PARTICIPATION IN MICROCREDIT AND POVERTY ALLEVIATION IN NIGERIA

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The provision of and participation in microcredit is increasingly assuming international

recognition as an effective strategy towards alleviating poverty. This is as a result of
failure of macroeconomic policies to checkmate the rising trend of poverty particularly
in developing countries.
The global picture regarding microfinance outreach is quite impressive (Latifee, 2006).
A breakdown of the figure shows a steady increase from 7.6 million in 1997 to 92 million
in 2004 (Microcredit summit, 2005). Of the 92 million reported, 81.5 million were in
Asia, 7 million in Africa and 3.8 in Latin America and the Carribean (Microcredit
summit, 2005). In spite of impressive outreach reported elsewhere as indicated above,
the situation in Nigeria leaves much to be desired.
Government in Nigeria had in the past succeeded in initiating and implementing various
microcredit programs with the aim of providing small loans to the economically active
poor segment of society as a way of alleviating poverty. Between 1986-1999 such
programs as Agricultural Development Program (ADP), National Directorate of
Employment (NDE), Better life for Rural Dwellers and the Directorate of Foods, Roads
and Rural Infrastructure were pursued. Others were the Rural Banking Scheme (19771990), The peoples Bank of Nigeria (1987-1999) and Community Banks (1999-Date)
(Akanji, 2002). However, with the drastic reduction in government subvention to them
in 1990's, their operations reduced drastically and by 1999, they all ceased operating, as
all of them depended mainly on Government funding (Mohammed and Hasan, 2008).

With the implementation of the National Microfinance Policy and supervisory

framework in 2005, and as of 2009, there are more than 900 registered microfinance
institutions across the country (CBN, 2009). Available statistics indicates that the
formal Microfinance institutions in Nigeria only service less than one million clients in a
country where over70% of the country's population of 140 million live below poverty

line (Felix and Adamu, 2007). However, the formal financial system provides services to
about 35% of the economically active of Nigeria's 140 million people, while the
remaining 65% are excluded from access to financial services (CBN, 2007).
Considering the rate of coverage by microfinance institutions in relation to the number
of people requiring credit services, the number of beneficiaries is insignificant. It is
against this backdrop that the Central Bank of Nigeria lamented on poor participation of
the targeted economically active poor in microfinance particularly in Northern states of
the federation.(Matias, 2008).
STATEMENT OF PROBLEM
As the issue of poverty continued to be a recurring problem particularly in developing
countries, there is increasing debate among governments and scholars as to the
effectiveness of successive methodologies/ strategies being employed towards
addressing poverty. One of the strategies which since early 70's being popularized as a
result of its successes in most countries around the globe, is the participation in and
provision of microcredit. Microfinance is increasingly used as a grass-root instrument
for alleviating poverty and improving the poor's access to financial services (Grameen
Bank, 2005). Moreover, microcredit is a "proven way to help families move out of
poverty ( Microcredit summit, 2005).
Besides empirical evidences emerging from different studies indicating the positive
effects of participation in microcredit towards poverty alleviation, there are however,
other studies that indicates negative effects of participation in microcredit in up-lifting
the living standards of participants.
In a study carried out in Bangladesh, using a sample drawn from 29 randomly selected
districts that have microcredit programs in operation for at least three (3) years,
findings of the study revealed that participation in microcredit programs improves the
ability of members to withstand aggregate shocks that cause seasonal consumption
changes (Menon, 2006). Similarly, in another study conducted in India to assess the
impact of participation in microcredit using household as unit of analysis, also
concluded that the group based microcredit impacted the client household positively in
the increase of income assets position, savings and literacy and in the reduction of
migration (Panda, 2009)

The escalation of microcredit and microfinance institutions throughout the developing

world has resulted in a boost of growth in some rural communities, providing benefits in
terms of rural entrepreneurship, growth, income enhancement, poverty reduction and
increased food security and livelihoods (Kalum and Kong, 2007)
In spite of successes recorded in some instances on the provision and participation in
microcredit as an effective strategy for poverty alleviation, it is also argued that the
results cannot be generalized due to the heterogeneous nature of societies or programs
within which a program or project operates. Microfinance may even constitute a new
and powerful form of poverty (Bateman and Chang, 2008).
Using same data as Khandker did to suggest the positive impact of participation in
microcredit in improving the the living conditions of participants, Morduch uses a
cross-sectional survey with households that participated in the Grameen Bank, BRAC
and BRDB. He also uses control groups from areas that are not served by microfinance
programs. The findings of the study differs from that of Khandker in that he did not find
any evidence that participation in microcredit programs increases the consumption
levels or increase in register of education compared to control groups as suggested by
Khandker's study. He also found out from his study that many borrowers use the money
for buying land instead of completing their projects (Morduch, 1998). Another criticism
of participation in microcredit was put forward by Nijera Kori. Nijera Kori is a well
known NGO in Bangladesh that is critical of microfinance and declared that "We don't
do credit" (Kabeer, 2002a). their criticism against microfinance is that participants are
easily set in a trap because of the loans. The trap consist of dependence on taking
further loans to repay the initial loans. Other criticism is that microfinance institutions
demand from their participants to attend in certain activities to access the loans. This
also becomes an obstacle for the women to participate in other important socialcommunity processes (CGAP, 2006).

Microfinance institutions suffer from weak management structures and high overhead
costs or otherwise are poorly run, are heavily subsidized or undercapitalized, operate
from a social service rather than business perspectives, suffer from high default rates, or
fail to target the poor. Thus, a large number of microcredit institutions have failed to live
up to their promise of "including the excluded" (Woller and Woodworth, 2001). While

hinging on effective participation in microcredit programs, these identified barriers also

renders microfinance institutions handicapped in delivering services to the targeted
poor.
Nigeria being a developing country and the most populous nation in Sub-Sahara Africa,
equally has the highest poverty rate. According to results of 2006 National census, the
country has a population of 140 million people. Half of this figure i.e 70 million people
live below poverty line. Out of this 70 million Nigerians living below poverty line, 72%
are spread across the 19 Northern states compared to 43% recorded in the 17 Southern
states. This is an indication that the incidence of poverty is more prominent in the
Northern states of the federation. (Kpakol, 2009).
Based on increasing rate of poverty in the country, necessitated the government in
initiating and implementing various microcredit programs with the aim of addressing
the problem. However, with the drastic reduction in Government subventions to them
in the 1990's, their operations reduced drastically and by 1990, they all ceased
operating, as all of them depended mainly on Government funding (Mohammed and
Hasan, 2008)
With the failure of Governments' Top-Down approach towards provision of microcredit
to the poor led to the implementation of national microfinance policy and regulatory
framework under the supervision of the Central Bank of Nigeria in 2005. As obtained in
other countries, it is largely driven by both formal and informal sector. The
implementation of the new policy saw the emergence of more than 900 registered in the
country (CBN, 2009). A recent study reveals that the formal microfinance institutions in
Nigeria only service less than one million clients, in a country where over 70% of the
country's population of 140 million live below poverty line (Felx and Adamu, 2007).
Additionally, the formal financial system provides services to about 35% of the
economically active of Nigeria's 140 million people, while the remaining 65% are
excluded from access to financial services. This 65% are often served by the informal
financial sector, through non-governmental organizations and microfinance institutions
(CBN,2006). Based on the available statistics on the participation of the economically
active poor Nigerians in microcredit programs, it is obvious that a significant portion of
the economically active poor are excluded or do not have access to microcredit services
particularly in the northern part of the country as recently lamented by a former

central bank governor (Soludo, 2008).

Despite the importance and increasing need of microcredit as indicated by the number
of clients covered by microfinance institutions and also considering the high incidence
of poverty in Nigeria, there are only few studies that have examined the effects of
participation in microcredit and its resultant effects on poverty alleviation. Studies
carried out particularly on the effects of participation in microcredit, concluded that
participation in microcredit improves the living conditions of Obazu Progressive
Women Association in Eastern Nigeria (Irobi, 2008). Another study conducted on the
beneficiaries of Farmers Development Union (FADU) microcredit loans in Ibadan Oyo
state revealed that the income obtained by beneficiaries as a result of participation in
FADU microcredit is more than the threshold income of $1:00 per day for the poverty
line by the World Bank, in which case, the beneficiaries are above poverty line; although
they were mostly below poverty line before their involvement in the program. We can
safely assert that microcredit program has enhanced the income level of the
beneficiaries, bringing them out of poverty (Adeolu and Taiwo, 2004).
As pointed out earlier, there are few literatures focusing on the effects of participation in
microcredit as a means of alleviating poverty. Conclusively most of these studies are
suggesting positive impact as a result participation in microfinance depending on the
context and the variables examined. However, of interest to note also is that almost all
available literature on Nigerian microfinance is carried out in the Eastern and Western
states of the federation where previous studies indicates higher concentration of
microfinance institutions in operation. It is against this backdrop that the present study
seeks to focus on the perception of beneficiaries of microcredit towards microcredit in
Northern Nigeria. The study will also investigate the barriers towards effective
participation in microcredit.

The choice of beneficiaries in Northern Nigeria is particularly informed by the fact that
previous have indicated poor participation in microcredit in the North and more
importantly, it is the region among the three regions of the federation that recorded
higher incidence of poverty.
RESEARCH QUESTIONS

Consequent upon poor participation of economically active poor in microcredit

programs in Nigeria, the study seeks to answer the following questions;
What is the general perception of beneficiaries in Northern Nigeria towards
microfinance.
In way(s) does microcredit improves their living conditions.
To examine barriers towards effective participation in microcredit programs.