Abstract

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

INTRODUCTION 

• 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). Throughout the world, poor people are excluded from formal financial system. Exclusion ranges from partial exclusion in developed countries to full or nearly full exclusion in Less Developed Countries (LDCs). Absent access to formal financial services, the poor have developed a wide variety of informal community based financial arrangement to meet their financial needs. Microfinance is created to fill this gap (Irobi, 2008). Microfinance pertain to the lending of small amount of capital to poor entrepreneurs in order to create a mechanism to alleviate poverty by providing the poor and destitute with resources that are available to the wealthy, alert at a small scale. According to Anyanwu (2004), microfinance bank is not just providing capital to the poor, but to also combat poverty at an individual level, it also has a role at institutional level. It seeks to create institutions that deliver financial services to the poor, who are continuously ignored by the formal banking sector. In Africa and other developing regions, microfinance institutions (MFIs) are regarded as the main source of funding micro enterprises (Anyanwu, 2004). Formal credit and savings institutions for the poor are also available around the globe providing customers who were traditionally neglected by commercial banks a way to obtain financial services through cooperative and development finance institution. Suffice it to say that the unwillingness or inability of the formal financial institutions to provide financial services to the urban and rural poor, coupled with the unsustainability of government sponsored development financial schemes contributed to the growth of private sector-led microfinance in Nigeria. The gap filled by microfinance institution has made become part of the formal financial system of a country and so can access capital market to fund their lending portfolios, allowing them to dramatically increase the number of poor people they can reach. The, importance of microfinance is to eradicate poverty, made the Federal Government of Nigeria adopted it as the main source of poverty reduction in Nigeria and mandated the CBN to develop appropriate policy and framework for the operations of MFIs. Despite this, however, the number of beneficiaries of microfinance banks is an insignificant proportion of the people in need of microfinance services. It has been estimated that formal microfinance bank only services less than one million clients in a county where over 70% of the country population of 140 million lives below poverty line (Irobi, 2008).

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:

i What are the roles of microfinance banks on poverty reduction in Port Harcourt town?

ii How does SEEDVEST microfinance bank extend financial services and credits to beneficiaries?

iii 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:

i To determine the impacts of microfinance banks on poverty alleviation in Port Harcourt town.

ii To trace how SEEDVEST microfinance bank extend micro-financial services to customers or recipients.

iii 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

iii. 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

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

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