potential to attract more customers.

Microfinance is about proving financial services to the poor who are traditionally not served by the conventional financial services, the federal government through the Central Bank of Nigeria established community banks in every locality.

A reversal of that led to the establishment of microfinance banks to replace them, which is now better constituted and equipped to function. The SEEDVEST microfinance bank is an example of one of these micro-financial services institutions committed to poverty reduction within its jurisdiction.

1.2 Statement of the Problem

In envisioning the future of microfinance, it is important to know the rationale for microfinance movement. Poverty focused microfinance came into existence as a private initiative growing almost unnoticed through process of learning by doing.

The global concern for the level of poverty in Africa is well known to all. Africa is have lest hit by the crippling problems of chronic hunger and malnutrition. The great concentration of poverty is sub-Saharan African which is also a matter of concern for all. Despite such disappointing facts, microfinance in Africa is growing. A broad range of diverse institutions offers financial services to low income clients in Africa. These include non-government organizations, non-bank financial institutions, co-operatives, credit unions rural banks, Rotating Savings and Credit Associations (ROSCA), postal financial institutions, and increasing number of commercial banks.

When the present administration came into office on the 29th May 1999, it paid attention to poverty reduction. During the regime preceding this administration, the World Bank tried to focus on poverty reduction in Nigeria and so commissioned a study on poverty assessment in Nigeria. The study not only profiled poverty but also established quantitatively the trend of poverty encroachment to development from 1980 to 1986. the study showed that poverty level in Nigeria has been extremely high, with about two thirds of the population living below poverty line (Akanji, 2008). Consequently, mainframe economic though established that to conquer poverty requires action at the local, National and global levels to expand poor people’s opportunities empower them and increase their security.

This study aims to establish the need to empower the poor, which has been estimated to be on the increase through the operation of microfinance banks as a strategy for poverty reduction. This study intends to address the following questions:

  1. What are the roles of microfinance banks on poverty reduction in Port Harcourt town?
  2. How does SEEDVEST microfinance bank extend financial services and credits to beneficiaries?
  3. What are the impediments to micro-financial services faced by SEEDVEST microfinance bank?

1.3 Objectives of the Study

The broad objective of this study is to estimate the role of microfinance banks on poverty alleviation with a special focus on SEEDVEST microfinance bank.

The specific objectives shall include:

  1. To determine the impacts of microfinance banks on poverty alleviation in Port Harcourt town.
  2. To trace how SEEDVEST microfinance bank extend micro-financial services to customers or recipients.
  3. To evaluate the likely obstacles to micro-financial services faced by SEEDVEST microfinance bank in the discharge of their duties.

1.4 Hypotheses

The research hypotheses of the study are:

H0: SEEDVEST microfinance bank does not play any significant role in poverty reduction in Port Harcourt town

H1: SEEDVEST microfinance bank play significant role in poverty reduction in Port Harcourt town.

H0: SEEDVEST microfinance bank does not extend financial services and credits to potential beneficiaries.

H2: SEEDVEST microfinance bank extends financial services and credits to potential beneficiaries.

H0: There are no impediments to the discharge of micro-financial services by SEEDVEST microfinance bank

H3: There are impediments to the discharge of micro-financial services by SEEDVEST microfinance bank.

1.5 Importance And Relevance of the Study

Poverty is a hydra-headed social and economic problem facing Nigeria for nearly half a century with diverse and far reaching implications for current and future generations. Likewise, efforts at stemming the tide have also been crucial among policy makers and the concerned authorities.

Microfinance is about providing financial services to the poor who are traditionally not served by the conventional financial institutions. Three features distinguish microfinance from other formal financial products. These are:

  1. The smallness of loans advanced and or savings collected.
  2. The absence of asset-based collateral and
  3. Simplicity of operations.

To this end this study is relevant and important to the extent that it explores the nature of micro-financial services available in microfinance banks. The study shall equally illuminate the derivable benefits from micro-financial services are well as acts as guide to scholars and commentators whose basic interest is in microfinance banks in Nigeria.

1.6 Limitation and Scope of the Study

This study is limited to the roles of microfinance banks on poverty alleviation in Nigeria: a case study of SEEDVEST microfinance bank. The analysis touched on both the focus point as well as national impacts.

In another vein, there were limitations encountered in the process of undertaking this study which include:

(a) Availability of Research Material:

The research material available to the researcher is insufficient thereby limiting the study.

(b) Time:

The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.

(c) Finance:

The finance available for the research work does not allow for wider coverage as resources are very limited as the researcher has other academic bills to cover.

1.7 Operational Definition of Terms


Microfinance initially had a limited definition – the provision of microloans to poor entrepreneurs and small businesses lacking access to banking and related services.

Microfinance Bank

A Microfinance bank is any company licensed by the Central Bank of Nigeria (CBN) to carry on business of providing microfinance services such as savings, loans, domestic funds transfer, and other financial services that are needed by the economically active poor, micro, small and medium enterprises to conduct or expand their businesses as defined in the guideline for MFB in Nigeria.

Poverty Alleviation

Poverty reduction, or poverty alleviation, is a set of measures, both economic and humanitarian, that are intended to permanently lift people out of poverty

1.8 Organization of the Study

This research work is organized in five chapters, for easy understanding, as follows

  • Chapter one is concern with the introduction, which consist of the (overview, of the study), statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study.
  • Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature.
  • Chapter three deals on the research design and methodology adopted in the study.
  • Chapter four concentrate on the data collection and analysis and presentation of finding.
  • Chapter five gives summary, conclusion, and recommendations made of the study

Chapter Five

Summary, Conclusion and Recommendation

5.1 Introduction

It is important to ascertain that the objective of this study was on assessment of microfinance bank on poverty alleviation in Nigeria.

In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges microfinance banks and poverty alleviation in Nigeria.

5.2 Summary

This study discussed the Assessment of Microfinance Institutions as poverty reduction mechanism in Nigeria. The main achievement of proper management of Microfinance Institutions has been stimulating economic growth by strengthening the Small and medium Scale Enterprises (SMEs) and has also brought savings orientation to the people at the grass root. Moreover, at an aggregate level, microfinance services are means of broadening economic participation to include marginal groups that have been left out previously, which makes microfinance institutions effective and thereby have impact on the Nigerian economic development by its ability for poverty reduction as revealed by the result of the analysis. The result also revealed that Microfinance Institutions have played vital roles on the Nigerian economy by providing diversified, affordable, and dependable financial services to the active poor in a timely and competitive manner, which has the active poor to undertake and develop small, medium, and long time sustainable entrepreneurial activities, mobilising savings for financial intermediation,(at their own level), create employment opportunities and also increase their productivity in the economic unit of the country. The Development Finance Institutions (DFIs) tried to bridge this gap created by the aparthy from conventional banks, which was equally inhibited by the drastic reduction in government subventions to them in the 1990s when their operations declined considerably. The FDIs were restructured in the early 2000s to equip this economic sub-unit to be able to cope with entrepreneurial finances more vigorously. We therefore concluded that microfinance is a vehicle for savings mobilization, as it has provided affordable channels of funding for the people, mostly women, in the rural areas and influenced a great deal in their activities and standard of living, with its positive effect on poverty reduction in Nigeria which has helped the desire for macro-economic growth and development.

5.3 Conclusion

The study found that access to formal financial services increases with level of respondents’ income in rural areas and also most of the variables that were examined indicated a very high probability of reducing poverty. It could therefore be concluded that enhancing access to formal finance especially credit has a high likelihood of reducing poverty in rural areas. The implication of this study is that the federal government of Nigeria and financial institutions in the country should take up the challenge of establishing bank branches in the rural areas or make formidable arrangement for supplying more credit to the rural dwellers. This study suggests that group lending strategy of Grammen Bank of Bangladesh could be copied since the bank recorded very low default rate. This is based on the premise that the government policy priority is poverty reduction.

5.4 Recommendations

In view of the findings from this work, the following recommendations aiming at promoting and furtherenhancing microfinance activities and the trend of input made by this sub sector of the economy were made:

  1. Proper Administration and Management of Microfinance Institution services.
  2. Central Bank of Nigeria (CBN) should put in place more effective control of Microfinance Institutions in Nigeria
    Central Bank of Nigeria (CBN) should ensure that Microfinance banks are not hijacked by the money bags in order not to deprive the rural dwellers and the poor from having access to funding.
  3. The monetary authorities: The Central Bank of Nigeria (CBN), and the Nigeria Deposit Insurance Corporation (NDIC) to ensure more effective management and control of Microfinance banks to prevent abuses by their proprietors,
  4. Any erring proprietor of any Microfinance bank and any of their staff that are involved in malpractice must be duly prosecuted and sanctioned, without an option of fine.
  5. For effective and sustainable poverty reduction, Microfinance should be made to be more viable by creating more outreach and depth. Microfinance policies must be carefully implemented by the monetary authorities.
  6. Basic infrastructures must be provided by the government to enhance appreciable improvement in the quality of life of the rural dwellers in particular and the generality of the people. Proper enlightenment programmes to be put in place to sensitize the people in order to capture more people into the scheme.
  7. Adequate domestic entrepreneurial capacity must be put in place by government to facilitate rapid expansion of microfinance industry.

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