1. finance
2. bank

GLOBAL LABOUR UNIVERSITY, GERMANY
PERCEPTION OF MICROCREDIT SCHEMES ON GROWTH AND DEVELOPMENT
IN INFORMAL SECTOR OF NIGERIA ECONOMY: A STUDY OF SELECTED
SMALL-MEDIUM SCALE ENTERPRISES (SMEs) IN LAGOS STATE, NIGERIA.
Name of Student:
GENTY, KABIRU ISHOLA
Martikel Number:
352871.
Master’s Thesis
Submitted in partial fulfilment for the degree of
“Master of Arts” in Labour Policies and Globalisation
Supervisor: Prof. Dr. Herr Hansjorg
15th September, 2012.
i
Statutory Declaration
I herewith formally declare that I myself have written the submitted dissertation
independently. I did not use any outside support except for the quoted literature and
other sources mentioned at the end of this paper.
I clearly marked and separately listed all literature and other sources which I
employed in producing this academic work, either literally or in content.
I am aware that the violation of this regulation will be penalised.
Genty Kabiru Ishola
----------------------------------Student Name
-------------------------Student’s Signature
352871
September 15, 2012
----------------------------------Student Number
------------------------Date
ii
DEDICATION
This Dissertation is dedicated to my late parent, Chief T.A Genty and Madam S.A
Genty who have given me a decent education before their death. And to Mr Tunde
Genty and Mr Toyin Rasheed (Germany) for their endless supports.
iii
ACKNOWLEDGEMENT
I owe a huge debt of gratitude to my indispensable dissertation supervisor, Prof., Dr
Herr Hansjorg. This work has benefited immensely from his wealth of knowledge,
constructive criticisms and invaluable suggestions. I thank you a lot for your
understanding and painstaking supervision.
I must acknowledge the help rendered by many of my lecturers, past and present
whose from vest experience I have gained tremendously. I am highly indebted to
professor S.O Fajoyomi, Dr Femi Adeyeye, Dr Y.A Dauda, Dr(Mrs) T.M Fapohunda,
Dr oyedijo, Dr Ayantunji and Dr Bankole A.R for lighting my path and giving me the
opportunity of starting a career in this very excising field of human endeavour.
I am also grateful to the management and staff of the selected SMEs and the MFIs
for their assistance and cooperation in the execution of this project. My appreciation
also goes to all my senior colleagues in the department of Industrial Relations and
personnel Management, Lagos State University for their understanding and words of
encouragement.
Furthermore, I wish to acknowledge the inspiration I got particularly from Prof., Dr
Christoph Scheer, Prof., Sakela Bunlungun, Prof., Frank Ficher, Simeone, Prof., Dr
Micheal Fisher, Dr Martina Sproll, Prof., Dr Helen, Dr Claudia, Ms Dorothee and all
my course mates in the Global Labour University.
Similarly,I cherish the encourage and contributions of my brothers and sisters who
pave the way by providing for the crucial foundation. My sincere thanks also goes to
my wife Mrs Bolanle Genty and kids master Oluwadamilola Genty and
Oluwasunmisola Genty for their “affection” and words of encouragement.
Nothing can be achieved without the wish of the Almighty Allah. To Allah goes all the
glory and greatest thanks. While I owe so much to my friends Atiku, Ganiu, Karim ,
Goodday, Mcharo, Lanre, Sheriff and host of others for this work, unfortunately, I
alone assume responsibility for all errors.
GENTY KABIRU ISHOLA.
SEPTEMBER, 15TH 2012.
iv
TABLE OF CONTENT
Title page
i
Statutory Declaration
ii
Dedication
iii
Acknowledgement
iv
Table of contents
v-vii
Abbreviation
viii-ix
List of Table
x
List of Figures
x
CHAPTER ONE
INTRODUCTION
1.1
Background of the Study
1-3
1.2
Statements of the Problem
3-5
1.3
Objectives of the Study
1.4
Research Questions
1.5
Research Hypotheses
1.6
Significance of the Study
6-7
1.7
Scope and Limitations of the Study
7-8
1.8
Operational Definition of Terms
8-9
1.9
Organisation of the Study
9-10
5
5-6
6
CHAPTER TWO
REVIEW OF RELATED LITERATURES AND THEORETICAL FRAMEWORK
2.1
Introduction
11-12
2.2
Conceptual Clarification
12-14
2.3
Microcredit Sources and mode of operation
14-18
2.4
Criteria for Measuring Microcredit performance
via Economic Growth and
Development
18-25
2.4.1 Poverty Reduction
18-20
2.4.2 Employment Generation
20-23
v
2.4.3 Economic Empowerment
23-24
2.4.4 Economic Well-beings
24-25
2.5
Microcredit an Antidote to Business/Financial Development
And Poverty Reduction
25-29
2.6 The Relationship Between Microcredit schemes and other
Social Protection Packages
29-31
2.7 MDGs Agenda and Microcredit Schemes towrads Global poverty
Reduction: Success or Failure?
31-32
2.8 Approches to measure the benefits of Microfinance and parameter
For outreach to the target group
32-34
2.8.1 Branch Expansion to undeserved clients
(Equity Bank of Kenya Experience)
33
2.8.2 Promotion of Gender Equality
2.9
(Experience from Ghana Sinai Aba Trust)
33-34
Theoretical Framework
34-37
2.10 Microfinance Institutions and Policies to Promote Social
Inclusion of Vulnerable groups.
37-38
2.11 Historical Development of Microcredit in Nigeria and the
Main Actors
38-41
2.12 Empirical Evidence of Microcredit schemes in other
Sub-Saharan Africa countries.
41-43
2.13 Challenges of Microcredit Schemes as a strategy towards
Economic Growth and Development in Africa Region
43-46
2.14 What can be done to make Microcredit schemes successful in
Africa Continent.
46-47
CHAPTER THREE
RESEARCH METHODOLOGY
3.1
Introduction
48
3.2
Research Design
48
3.3
Population of the Study
48-49
3.4
Sampling Design and Procedure
49-50
3.5
Data Collection Instrument
50
3.6
Administration of Data Collection Instrument
51
3.7
Method of Data Analysis
51-52
vi
3.8
An Overview of the Field Work
52
3.9
Response Rate
52-53
3.10 Limitations of Methodology
53
SECTION B
3.11
Nigeria Modes of operandi of Microcredit schemes for Small-Medium
Scale Enterprises (SMEs) Development
3.12 Microcredit Schemes and Nigeria Microfinance Institutions (MFIs)
53-54
54-56
3.13 Nigeria Government Reforms towards SMEs‘ Enhancement for
Economic Growth and Development.
56-59
3.14 The Challenges of Microcredit Schemes in Nigeria
59-63
3.14.1 Outreach Limitation
59-60
3.14.2 Low Regulatory Mechanism
60-61
3.14.3 Limited Fund for the real Sector
61
3.14.4 Low level of Financial Sustainability
62-63
CHAPTER FOUR
PRESENTATION AND ANALYSIS OF DATA
4.1
Introduction
64
4.2
Analyses of Respondents Demographic and
Occupational Characteristics
4.3
64-68
Perception Of The SMEs Owners‘ on the impact of Microcredit
Schemes in Nigeria informal Sector Growth and Development.
68-73
4.4
Test of Hypotheses
73-79
4.5
Discussion of Findings
79-81
CHAPTER FIVE
SUMMARY, CONCLUSIONS AND RECOMMENDATIONS
5.1
Summary
82
5.2
Conclusions
82-83
5.3
Recommendations
84-85
5.4
Suggestions for Further Studies
85
Bibliography
86-91
Appendix
92-98
vii
Abbreviations.
AIDS-
Acquired Immunedeficiency Syndrome
A’Level- Advanced level
ACIB-
Associate of Chartered Institute of Banker
AMNIM- Associate Member Nigeria Institute of Management
BOI- Bank of Industry
BID- Bangadesh Institute of Development
B.sc- Bachelor of Science
CBN- Central Bank of Nigeria
CBs- Community Banks
DFIs- Development Finance Institutions
DRC- Democratic Republic of Congo
ECA- Europe and Central Asia
FDI-
Foreign Direct Investment
FEAP- Family Economic Advancement Program
GDP- Gross Domestic Product
GNP- Gross National Product
GCE- General Certificate of Education
HDI-
Human Development Index
HIV-
Human Immunedeficiency Virus
HDI-
Human Development Intiative (NGO in Nigeria)
HND- Higher National Diploma
ILO-
International Labour Organisation
ICAN- Institute of Chartered Accountant of Nigeria
LEEDS- Local Government Economic Empowerment Development Strategy
LAC- Latin America and the Caribbean
M.B.A- Master od Business Administration
M.Sc- Master of Science
MDGs- Millenium Development Goals
MFIs-
Microfinance Institutions
MNCs- Multinational Corporations
MSMEs- Micro, Small and Medium Enterprises
MFBs- Microfinance Banks
NSITF- National Social Insurance Trust Fund
viii
NHIS- National Health Insurance Scheme
NAPEP- National Poverty Eradication Program
NEEDS- National Economic Empowerment Development Strategy
NGSs-
Non-Governmental Organisations
NACRDB- Nigerian Agricultural Cooperative and Rural Development Bank
NCE-
National Certificate of Education
NACB-
Nigerian Agricultural and Cooperative Bank
O’Level- Ordinary level
OND-
Ordinary National Diploma
PBN-
People’s Bank of Nigeria
ROSCAs- Rotating Savings and Credit Associations
SAP-
Structural Adjustment Program
SSA-
Sub-Saharan Africa
SMEs- Small- Medium Scale Enterprises
SMIs-
Small and Medium Industries
SEEDS- State Economic Empowerment Development Strategy
SMIEIS- Small and Medium Industries Equity and Investment Schemes
SMEDAN- Small and Medium Enterprises Development Agency of Nigeria
UN-
United Nations
UNDP- United Nations Development Programs
USAID- United State Agency for International Development
VPF-
Vistual Poverty Fund
WB-
World Bank
WASC- West Africa Secondary Certificate.
ix
List of Tables
Table 1: Sample of the SMEs/divisional Distribution.
Table2: Sex Distribution of the Respondents.
Table 3: Age Distribution of the Respondents.
Table 4: Marital Status of Respondents.
Table 5: Educational Qualification of the Respondents
Table 6: Year of the Respondents in SMEs Operations.
Table 7: Sources of Fund for SMEs Operation in Nigeria
Table 8: Tax rate distribution of the Respondents to Government
List of Figures.
Figure 1: Nigeria Poverty Rate compare to other Sub-Saharan Africa Countries
between 1975 to 2004.
Figure 2:
Regional Breakdown of Microfinance Data and provision for Coverage.
x
CHAPTER ONE
INTRODUCTION
1.1
Background of the study
Nowadays countries performance is measured in connection with economic growth
and development whereby poverty reduction becomes the main criteria for
assessment. That is, “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” (CBN, 2005:5).
Therefore, “improving the living conditions of poor people is fast becoming the new
yardstick by which the advancement of the world is measured” (Odigie, 2007:10).
Data revealed by World Bank (2000) through Human Development Index (HDI) and
other economic indicators shown that Nigeria is one of the countries of the world that
has greater number of poor people. The statistics on human development and social
provision further reveal that the population of Nigeria is increasingly becoming one of
the poorest in the world. This is so because, in Nigeria, the formal financial system
provides services to about 35% of the economically active population while the
remaining 65% are excluded from access to financial services (CBN Report, 2005:5)
while these exclusive groups were predominantly poor in the baseline of the societies
and are seriously living in abject poverty.
According to World Bank (2011) a person with a daily income of under US $1.25 is
regarded extremely poor, while (Ravallion and Badani, 1994 cited in Odigie, 2007:
14) refer to “poverty as a situation of inadequate level of consumption giving rise to
insufficient food, clothing and shelter”. However, Poverty is measured and defined in
quantitative terms and comprehends two dimensions: extreme poverty and poverty
(Obst, 2011:4). United Nations through the MDGs1 number one agenda out of the
eight goals is to eradicate extreme poverty and hunger. This with the means to
respond to the needs of the poor and tackle poverty via microcredit in recent times
has played a dominant form of strategy intervention. According to UN, the resultant
effect will reduce inequality of every society, create harmonious co-existence and
1
The eight MDGs: Eradicate extreme poverty and hunger; Achieve universal primary education; Promote
gender equality and empower women; Reduce child mortality; Improve maternal health; Combat HIV/AIDS,
malaria, and other diseases; Ensure environmental sustainability; Develop a Global Partnership for
development.
1
promote economic growth where globalisation can easily be enhanced through the
provision of social protection packages and other social missions as a complement.
International Labour Organisation (ILO) agreed with this assertion and suggested
that a proper social protection policy should be developed by member states in order
to ensure social stability and reduce poverty, in line with the objectives of the
Millennium Development Goals and the Decent work Agenda. Nigeria has a member
state of UN developed a national development policy in this direction tagged “Nigeria
Vision 20: 2020 Agenda”. The vision would require the translation of the nation’s
economic growth into improvement in the wellbeing of the majority of the citizen2
through the introduction of various reforms and initiatives aimed at improving
Nigeria’s social security system.
The Federal Government of Nigeria is aware that effective social protection policy
environment is a political, economic and social imperative, for sustainable economic
growth and development (Nigeria Vision 2020: 212). In Nigeria in order to reduce
poverty and protect vulnerable groups from shocks that may arise from social
insecurity such as destitution, old age, disability, accidents and disasters, as well as
creation of effective safety nets for the vulnerable, mitigates the adverse impacts of
shocks on the poor, some of the program initiated include; pension reforms, National
Social Insurance Trust Fund (NSITF), National Health Insurance Scheme, Virtual
Poverty Fund (VPF), Micro-credit, National Poverty Eradication Program (NAPEP)
and Conditional Cash transfer (Nigeria Vision 2020:212).
Of all these social package, my research focus shall be limited to Micro-credit
schemes and its impact on Small and medium scale enterprises (SMEs) in Nigeria
informal sector while its performance will be measured in line with economic growth
and development because other initiatives cover predominantly the public sector
workers, leaving a larger segment of Nigerians that are in the private and informal
sectors unprotected. However, if economic growth and development is to be
ascertained the whole economy must be taken into consideration.
2
Nigeria vision 20: 2020 “The first National Implementation plan (2010-2013) Vol 2: sectoral plans and
programmes”.
2
By and large, since employment and income are linked to the question of poverty
reduction while microcredit schemes advancement is tailored towards employment
generation and economic empowerments of vulnerable poor in the societies. Thus,
the effect of not appropriately addressing this situation would further accentuate
poverty and slow down growth and development. It is on this note that this study will
critically measure the impact of microcredit schemes on economic growth and
development in Nigeria, taking into cognisance the major indices of alleviating
poverty as elucidated by United Nation and its agencies.
1.2
Statement of the Research Problem
Social protection has not only been one measures of fighting poverty, it also provides
stability for the economy. Such systems are a kind of “economic stabilizer”3because it
created sustainable economic growth and development. Premising that “the poor in
the informal economy needs credit as means to create opportunities to increase their
income and even create employment for others would be too superficial when one
takes into cognizance prevalence, duration and effects of poverty” (odigie, 2007:9).
The baseline economic survey of Small and Medium Industries (SMIs) in Nigeria
conducted in 2004 indicated that the 6,498 industries covered currently employ a little
over one million workers. Considering the fact that about 18.5 million (28% of the
available work force) in Nigeria are unemployed, the employment objective/role of the
SMIs is far from being reached (Mejeha/Nwachukwu, 2008:9). According to CBN
policy paper on Microfinance initiative (2005) is that one of the platform to reduce
unemployment in the country is to build a hallmarks of the National Economic
Empowerment and Development Strategy (NEEDS) that will empower the poor and
provide the informal sector with needed financial services, to enable them expand
their present scope of economic activities that will generate employment
opportunities.
Within this purview, to cater for the rural and urban poor, the Central Bank of Nigeria
(CBN) launched a Microfinance Institution policy framework in 2006. The policy
framework was influenced also by past failed experiences of similar micro financial
3
It is the term used in microcredit development to describe the state of steady, especially one that stop fluctuation in
economic activities. See Odigie, 2007: 39
3
institutions like the People’s Bank of Nigeria (PBN) and the Community Banks (CBN,
2005 cited in Odigie, 2007:50).Therefore, microcredit schemes as a tool of social
protection package enhances political, social and economic realities of every
countries that adopt the initiative as a result of its usage in preventing vulnerability
and internal confrontation, stabilized democratic process and participation in national
unity, as well as alleviate poverty and creation of market opportunities which
invariably increases income and saving of extreme poor in the society.
However, the inability of microcredit to reach the very poor is a major dilemma of its
efficacy. The question now is, does microcredit directed towards economic growth
and development, where economic well-being of the poor will be improved, poverty
reduce, empower women and create employment opportunities or is it tailored
towards profit maximisation on the part of the providers on the basis of financial
sustainability?
The objective of the framework by CBN intends “to promote Micro financial services
on a long-term, sustainable basis for the 65% poor and low income groups not
covered by the conventional banks in Nigeria” (CBN, 2005:5), unfortunately, almost
seven years after the launch of the framework, nothing concrete is happening to
suggest that the poor and small entrepreneurs will have opportunities to access
loans. The reason behind this failure will be explore in this study.
Also many scholars have advanced the usage of microcredit schemes to the starting
up and expansion of microenterprises business in order to improve economic
activities of the country through empowerment of the poor and enhance their
contribution to GDP but the fungible benefits of credit to contingencies issues like
paying school fees of children, consumption, taken up of family responsibilities to
mentioned few has undermined its primary function and purpose.
It’s on this basis that the study is geared towards investigating the impact of
microcredit schemes in Nigeria informal sector and examines its effect on economic
growth and development with special focus to the selected small and medium scale
enterprises (SMEs) in Lagos state, Nigeria. Also, parameter for measuring economic
growth and development like employment generation, economic well-being of the
clients, poverty reduction level and economic empowerment of the poor shall be
4
probe further in the study while the rationale behind microcredit provision by state
(government) and other MFIs will be ascertained.
1.3
Objectives of the study
The main objective of the study is to investigate the impact of Microcredit Schemes
on Economic Growth and Development in Nigeria informal Sector, with special focus
on some selected SMEs in Lagos State Nigeria.
The specific objectives are:
i.
To determine the relationship between microcredit schemes and the growth of
existing SMEs in Nigeria informal sector.
ii.
To find-out, if microcredit schemes lead to the creation of more SMEs and its
ability to inculcate micro entrepreneurial development skill.
iii.
To measure the impact of microcredit schemes on living conditions of the
SMEs clients and ability to expand their businesses.
iv.
To carefully probe the linkage between microcredit schemes and its coverage
outreach on the extreme poor’s as well as analysis how the schemes can
improve their economic status.
v.
To suggest best practices microcredit schemes that will be complemented with
other social protection policies to promote economic growth and development
in Nigeria.
1.4
Research Questions
What Impact does Microcredit Schemes have on Economic Growth and
Development in the Informal Sector of Nigeria Economy?
Relevance sub-question for the study includes:
1) To what extent does Microcredit schemes enhances formalisation in Nigeria
informal sector?
2) How can microcredit schemes in Nigeria alleviate poverty and promote
economic empowerment among the ultra poor’s?
3) What is the relationship between microcredit scheme and SMEs owners’
economic well-being in Nigeria?
4) Does microcredit scheme stimulate economic growth and what are the
challenges of the schemes in promoting economic development in Nigeria?
5
5) What are the strategies adopted in Nigeria Microcredit schemes to ensure full
outreach or coverage to the extreme poor in the country?
1.5
Research Hypotheses
To provide answer to the research questions, the following hypotheses will be
tested.
1. Ho:
Microcredit Schemes in Nigeria does not enhance Economic Growth
and development.
Hi:
Microcredit Schemes in Nigeria enhances Economic Growth and
development.
2. Ho:
There is no correlation between Microcredit Initiatives and Employment
Generations in Nigeria informal Sector.
Hi:
There is a correlation between Microcredit Initiatives and Employment
Generations in Nigeria informal Sector.
3. Ho:
There is no significant relationship between Microcredit Schemes and
poverty reduction in Nigeria.
Hi:
There is a significant relationship between Microcredit Schemes and
poverty reduction in Nigeria.
4. Ho:
Microcredit Schemes Initiatives does not improved the Economic Well-
being of SMEs Clients in Nigeria
Hi:
Microcredit Scheme Initiatives improved the Economic Well-being of
SMEs clients in Nigeria.
5. Ho:
There is no correlation between Microcredit programs and Economic
Empowerment of the poor in Nigeria informal sector.
Hi:
There is a correlation between Microcredit programs and Economic
Empowerment of the poor in Nigeria informal sector.
1.6 Significance of the study
The informal sector, where the bulks of economic activities operate, is the largest
employers of labour and the real engine room of growth but is the most neglected
sector of Nigerian economy. A major problem of the sector is actually that there have
been none or very few comprehensive studies that have captured the size, ownership
structure, mode of operandi and most especially financial basement of the sector in
order for its survival. However, Nigeria government have initiated series of financial
6
programs to strengthen the sector financially but failed in the future. The
circumstances behind these failures will be identified in the study while appropriate
suggestions will be made to avoid reoccurrence.
The study will no doubt provide the policy framework within the purview of social
protection practices in informal sector with some basic facts but will emphasized on
how microcredit schemes initiatives can be annexed to bring smile to the faces of the
extreme poor in Nigeria. Hence, the study is in consonance with government top
priority on informal sector development in an effort to create jobs and reduce high
rates of poverty in the country. The study will not only furnish policy makers, workers
in the sector, owners of the SMEs and the Nigerian public at large with the relevant
and up-to-date information on Microcredit schemes initiatives but will also encourage
them to explore the avenue in order to improve on their economic well-beings and
creation of more decent employments for economic growth and development.
1.7 Scope and Limitation of the study
The basic premise on which this study is based is to investigate and examine the
impact of Microcredit schemes in Nigeria and how this influence economic growth
and development, particularly in the informal sector of the country with special
attention to employment generation, poverty reduction, economic empowerment and
improvement in economic well-being of the selected small-medium scale enterprises
(SMEs) owners in Lagos State, Nigeria.
These studies will focuses on the whole five main divisional areas of Lagos State,
with particular emphasis on small and medium scale enterprises (SMEs) and the
Microfinance Institutions (MFIs) who were saddled with the responsibilities of
disbursement of microcredit and other financial services to these clients by the state
government. Thus, Lagos State was chosen for this study because of the socioeconomic importance of the State (Lagos) and its larger population with the
concentration of the MFIs. Data for the study will be gathered from small and medium
sized enterprises owners and the microfinance Institutions in the chosen study area.
The study will however concentrate on food processing industries such as Bakeries,
pastry businesses and confectionary centres.
7
There is also inherent in the study, some limitations. There is problem of data
inadequacies and non-responsiveness of respondents to questionnaire, particularly
the microfinance operators. Other constraints include time and finance, which were
not enough. And to conduct a study on the impact of Microcredit schemes and its
relationship to economic growth and development should requires about six months
before the effectiveness of the concepts could be assessed. That was not possible in
the study.
1.8 Operational Definition of terms used
Development: Economic development means more than access to capital. It can be
generally defined as “the process of improving the quality of all human lives” (Todaro
1994, cited in Vincent, 2004: 2). That is, the acquisition of knowledge, skills and
behaviours that improved an employee’s ability to meet changes in job requirements
and in client and customer demands, particularly among the vulnerable groups.
Economic Growth: The performance of a nation in relations to its ability to lift some
people out of poverty, empowered them economically, improve their economic wellbeings as well as change their societal status from poor to average living being in
terms of income and source of livelihood.
Economic Empowerment: It is a process of acculturation whereby authority is gain
on the basis of ownership and control of productive assets, involvement in decision
making and politics with legal awareness among the poor.
Economic well-being: This is improvements in economic status of people based on
sources of income, ownership of productive assets, housing conditions and
household dependency ratio that graduated poor out of poverty (Littlefield et al,
2003:3).
Financial services: These are range of services provided by the financial institutions
which includes loans, savings facilities, insurance, transfer payments, and even
micro-pensions.
Informal Sector: It is the primary sector of every economy that is largely activities
are not regulated nor protected by the state. The operators in the informal economy
do not enjoy social benefits nor do they have work contracts. Their work and working
conditions are hazardous, precarious and irregular. Informal sector can be categories
into the followings: Small-medium scale enterprise (SME’s), Self-Employment, Street
Vendors/traders as well as unorganised rural workers such as Farmers, fishermen
etc.
8
Microcredit: The issuance of small, unsecured loans to individuals or groups for the
purpose of starting or expanding businesses. The idea of microcredit has been
associated with the promotion of enterprise for a long time, that is, microenterprises
development.
Microfinance Institutions: These are institutions saddled with responsibilities of
making the provision of financial services to low-income, poor and very poor selfemployed people. Thus, the financial services generally include credit, savings and
insurance for the non-bankable groups mentioned.
Poverty Alleviation: This is systematic way to reduce extreme poverty and hunger;
achieve universal primary education; Promote gender equality and empower women;
Reduce child mortality; Improve maternal health; Combat HIV/AIDS, malaria, and
other diseases; Ensure environmental sustainability; Develop a Global Partnership
for Development (UN, 2005).
Small-Medium Enterprises (SMEs): This is a category of informal sector that capital
entry requirement is limited and requires few workforces between seven to fifteen
without regular wages and social protection. Basically, people working in these
categories of informal sector are mostly on temporary employment and the
enterprises always start with microcredit facilities.
Ultra Poor: A person with a daily income of under US $1.25 is regarded extremely
poor (World Bank 2011). They simply do not earn enough to feed themselves talk
less of being able to deal with the economic risks and uncertainty they face, set of
people in the categories are extreme poor.
1.9 Organisation of the study
This part of the study will focuses on how the research is structured in term of
chapters to facilitate easy comprehension and create a synergy among the chapters.
This will include:
Chapter one shall be introduction part which will comprises of the following
subheadings- Background of the study, Statement of the problem, Research
Objectives/Questions, Research Hypotheses, Significance of the study, Operational
definition of terms.
Chapter Two will be titled Literature review and theoretical framework which will
focuses on Conceptual Review, Theoretical Review, and Empirical Review.
9
Chapter Three will be in two folds, that is, the Research Methodology part and
Nigeria modus operandi of microcredit schemes. The Methodology part it will
includes- Introduction, Research Design, Population of the study, Sample
size/sampling techniques, Method of Data collection, Research Instrument,
Validity/Reliability of the Instrument, Method of Data Analysis. While the second part
of this chapter will be entirely dedicated to Microcredit schemes practices in Nigeria.
Chapter Four will be the data Analysis and Interpretation part. This will comprise of
the following aspect- Introduction, Data organization, Testing of Hypotheses, Analysis
of Data and Findings Interpretation.
Chapter Five will be the final part of the study and this part will include- Summary,
conclusion, Recommendations and Suggestions for further studies. Also the part will
include the appendix and other tables used during the writing of the study.
10
CHAPTER TWO
LITERATURE REVIEW AND THEORETICAL FRAMEWORK
2.1 Introduction
It has been recognised that more and better employment is very fundamental to
poverty reduction in the world (ILO, 2002). This can take place in the formal or
informal sector of an economy. Somavia (2003:2) posited that over 80 percent of
African labour force works in the informal economy where nothing is guaranteed and
lacks decent jobs. He further added that the world is getting richer but unemployment
and poverty are growing in Africa. The situation makes entrepreneurship an avenue
for improving the African economy.
Nigeria economy is more affected in poverty when compare to other countries in SubSaharan Africa with the country abundances in human and other natural resources.
Nigeria is proclaimed as the fifth largest oil producing nation, despite that majority of
her citizenry are still living in an abject poverty. Check the below chart to understand
my position in this argument.
Figure 1: Nigeria poverty rate compare to other Sub-Saharan countries
between 1975 and 2004
Source: Culled from UNDP Human Development Report 2006, cited in Odigie,
2007:46.
11
It’s on this basis that the chapter will review and concentrates on the interface or
relationship between microcredit schemes as a tool to promote growth and the
development in the informal sector of every economy, particularly the small-medium
sized enterprises (SMEs) in order to improved productivity, reduces poverty, improve
economic well-beings of the operators as well as create empowerments and
employment opportunities.
The chapter will also look at the controversial debates among scholars in relation to
the topic, particularly on the issue of many studies focusing their attention on supply
side of microcredit (Financial sustainability) while limiting or ignore the relevance of
the demand side which are predominantly the beneficiaries. How they could benefit
from the schemes without exploitation and what they stand to gain with the advent of
financial intermediation school4.
The study will explore necessary avenues to measure policies initiated in this
direction for the objective of MDGs to be achieved in the area of promoting economic
growth and development with microcredit schemes. While the limitation of the
schemes will not be ignored in the study, the chapter will systematically assess the
role of microfinance institutions especially policies developed to ensure full coverage
of the vulnerable poor in the microcredit schemes.
2.2Conceptual clarification (Microcredit versus Microfinance)
There has been a controversial debate on the concept of microcredit schemes, if it’s
synonymous to microfinance or there is a distinction between the two concepts.
Some scholars view both to be interwoven because microfinance embodied
microcredit as a unit component as well as a particular feature of microfinance is
microcredit.
According to Khavul (2010 cited in Obst,2011:11) defined microcredit as given out of
loan to individuals or group of people to start-up a business but this loan are
unsecured. That is, the basic rationale behind microcredit is for the commencement
of microenterprise by the beneficiaries whereas microfinance is “the provision of
4
Martinez, C.S (2011) Finance for the poor in the demand: Who uses microfinance and why? Working paper,
No.10/2011.Institute for international political Economy Berlin
12
financial services to low-income, poor and very poor self-employed peoples” (Otero,
1999 cited in Obst, 2011:11).
This implies that microfinance goes beyond given out loan for starting or expansion of
microenterprises, it also makes provision for other services like savings, microinsurance, micro-pension and payment transfers to economically active poor and low
income household to enable them engage in income generating activities or
expand/grow the small businesses5 among others. By and large the usage of
microcredit goes far beyond the need for merely microenterprise credit because it is
sometimes used for contingence reasons like paying of children school fees, meeting
domestic obligation to mention few.
The argument was buttress further while referring to micro financing as the “provision
of financial services to poor and low income households without access to formal
financial institutions” (Conroy, 2003 cited in Mejeha/Nwachukwu, 2008:3). It focuses
on provision of loans, savings and other financial services to low-income and poor
people for use in small businesses. That is, bank for the poor6non-bankable groups.
Furthermore, microfinance is still related to microcredit through the assumption that
microfinance aims is to alleviate poverty by stimulating economic growth through
entrepreneurial spirit (Khavul, 2010: 58; Obst, 2011:11). That is, the fundamental
goals of both concepts are tailored towards poverty reduction and enhancement of
economic growth and development. However, Khavul (2010:59) concluded that
“microfinance is an emerging phenomenon that opens access to capital for
individuals previously shut out from financial services”.
Strictly speaking the peculiar characteristic of both concepts are merely similar aside
the methodologies of traditional microcredit schemes which is relatively different from
the modern microfinance institution products and services particularly in the area of
coverage and huge amount availability that the extreme poor could benefit. Since
the terms are ambiguous to separate from each other and they are interrelated in
5
Jegede et al (2011) Impact of Microfinance on Poverty Alleviation in Nigeria: An Empirical
Investigation. See for detail www.journalbank.com/ejhss.htm
6
Microfinance is described also as banking for the poor. See Mejeha & Nwachukwu 2008
13
usage because one of the concepts cannot work in isolation, it is on this basis that
the thesis will use both concepts interchangeably to avoid unnecessary ambiguity.
2.3 Microcredit Sources and mode of operations
The sourcing of microcredit by the vulnerable poor could be view from different
perspective but majorly they are within the ambit of informal, semi-formal and formal
sources which the study shall look at from the below arena. These include:
2.3.1 Family/Relative
These types of credit are mostly interest‐free and based on mutual lending and
borrowing within the family and among neighbours. It is basically informal traditional
credit schemes used to assist each other who required financial help for
consumption, starting up of a small trade and emergencies need like marriage or
Funeral in Sub-Saharan Africa.
Collins et al. (2009 cited in Martinez, 2011:38) sees this type of microcredit source as
“conceive the interest‐free borrowing and lending for short‐term consumption
smoothing as a complement to savings held at home, which draws on the savings
potential of the kin or neighbourhood network”.
It has been argued that informal credit from ‘Kin network’ are often used to off-set
more expensive loan from the professional providers (Ruthven, 2002). This is so,
because of the convenience in the repayment technicality. The family/relative source
of microcredit is predominantly found in the rural community and the size of operation
is very small. The mode of operation is within the purview of family or neighbourhood
assistance-ship. However, this type of credit source is characterise with little or
inadequate fund and limited coverage ability to assist the extreme poor of the
community.
2.3.2 Moneylenders
Moneylenders constitute an important source for emergency finance (Martinez,
2011:26). It is the informal means of making credit available to urgent needs without
call for collateral and unnecessary bureaucracy. However, it is a traditional way of
granting credit based on trust and confidence from the borrower. The advantage of
this source is its quick availability but may attract high interest rate charge because of
14
the risk for default. It was established in some quarters that credit from moneylenders
are sometime met for contingent usage which is unconnected to starting up of a small
business rather for consumption purpose and other situational cases.
Furthermore, based on lack of income resulted from ‘life-cycle’ and ‘incident-caused’,
traditional informal coping mechanism like moneylenders became pertinent for
survival7 among the poor and low income earners. “These services are generally
better accessible and more flexible than formal financial services. Even though
largely costume‐made, convenient and renegotiable they have often other
disadvantages, such as unreliability, lack of privacy and transparency” (Martinez,
2011:44).
2.3.3 Cooperatives/Credit Union
This is another form of informal source of credit but it is attached to a group of people
with similar goal and interest. It is a kind of credit that comes from the social and
business network. It involves saving and borrowing tactics among the social network,
through the schemes of mutuality and clubs. Martinez (2011:28) refers to this type of
source as ‘Saving through’ arrangements that are strong in specific cases, such as
Rotating Savings and Credit Associations (ROSCAs) in East Africa and where
insurance schemes are available and popular8.
In the Cooperative source of credit, there is an established structure of fund pooling
among the members which is geared towards equal distribution on the basis of ‘firstcome’ principle. This source of credit does not required collateral before accessibility
to loan or credit because your contribution into the pool serves as a security.
However, it’s characterised with default and inadequate fund to share among
members. Furthermore, ability to access frequent credits depends on your closeness
with the leadership of the union. It is marked with favouritism.
2.3.4 Government Aids
Government Aids are social protection packages that state put in place as an
assistance schemes designed to improve the well-beings and economic status of the
7
Martinez, C.S (2011) Finance for the poor in the demand: Who uses microfinance and why? Working paper,
No.10/2011.Institute for international political Economy Berlin
8
Ibid
15
vulnerable groups in every societies. Though, it is always in formalised formats which
were actually tailored towards specific group and purpose. It includes insurance
schemes, Health schemes, pension schemes and even microcredit schemes among
others.
According to Martinez (2011:28) “Formalized systems are public or private old‐age
pension schemes and other forms of long term savings and wealth storage, such as
life insurance schemes” which are dominantly offer by the state and are only
available in large quantum at the developed countries but relatively low or not
available in the developing economy. Thus, the credit gets to the vulnerable group
through the accredited MFIs or conditional cash transfer means. Government
established a framework for microcredit to the poor particularly those in SMEs to be
used for either business start-ups, expansion or simply for technological upgrade.
However, the source of credit through this means was label with many practices like
corruption, favouritism and political influences which makes the credit difficult to be
access by the poor. Furthermore, bureaucratic involvement is another constraint that
makes the government aids inaccessible to the extreme poor. In line with the
foregoing, the failure on the part of government towards commitment to credit for the
ultra poor makes microfinance institutions comes on board to perform this task of
microcredit to the poor.
2.3.5 Microfinance Institutions
Considering the failure of the informal sources of microcredit based on inadequacy of
fund and continuity, coupled with government insincerity in reaching extreme poor
and other vulnerable groups encourage the licensing of Microfinance institutions
(MFIs) to tackle all the aforementioned challenges. Also, the inability of firm and
household to meet up with their financial need such as working capital, emergency
loan and coping with family risk are some of what necessitate the formation of
microfinance institutions in the 1970s (CBN, 2005:7).
Microfinance institutions were assigned the responsibility to provide financial service
to the poor, particularly credit facilities in order to graduate the poor from poverty but
the objective is difficult to achieve because of the vested interest of the MFIs
16
operation towards profit maximisation. As argue by some scholars that microcredit
provided by MFIs cannot alleviate poverty rather it will deepen the situation due to
high interest rate charge by the operators all in the name of financial sustainability.
Apart from interest rate syndrome, other limitation for the successful operation of
MFIs is the inability to reach out to the extreme poor couple with inadequate fund
because most MFIs relied on government aids and foreign donor for survival.
Moreso, collateral and other security on the part of poor becomes a real challenge.
Therefore, make the poor distance themselves from sourcing for credit through MFIs.
Some research evidence reveal that the poor did not access credit from MFIs for the
fear of confiscate their property, if they were unable to pay back the loan.
2.3.6 International Donor
Donors ranging from corporate foundations to the U.N. Development Program have
expressed great interest in microenterprise programs, which they hope will
permanently reduce poverty by promoting self-employment9. The assistance from
international donor like USAID is as a result of the failure of the traditional and semiinformal means of microfinance institution but it is basically formal in nature.
At the 2005 microfinance summit, it was reveal that the U.S. Agency for International
Development provided $138 million to microenterprise programs in 40 countries. The
objective behind this package is to alleviate poverty in the world, empower the
vulnerable poor and improve the economic status of the extreme poor all over the
world. Although, the credit is not given directly to the poor by the international donors
rather a credible MFIs is chosen and were allowed to administer the credit on behalf
of the donor with a close monitoring from the donor.
One basic constraint of credit from international donor is the procedure of selection.
The international donor randomly select regions and MFIs to be assisted with credit,
if the objective of MDG is to eradicate poverty such selection criteria should be
9
See Maykuth Andrew: The loans may be small, but the changes are big “Microcredit” programs
around the world help small entrepreneurs lift themselves from poverty.
17
displace. Also, the donor should create a platform for monitoring so that the credit will
get to the ultra poor not those who are already in business as seen in some quarters.
2.4 Criteria for measuring microcredit performance via Economic Growth and
Development
Many economic indicators have been advanced by the world economist to measure
economic growth and development. Some of these include Gross domestic product
(GDP), Human Development Index (HDI), per capital income, Gross National product
(GNP), Poverty level, level of country industrialization to mention few. Of all these
economic indices, this thesis shall measure economic growth and development in
line with the below mechanisms because all these parameter are geared towards
promoting growth and development in the informal sector which will metamorphosis
to holistic economy account.
The thesis will focus on economic growth and development variables of the identified
criteria due to some arguments at different forum that the persistent growth of the
informal economy particularly in sub-Saharan Africa indicates that the majority of the
labour force earn their livelihood in the informal economy courtesy of microcredit
schemes and other financial services provided by the state (govt), NGOs, MFIs and
International organisation.
Microfinance evolved as an economic development approach intended to benefit the
low-income part of a given society, both men and women (Irobi, 2008; Jedege et al,
2011:6). It is on this note that the thesis attention will be focus in this direction in
order to ascertain if microcredit really promote economic growth and development
using these criteria. Also, these indicators shall be examined thoroughly by probing
on the perception of SMEs owners and MFIs operators in this regard. These criteria
include:
2.4.1 Poverty Reduction
Poverty reduction can be view from different perspective; it depends on the angle in
which the viewer is look at poverty from. According to Littlefield et al (2003:2) “the
ability to borrow a small amount of money to take advantage of business opportunity,
to pay for school fees, or to bridge a cash-flow gap can be a first step in breaking the
18
cycle of poverty”. The scholars emphasized that poor household who have access to
such loan will use a safe and convenient saving account to accumulate enough cash
that can be used for different purposes like starting up of a small business, used to
train children, carter for health care and even meet up with other unforeseen
circumstances.
Although, it was concluded that no single intervention can defeat poverty because
individual poor needs are differ. Martinez (2011:17) corroborated this assertion that
microfinance can contribute to poverty reduction and development but stressed the
relevance of considering different socioeconomic formations that people live and
work in, because of the ‘structural heterogeneity’
10
that comes into play. Similarly,
Baltar et al (2010) while doing analysis of social security policy in Lula administration
point out that social security which incorporate credit given helps to improve income
distribution. That is, this policy contributed to reducing poverty and expanding
household consumption.
Additionally, if microcredit’s are properly utilized, “it could possibly enable a better
structuring of the economy and the labour market while at the same time increase the
well-being of the population as a whole” (Baltar et al, 2010:32). This is in connection
to the policy of economic growth and development using microcredit schemes as an
antidote to poverty.
In Jegede et al (2011) empirical analysis of significant relationship between
microcredit and poverty reduction, the study concluded that microfinance institution
“is indeed a potent strategy of poverty reduction and a viable tool for purveying credit
to the poor because it increased the income and change the economic status of the
poor who patronized this MFIs but emphasized that more still need to be done in the
area of outreach in order to covered the real target poor of the society” (Jegede et
al,2011:98).
However, poverty reduction via microcredit schemes in the informal sector of the
economy sometimes poses a serious challenge that makes the objectives
10
Finance for the poor in demand: who uses microfinance and why? See Martinez christiane working paper, No
10/2011
19
unattainable. As argued by the opponent of the schemes, microenterprises in the
informal sector generally contribute to rather minor and often only temporary gains in
well‐being (Krishna, 2010; Martinez, 2011). This failure of the scheme was connected
to low level of formal education, technical and commercial knowledge on the part of
the practitioners. Therefore, there is no opportunity for sound financial results which
eventually lead to increasing in poverty.
Furthermore, lack of market integration at local market by the operators of smallmedium scale enterprises particularly those in production of consumable goods is
another obstacle that widening the poverty level, due to the lack of alternatives for
income generation, competition among microenterprises that lead to displacement to
mention a few.
Another argument that was postulated by this group on why microcredit schemes
might not be antidote to poverty reduction is the ‘health poverty trap’ identify by
Krishna (2010). This scholar argues that health issues as been identified as one of
the important use among other emergencies and had a frequent and strong effect on
the households’ budgets and its link to long-term poverty. This is so, because health
problem are financial problem, and often consume large parts of the households’
budgets during the year (Martinez, 2011:43) and cause the long‐term fall of
individuals and households into poverty.
Finally, “it is not the innovative Schumpeterian entrepreneur, who is ‘freed from his
credit constraints’ and then pushes economic growth, but a business owner with an
existing business. She might expand her business a little or manage her finances
somewhat more efficiently based on the loan. But the microloan generally does not
create anything spectacularly new” (Martinez, 2011:47). Also, the impact of
microcredit from MFIs to micro-entrepreneurs is of complementation purpose in
meeting fungible reasons rather than previous notion on expansion or starting up a
new business that has been clamour in some quarters in order to reduce poverty.
2.4.2 Employment Generation
According to Martinez (2011) who probes into the reasons why poor demanded for
microfinance, she affirmed this to client‐adapted lending technology which resulted to
20
how pioneer MFIs began to serve the low income, poor and self-employed people
with small loans towards their development. She refers to this as ‘financing‐gap
model’ of development aid with objective of overcoming the financial gap of the
excluded vulnerable group using subsidised direct loans (Martinez, 2011:7).
However, the failure of these policies leads to microcredit at market rate which totally
took another dimension. The argument of some scholars in this respect is that since
the notion of clients in fulfilling financial gap is not in conformity with the initial
objective of the supply side, therefore some financial services must be incorporated
to meet up by the providers. The question now is how can employment be generated
if there is divergence notion between the supply and demand sides? Taking into
consideration that one of the cardinal points of microcredit is to create employment
opportunities through development of new business enterprises.
Chenery/Strout (1966: 685 cited in Martinez, 2011:7) identified a financing gap as the
main constraint to growth and suggested modest ability to save in order to enhance
investment via Aids. The philosophy behind this model is that “at the macro level,
economic growth, which is conceived as the main aim of development, can only be
achieved through the external supply of financing to overcome the constraint of
internal savings” (Martinez, 2011:7). The challenges of unemployment and poverty
set in due to inability to meet up this financial gap, so many household indulged into
informal activities in order to earn a living.
De Soto (2005) argues that lack of access to formal and hence cheaper credits
promote informal sector operations and create a forceful entrepreneur. Furthermore,
another scholar assigned them (entrepreneurs) a central role in development which
can be achieved through provision of access to credit and technical assistance
(Frediani, 2007 cited in Martinez, 2011:8).
In line with the foregoing, the inability of small entrepreneurs to have access to credit
facilities couple with lack of training and technical assistance makes the objective of
microcredit schemes towards employment generation a mirage.
Littlefield et al (2003:2) pointed out that those small entrepreneurs who have access
to the credit schemes also divert the loan to fix a leaky roof, to pay for health care , or
21
send more children to school at the detriment of employment creation that will
improve economic growth and development. This is so, because the credits are too
little or insufficient to start-up a large business that can create employment, therefore
will be use for fungible purposes.
However, UN (2005) claims that microcredit has been changing people’s lives and
revitalizing communities since the beginning of trade. It emphasised that “micro
entrepreneurs use loans as small as $100 to grow thriving business” (Microfinance
Summit, 2005 cited in Martinez, 2011: 10). The argument at this summit is that
microcredit has been enhancing expansion of businesses which has a direct
correlation with employment generation. The summit claims that there are still
untapped entrepreneurial spirit and calls for more financial inclusion in order to
accelerate growth in some locations and to foster local economic development.
As rightly pointed by Martinez (2011:20) she said beside income “family own
business start to employ non‐family labour, to invest in other firms and the capital
market and when they operate with credit on permanent basis, they become part – at
least partially – of the monetary economy”. The family-led economy11 is a typical
family’s house or small-scale peasant that characterised by lack of social division of
labour, single asset ownership (entrepreneur) and requires financial intermediaries.
Hence, the financial need of the family-led economy must be considered if economic
growth is to be accounted for (Schumpeter’s, 1997 cited in Martinez, 2011:21)
because “the entrepreneur does not necessarily own the means for realizing her
innovative ideas, she depends on the purchasing power given to her through credit,
which is created by the banker and based on trust and confidence in the
entrepreneur and her project” (Martinez, 2011:21).
Zattler (1997 cited in Martinez, 2011) observed that with increasing in specialisation
at the family business which member does not have the required skill or expertise,
the call for hiring a professional becomes necessary because reciprocity-based credit
business implies an obligation in return. Therefore, to meet up with the return on
11
Family‐led economies (Familienwirtschaften) or household economies (économie
domestique)
Refer to both the family members, their household(s) and to their business (es). See Martinez, 2011 for
more.
22
investment particularly credit from any source requires the employment of capable
personnel. Conclusively, “family‐led enterprises might be of different sizes and
shapes, ranging from self‐employment up to middle‐sized enterprises, thus requiring
financial services of different kind and size” (Martinez,2011:29).
Finally, with available empirical analysis by Martinez (2011) she pointed out that
there is no statistical evidence to show the relationship between microcredit scheme
and employment creation. This is one of the areas intended to explore by this study
with further empirical investigation.
2.4.3 Economic Empowerment
Empowerment can be refers to as a systematic way of giving out power or authority
to
something.
That
is,
to
give
more
control
over
their
own
life
(women/youth/vulnerable groups) or the situation they are into but “the lack of
attention to women’s empowerment in mainstream microfinance is that MFIs fear that
building empowering elements into their programs will threaten their financial
sustainability ratios and limit their access to funds from major bilateral and multilateral
donor agencies” (Cheston/Kuhn, 2001:16).
However, there is a strong positive correlation between microcredit schemes and
empowerment of people that adopt the initiatives particularly among women and
youth based on the series of developmental training acquired during the program.
Many research evidences has been shown this relationship but for the purpose of this
paper empowerment of microcredit will be view only from women perspective while
other vulnerable groups will be ignored.
Cheston/Kuhn (2001) argued that women empowerment is link to cultural norm of
every societies beliefs where certain roles and responsibilities are extremely defined
among the gender but microcredit and other social protection developmental
programs have discard this assertion in some areas.
Thus, the promotion of women’s empowerment implies advocacy for cultural and
social change (Cheston/Kuhn, 2001:12). Some scholars have concluded that gender
inequalities and discrimination against women contribute directly to the perpetuation
of poverty in many nations. Though, the empowerment of women differ from nation to
23
nations but basically the linkage between microfinance and women empowerment
can be measure from the impact of the schemes on women in decision making in the
household and communities. Also, “it increases political power and rights among
women, create more equitable status of women in the family and community as well
as promote self-esteem and confidence” (Cheston/Kuhn, 2001:14).
For instance in Nigeria, microcredit schemes like Human Development Initiatives
(HDI) a non-governmental organisation (NGO) has successfully combined education
of widows about inheritance, legal, and property rights with training in business skills
and microfinance. The education has allowed some widows to reclaim their
husbands’ property and to gain access to their bank accounts. HDI’s counselling and
mediation services have also helped them resolve conflicts with their husbands’
families12. This becomes possible because many microfinance programs give women
the tools and skills they need to participate more effectively and successfully in
formal politics and to informally influence decisions and policies that affect their lives.
2.4.4 Economic Well-beings
Economic well-being of the SMEs clients is another major variable of measuring
growth and development of microcredit schemes nowadays, particularly in the
informal sector. According to Littlefield et al (2003:2) argues that microcredit offers
the potential for a self-propelling cycle of sustainability and massive growth, while
providing a powerful impact on the lives of the poor in term of income generation,
saving, ownership of productive asset, and reduction in household dependency ratio.
The scholars emphasized that the ability to borrow a small amount of money from
microfinance institution has a significant impact on well-beings of the clients because
there will be a shift in employment patterns of the clients from irregular, low-paid daily
labour to diversified sources of earnings which will graduate them out of poverty
(Littlefield et al, 2003:3). This assertion was corroborated by cheston/Kuhn (2002)
who says savings-based approaches that rely on minimal external support have
several advantages on the clients particularly in the area of improving economic
status based on sources of income that has a strong reliance on small business.
12
See Cheston and Kuhn 2001 for more details.
24
However, Sen (1999 cited in Martinez, 2011) kick against this believe that economic
growth will automatically lead to well-beings and increased livelihood of the people.
He argues that development should be measure from increasing in freedoms among
people. But Martinez (2011) in her words emphasised that measuring development
with any variable must take into consideration the context, institutional setting as well
as economic system as a viable yardstick. She looks at development in this line with
respect to relations between customers and microfinance institutions in distributing
material goods and services to satisfy human needs. Though, Sen’s argument was
based on social- science approach to development as enunciated by Armando
Córdova & Héctor Silva Michelena (1967 to 1969 cited in Martinez, 2011:15).
The approach view development “as embedded into the societal context and the
specific ways of how an economy functions in terms of the various modes of
production of material life and reproduction” (Martinez, 2011:16). Suffice to this;
development and economic growth are measured from contextual point taking
societies and historical background into consideration. Taking this into account, the
socioeconomic reality of small-medium scale enterprises formation courtesy of
microcredit
initiatives
provides
opportunities
for
employment,
income
and
‘development’ as Sen’s understand as life in freedom which will improve the
consumption needs of the family members and reduces sickness, hunger, short
livelihood among others (ibid: 20).
Conclusively, this thesis will build up its hypothesis on the mentioned economic
growth and development parameters to ascertain the relationship between
microcredit schemes with these indicators as well as test their level of correlation if
truly there are related and draw up a conclusion. All these will be carried out in
‘chapter four’ of this thesis.
2.5 Microcredit an Antidote to Business/financial Development and poverty
reduction
Empirical evidence have shown that Africa region are still lacking behind in the full
implementation of microcredit schemes due to fundamental issues and model of
operation adopted in the region (CGAP, 2012:1). It is on this note that some experts
advanced for strategy in the region in order to fill the financial gap that persist as a
25
result of inappropriate financial development plans that hinder economic growth and
development. This issue is particularly important in the face of widespread poverty in
Africa, since there is positive relationship between financial development and
economic development while suggestive of a positive linkage between finance and
poverty alleviation (Allen et al, 2012:7).
However, in developing a strategy for financial development in order to enhance
economic growth in Africa or any other region, it’s pertinent to understand the
institutional framework and policies that best promote financial inclusion. According to
Karlan/Zimmerman (2011 cited in Allen et. all, 2012) argues that access to credit had
no effect on business investment because of the policies of carrying out the
schemes. The scholars concluded that savings products seems more promising due
to the fact that very poor families can and do save, often outside of the formal
financial sector presumably due to a lack of appropriate product offerings (Collins et
al,2009 cited in Allen et al, 2012:7).
Based on the findings from Bangladesh and other developing countries, different
strategies have been designed by MFIs in order to ensure absolute coverage of the
microcredit scheme. In Kenyan for instance, one of the strategy adopted to promote
financial inclusion is expansion of branches and financial access to undeserved poor.
This become necessary because “only a small proportion of the population uses bank
accounts suggests an important latent demand for savings services”(Allen et al,
2012:8). Moreover, the strategy is targeting low income clients and traditionally
under-served territories in order to improve their lives by making credit available to
them.
In Nigeria context “One of the hallmarks of the National Economic Empowerment and
Development Strategy (NEEDS) is the empowerment of the poor and the private
sector, through the provision of needed financial services, to enable them engage or
expand their present scope of economic activities and generate employment”
(Mejeha/Nwachukwu, 2008: 9). The strategy is at the national level but develops a
similar structure that was set up in the 36 states of the federation and the 774 local
government areas in the country. The mechanism through the state and local
26
government all over the country tagged ‘SEEDS’ and ‘LEEDS’ respectively were
utilised.
The objective of the strategy is to meet everyone needs in the country without
excluding any group. NEEDS is not just a plan of action, it defines a process of
development anchored by a clear vision, sound values and enduring principles13. The
strategy hopes to lay a solid foundation for national rediscovery through financial
inclusion of vulnerable poor by promoting equality to enhance economic growth and
development which the state and local government must build upon.
Some scholars in Nigeria, emphasized that there is a strong correlation between
microcredit schemes in relations to economic empowerment of the poor, employment
generation and poverty reduction because delivering needed services in this respect
are contained in the Strategy (NEEDS) and it will assist the SMEs in raising their
productive capacity and level of employment generation.
In the join report by World Bank and Bangladesh Institute of Development (1994), it
was observed that profitable and sustainable financial intermediation to poor is
possible through targeted credit to the excluded vulnerable groups who lack collateral
and this will reduce poverty. The finding concluded that access to credit have a
significant relationship to poverty reduction. Thus, to accompany this goal the credit
must be channel to poorest and less empower group in order to improve their
socioeconomic development. According to the report, the incidence of poverty is
substantially reduced among program participants because the credit schemes
generate income gains for the poor as a whole through its impact on the local
resource allocation (World Bank & Bangladesh Institute of Development report,
1994:4).
As pointed out by De Wit (1994 cited in Maykuth, 2000) that if microcredit schemes is
tailored towards poverty reduction, some poorest of the poor still find it difficult to
explore the scheme with believe of default. “One problem that we discovered was
that most of the loans were going to those who were already in business. The
poorest members of the community were too intimidated to ask for loans; they
13
http://siteresources.worldbank.org/INTPRS1/Resources/Nigeria_PRSP(Dec2005).pdf
27
thought they could be jailed if they did not repay” (De Wit, 1994 cited in Maykuth,
2000:3). In this case, reorientation becomes pertinent in order to correct such notion
and believe among the poor through rigorous sensitisation by the MFIs and other
development finance institutions.
Bredow (2002 cited in Odigie,2007:14) said that “the clamour for microcredit as a
strategy to leap-frog the poor out of poverty is seen more as a believe that the poor
can use it to access market opportunities and take steps to engage in economic
activities that will enable them to generate their own incomes and be self reliant”. He
argues that for this microcredit schemes to be a solution to poverty reduction, it need
some other complementary strategies in its application because poverty level of the
ultra poor that the scheme intended to solve is too peculiar and deep. Therefore
microcredit schemes as an antidote to poverty reduction need some other social
protection packages that will support its shortfalls such as education, health, and
public infrastructures at a subsidies rate.
Microcredit scheme is built on the premise of start-up or expansion of business,
improve productivity, create opportunities for employment and improve income
generation as a result of availability and access to credit by the micro entrepreneurs
(Odigie, 2007:9).Therefore, to achieve this goal credit must be given out to landless,
asset-less and non-bankable groups in the society in order to reduce the level of their
poverty rate and empowered them economically (WB/BID, 1994). The strategy in this
direction should be ‘social collateral’ whereby group act as a surety for each other
rather than calling for collateral that the set of vulnerable does not possess. This type
of strategy was used by Grameen Bank of Bangladesh to ensure full coverage and
checkmate default syndrome14.
Finally, a well plan and implementable microcredit schemes will help to increase
household income, reduce poverty, reduction in vulnerability, increase consumption
and improve economic well-beings as well as create empowerment among the less
privileged in the society. Different theoretical and empirical investigations have
attested to this. What connections exist between microcredit scheme and other social
14
http://www.microcreditsummit.org/papers/Workshops/19_Morshed.pdf
28
protection packages in order to accompany these goals? This will be discussing in
the next subheading.
2.6 The relationship between Microcredit schemes and other social protection
packages
Measuring economic growth and development based on microcredit schemes alone
is not enough rather other social protection policies packages should be included.
Martinez (2011: 14) argues that “prioritization in development policies and
cooperation was not based on a reliable analysis of the most important development
barriers in different types of livelihoods, but rather on the underlying (assumed)
notions of the importance of access to credit”. She emphasised that attention should
also be focus on marginalisation and exclusion more relevant for the respective
target group than access to formal finance because the schemes will be like a mirage
if other social protection packages are not in place to prevent the aforementioned
challenges.
According to Odigie (2007:27) Social protection is a set of policies and programmes
designed to protect individuals, households and communities from risks, hazards and
stresses inherent in earning a living. Social protection is towards improvement in
well-being of vulnerable group, particularly the poor through the provision of nonaffordable services like education, heath, pipe-born water and food to mention few.
Similarly, microcredit schemes are social insurance, social security, social fund, and
social assistance aimed to prevent or mitigate the adverse effect (ibid:29). Logically,
microcredit scheme is part of social protection packages which could be view from
different spectrum.
Although, most social protection packages are tailored towards risk management
against on uncertainty but risk could come in different format which could be natural
or artificial. Odigie (2007) argues that Poor people are typically more exposed to risk
and have inferior access to risk management instruments compared to people with
greater assets and endowments. Therefore, social protection packages should
always take into consideration the risk of the poor and dealing with the risk involve
the recognition of their income and economic characteristic.
29
According to World Bank report (1999), government intervention into social protection
should be limited to just targeting the very poor and the programmes subject to cost
effectiveness. That is, the focus of social protection should be to the poor in order to
reduce cost but this conclusion was challenge in some quarters particularly the
workers who see such packages as a transfer made from working to non-working as
well as retirement. The workers argument (Trade Union) was that social protection is
based on the principle of social insurance and not social assistance. The ILO (2000
cited in Odigie, 2007:29) sees “social protection as human rights issues that must be
provided, promoted and secured. It also insists that the state is the first agent
responsible for promoting and improving social security coverage to its members”.
Furthermore, ILO refers to the issue of social protection as income security among
the poor and emphasised that social protection should be extend to all categories of
people both in the formal and informal sector which is predominantly occupied by the
poor. This position make Odigie (2007:30) concluded that there is a strong relation
between microcredit schemes and other social protection packages because “the
policies commitment in this regards has led to its partnership activities with informal
economy organisations like SEWA, WIEGO, Street Net, etc. while its main focus still
remains social insurance, the issue about women social protection opportunities is
also featuring in its activities”.
Therefore, the linkage between social protections should act as a complementary
catalyst to credit schemes, if the issue of extreme poverty in the developing countries
is to be thing of the past. As a result, government intervention is highly required in
this respect in order to provide a shock for these set of vulnerable poor, most
especially those working in the informal sector like Small-medium scale enterprises
(SMEs) through adequate provision of credit facilities that will promote economic
growth and development.
In addition, Odigie (2007) pointed out that due to the failure of the traditional system
of social assistance in the developing countries, state intervention becomes
necessary in order to graduate the poor from poverty line and other socioeconomic
problems. Conclusively, there is a corollary between microcredit schemes and other
social protection packages that is the main reason most MFIs offer social security
30
services like micro-pension and insurance, since all are within the ambit of their
operations. Finally, if there is a strong synergy between microcredit schemes and
other social protection packages, poverty and other socioeconomic menaces will be
sweep under the carpet.
2.7 MDGs Agenda and microcredit schemes towards Global poverty reduction:
Success or failure?
In the year 2000 at Washington D.C, a consensus was reached by 189 United Nation
member states with the aim of reducing poverty by half before year 2015. In other to
achieve this objective, the summit make a declaration that set out a master plan
tagged ‘MDGs’ with the number agenda was to alleviate poverty among the extreme
poor in the world using social assistance and other social protection packages such
as making funds availability to the vulnerable groups through credit facilities.
Microfinance programme has been viewed as a unique programme for the reduction
of vulnerability, and hence the achievement of the Millennium Developmental Goals
(Adamu, 2007; Jedege et al, 2011). This is attributed to the fact that microcredit
allows poor people to diversify and such diversification makes people more resilient
to external shocks and increase source of income which create leverage over
hunger, sickness and other poverty parameters.
Barely twelve years now or more, poverty level in the world keep rising particularly in
the developing countries upon huge fund allocated to avert the situation. The
questions ask at different forum is how can the objective of the MDGs be achieved.
Hulme (2000) argues that MFIs are not a cure for poverty rather; MFIs could create
and provide a broad range of micro financial services that would support poor people
in their efforts to improve their own prospects and the prospects of their families. He
was of opinion that MDGs agenda on poverty reduction can only be achieved with
effective microfinance policies tailored towards empowering the poor. Thus he
against the concept, that the most commonly way to measure poverty is based on
income or consumption line as maintained by some scholars.
However, in the year 2011World Bank report reveal that 2.8 billion people are still
living in poor while 2.0 billion of these figures were in extreme poverty line. This
31
shortfall was attributed to non proper implementation of the Millennium development
goals agenda plans. In order to realign this, Obst (2011:1) argues for poverty
reduction through self-help whereby capital should be given to poor without going
through formal banking approach. He concluded that poverty is a daily challenge and
unpredictable therefore required counter regular income.
Some authors argue that the social benefits of microfinance such as poverty
alleviation or women empowerment have been overestimated (Bateman & Chang
2010; Dichter 2007; Obst, 2011) based on the criteria for measure its performance.
As a result suggested a uniform methodology that can be adopt universally by United
Nation member states, so as to measure the failure or success of the MDGs agenda
particularly towards poverty eradication.
According to Armendariz/Labie (2005) argue that the success of MDGs in connection
to global poverty can be measure from the outreach of the MFIs in the respective
countries but pointed to the problem of ‘mismatch’ as a fundamental failure of the
agenda. The scholars emphasized that if a well-designed microcredit package were
in place, it will improve the living standards of millions of unbanked poor throughout
the world. On a soft note, microcredit might be a relatively powerful but still limited
tool for meeting the MDGs. Therefore, outreach of the scheme must be tailored to the
extreme poor while its implementation should be executed thoroughly without bias or
on the basis of profit as pointed out by some scholars.
Finally, in measuring the failure or success of the MDGs in relations to global poverty
compass must change from region to region because some were poorer compare to
other due to this, different yardstick should be instituted to gauge the level of
alleviation.
The next subheading will discuss some of the approaches used by MFIs in order to
create more awareness among the ultra poor, so as to measure their benefits.
2.8 Approaches to measure the benefits of microfinance and parameter for
outreach to the target group.
The followings are some of the technicality used by MFIs in reaching their target
clients, mostly poor in the developing countries. These include:
32
2.8.1 Branch Expansion to the undeserved clients (Equity Bank of Kenyan
experience)
According to the authors (Allen et al, 2012: 9) between 2006 and 2009, the total
number of bank branches in Kenya increased from almost 600 to almost 1,000 (a 68
percent increase) with this figure Equity Bank’s branches increased from 44 to over
110, representing an expansion of 155 percent. However, the authors argued that the
expansion is not limited to rural or urban district rather it cut across all the districts.
But Equity Bank branch expansion success was attributed to its policy of opening
more branches in less developed districts or districts with less (perceived) growth
opportunities than other branches, where majority of the occupant are minority in
term of language they speak and other economic activities.
By and large, the authors concluded that the presence of Equity Bank at the less
geographical location with low level of education, non-ownership of house and lack
salaries job among the group in this locality increases the probability of both having
a bank account and a bank loan (Allen et al,2012: 21). Based on these results “we
conclude that Equity Bank’s business model and success can be a solution to the
financial access problem that has impeded the development of inclusive financial
sectors in many African countries” (Allen et al, 2012: 22)
2.8.2 Promotion of Gender Equality (Experience from Ghana Sinai Aba Trust)
According to Cheston/Kuhn (2001) mentioned that another way to achieved
economic growth and development through microcredit is to target women by
promoting equality among the gender, because several studies have shown that
women are the poorest of the poor and need empowerment to survive in this
situation. They emphasized that gender inequality on the bases of financial service
opportunities widening the gap between men and women in every societies because
of the requirements needed for the accessibility of microcredit such as collateral
which are predominantly in possession of men folks due to cultural norms (Property
inheritances) while this affect women empowerment and lead to slower economic
growth, higher poverty rate in the country among other (Cheston/Kuhn, 2001:30).
The scholars agitate for “products and services that avoid barriers that have
traditionally kept women from accessing formal financial services such as collateral
33
requirements, male or salaried guarantor requirements, documentation requirements,
cultural barriers, limited mobility and literacy” (Cheston/Kuhn,2001:6) by the MFIs in
order to achieved the objective of poverty reduction.
By and large, it has been argued from different quarters and corroborated by
Cheston/Kuhn (2001) that “Empowerment of women and gender equality are
prerequisites for achieving political, social, economic, cultural, and environmental
security among all peoples” this so because seeking empowerment enable the poor
to be an agent of change in their respective location and this lead to change in
economic status particularly among the women. Therefore, disempowerment is
poverty15. However, this assertion was fought by some scholars who believe that
accessibility to microcredit by women does not necessary promote economic status
improvement rather the ability of a woman to transform her life through access to
financial services depends on many factors which includes women abilities and
situation as well as other dependent variables like environment which influence
women status in the society.
Other conditions that might hinder women economic status better in relation to
microcredit facilities is inadequate access to information and other resources that will
make the business thrive. This submission makes some MFIs not to designed
specific programme for women empowerment rather for the entire vulnerable poor
because they believe that such programme could interfere with the efficiency and
professionalism of their financial operations while this will attract additional service,
resources and cost which could also limit the support the MFIs got from the donors.
2.9 Theoretical Framework.
Different postulation on the primary purpose of microcredit has been argued by
different scholars. Some seen the syndrome as an avenue for rich to get richer on the
basis of maintaining financial sustainability while others were of the opinion that
microcredit schemes is basically for alleviating poverty among the extremely poor,
15
See Cheston & Kuhn (2001: 13) Sooner or later, lack of empowerment will slow down
economic and political development, just as a lack of progress in meeting people’s basic
needs will limit empowerment because poverty itself is disempowering.
34
therefore the rationale for financial sustainability to ensure continuity of the provision
should be debunked.
It is on this note that theories of microcredit will be analysis in relation to some
empirical evidences. Thus, financial sustainability versus social mission inclusion will
be explored in this study for the thesis to have a position on the subject matter. This
is a theory propounded by scheiner in the year 2002 to determine who is benefitting
from microcredit and what microfinance institutions should stand for, though the
theories are economic and psychological in nature.
Many statically studies has been conducted to ascertain which theory real hold water.
One of the results of empirical evidence indicates that the poorest can benefits from
microfinance from both an economic and socio well-being point-of-view, and that this
can be done without jeopardizing the financial sustainability of the Micro-financial
institutions (Zaman, 2000; Robinson, 2001; Muhammed/Hassan, 2008; Jegede et al,
2011). The studies reveal that both financial sustainability and social mission
inclusion can be achieved simultaneously, if adequate outreach coverage is carried
out by the MFIs to incorporate the extreme poor, profit maximisation will also be gain
because the higher the greater number of participant in the schemes, the better it will
increase in their savings while their poverty line will be reduced drastically and
promote financial sustainability of MFIs.
On the contrary, Opponents of profitability would point to the failure of outreach to
poor or very poor clients. They argue that MFIs with a clear social mission will have
difficulties to survive on their own. MFIs “focusing on the very poor only, have a few
financial sustainable, that is, profitable” (Obst, 2011:18). Armendariz/Morduch (2007
cited in Obst, 2011:19) claimed that if MFIs intention is to concentrate on the poor
without taken into consideration financial sustainability to ensure continuity therefore
such institution must depend on some degree of subsidies to achieve both goals.
Government’s subsidisation can weaken incentives for innovation and efficiency
while sometimes they are not available in the quantities needed to effectively serve
the demand of the growing microfinance sector (Cull et al, 2009). Hulme and Mosley
(1996 cited in Jegede et al, 2011: 103) also acknowledged these findings in their
35
conclusion when they say “most contemporary schemes are less effective than they
might be”. Therefore, microfinance is not a panacea to poverty alleviation because
MFIs have shifted their attention to profitability than taking the poor out of poverty
line.
In another school of thought for sustainability of MFIs to be achieved Rosenberg,
Gonzalez and Narain (2009 cited in Obst, 2011) argue that interest rates must be
kept high to cover the much higher costs of tiny microloans compared to normal bank
loans. But the question in this aspect is how will the poverty be alleviated if the
interest charge on microloan is too outrageous for the poor to bear? Invariably the
notion of MFIs that adopt such strategy is tailored towards exploiting the poor’s more
rather than reducing their sufferings. By and large, “exorbitant interest rates that
enabled MFIs to make a significant profit raised awareness of shortcomings in terms
of social mission” (Obst, 2011:22).
Furthermore, Otero (1999) emphasized that it’s crucial to include MFIs in financial
system in order to deepen the outreach to the poor and accumulate the required
funding to do this because most countries lack infrastructure and effective distribution
channels which remains a “daunting challenge”16. This contestation of financial
sustainability and social inclusion has lead to many challenges in the operation of
some MFIs that makes them lost bearing in their objectives.
Some of the challenges include: “communication gaps and Inadequate awareness;
insufficient support from governments; inadequate donor funding; less attention on
financial sustainability of MFIs; lack of adequate loan or equity capital to increase
loan-able funds; high turnover of MFI staff; limited support for human and institutional
capacity building; illegal government and NGO operations that spoil the market; and
lack of standardize reporting and performance monitoring system for MFIs” (Irobi,
2008 cited in Jedege et al, 2011:104).
It’s in line with the foregoing that (Zeller/Meyer, 2002; Simtowe, 2008; Obst,2011)
suggested a triangular approach that will take into cognisance the two major debate
of financial sustainability and outreaches coverage as well as impact of both on the
16
See pg 11 of Otero, 1999 for more.
36
poor. Financial sustainability will focus on how the MFIs will makes available fund for
continuity of the schemes while outreach shall concentrate on the extreme poor who
really need this schemes and the impact assessment will measure the performance
of the schemes in relations to its objectives.
This study will adopt this approach and carried out an empirical investigation to
measure the perception of the poor on the schemes in Nigeria, particularly among the
small-medium scale (SMEs) owners as well as the MFIs operators to determine the
sustainability of the schemes and how it improve economic growth and development
in the informal sector of the economy. All these shall be carried out in the subsequent
chapters.
2.10 Microfinance Institutions and policies to promote financial Inclusion of the
vulnerable group.
According to Cheston/Kuhn (2002) in developing a program or policies that strikes a
balance to maximize empowerment, wellbeing, economic development, and
sustainability can be very challenging because no single program fits all
environments and populations, and no program strategy will have identical results for
all potential clients. Therefore, MFIs must diagnosis the environment where such
policies is intended to be enact by “listen to clients and carefully evaluate their
resource bases, strengths, and vulnerabilities so that they develop products and
services that build on strengths and existing resources” (Cheston/Kuhn, 2002:39).
This is the only way of ensuring the promotion of financial inclusion among the
vulnerable groups.
However, cost-effectiveness must be taken into consideration for a positive result to
be achieved in this direction. The scholars argued that MFIs should developed
policies that will be tailored towards business training which can benefit poor
entrepreneurs when the training is carefully designed to complement their existing
skills and address their most pressing needs. This can be done through market
research and other tools to ensure relevance of the clients because business training
can be a valuable component of micro lending programs17 and a pointer to good
management of credit facilities. It is one of the basic means of promoting financial
17
Ibid see page 39 for more.
37
inclusion of the vulnerable group due to enlightenment that the training will bring and
other opportunity like self-confidence to believe in financial services offered by the
MFIs and triggered client’s passion for business development.
Thus, such business training can be tailored to general education and literacy,
balancing family and work responsibilities among women as well as dialogue on
social and political issues which will invariably empowered them and enhance their
decision making in the business, household and communities (Cheston/Kuhn, 2001:
40). Apart from policies on business training other MFIs are also recognizing that
more outreach efforts are necessary to promote financial inclusion. The outreach
must include all the target clients as well as their dependents because most MFIs
deal primarily with only targeted vulnerable group and ignored their dependent which
could make the scheme failed (ibid: 43).
Moreover, the MFIs should develop policy of financial inclusion in line with a product
or packages that will meet women needs because it has been argued that these set
of people constitute largest proportion of poor in every societies. This becomes
pertinent as a result of “very few women are able to acquire assets through grouploan programs and other packages” (Cheston/Kuhn, 2002:50) therefore for inclusion
purpose the MFIs policies should be designed in this direction. If this is not done
women’s businesses will not improve dramatically, because nor women were able to
access larger individual loans, which often require assets like collateral or a
guarantor which unavailability sometimes affect their productivity.
2.11 Historical development of microcredit in Nigeria and the main Actors.
The microfinance movement began in earnest in the early 1980s in places like
Bangladesh and Bolivia and has, over the last 20 years, captured the interest of
multilateral donor agencies and private sector bankers (Enugu Forum, 2006 cited in
Mejeha/Nwachukwu, 2008:3). Before the advent of formal microfinance institutions in
Nigeria, the informal means of traditional financing has been taking place in the
country. “The Informal microfinance is provided by traditional groups that work
together for the mutual benefits of their members” (Mejeha/Nwachukwu, 2008:5).
38
The idea behind this informality is that groups provide savings and credit services to
their members who are taken on rotational basis with higher interest rates but
depends on individual contribution in the account. The informal microfinance
arrangements operate under different names in Nigeria: “Esusu among the Yoruba’s
of Western Nigeria, Etoto for the Igbo’s in the east and Adashi in the north for the
Hausas” (CBN, 2000; Mejeha/Nwachukwu, 2008:4).
However, the inability of huge capital, lack of outreaches to extreme poor coupled
with other limitations makes the non-traditional means of microcredit unimportant or
relatively inactive but formalized microfinance institutions (MFIs) are operating side
by side with the informal services because the informal microfinance ideologies are
still in existence in Nigeria rural and urban centres. 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 (Jegede et al, 2011:99).
According to Mejeha/Nwachukwu (2008:5) between 1964 and 1977, various
development finance institutions (DFIs) were established at both national and state
levels in the country with the responsibility of promoting the development of a specific
sector or sub-sector. Some of the institutions were established to provide funding to
small and medium scale enterprises while others were given the mandate of
developing new industrial enterprises and expanding existing ones through the
provision of medium and long term loans and equity participation (CBN, 2000).
However, with the drastic reduction in government subventions to them (DFIs) in the
1990s, their operations reduced drastically and by late 1990, they all ceased
operating,
as
all
of
them
depended
mainly
on
government
funding
(Mohammed/Hassan, 2008).
The establishment of microfinance institutions in Nigeria was based on weak
institutional capacity, weak capital base, existence of a huge unserved market,
improper utilization of SMEEIS fund among other things (Mejeha/Nwachukwu,
2008:5). In Nigeria, one of the basic rationales behind MFIs development is to
eradicate poverty. That is why Nigeria government mandated the CBN to develop
39
appropriate policy and framework for the operations of MFIs. Despite this, the
number of poor that benefitted from the scheme is insignificant compare to other
developing countries that has similar approach.
According to (Irobi, 2008 cited in Jedege et al, 2011: 100) “It has been estimated that
formal microfinance bank only services less than one million clients in a country
where over 70% of the country population of 140 million lives below poverty line”. The
Central Bank of Nigeria (1999) views poverty as “a state where an individual is not
able to cater adequately for his or her basic needs of food, clothing and shelter; is
unable to meet social and economic obligations, lacks gainful employment, skills,
assets and self-esteem; and has limited access to social and economic infrastructure
such as education, health, portable water, and sanitation; and consequently, has
limited chance of advancing his or her welfare to the limit of his or her capabilities”.
In Nigeria, “Microfinance institutions can be non-governmental organizations, savings
and loan cooperatives, loan unions, government banks, commercial banks, or nonbank financial institutions” (Ledgerwood, 1997 cited in Jegede et al, 2011:102).
Basically, the aforementioned are the main actors of the microcredit schemes who
were fundamentally saddle with the responsibility of implementing the scheme in
order to promote social equality and enhance people ability. Other stakeholders
includes: Government, Central Bank of Nigeria (CBN), Micro-finance Institutions
(MFIs), Public Sector Alleviation Agencies and the Donor Agencies.
Government primarily developed the schemes and focus on setting aside an amount
of not less than 1% of the annual budgets of state governments for on-lending
activities of microfinance banks in favour of their residents as well as instituting,
enforcing donor and foreign aid guidelines on microfinance to streamline their
activities in connection with this policy (CBN report, 2005).
Central Bank of Nigeria on the other hand, are mandated to designed a clear micro
finance
policy
that
spells
out
eligibility
and
licensing
criteria,
provides
operational/prudential standards and guidelines to all stakeholders while the public
Sector Alleviation Agencies makes provision of resources targeted at difficult-toreach clients and the poorest of the poor. In the case of MFIs, their primary
40
responsibility is providing efficient and effective financial services, such as credit,
deposits,
commodity/inventory
collateralization,
leasing,
and
innovative
transfer/payment services.
Finally, the donors who could be local or international are responsible to offer free or
subsidized funds, donations or technical assistance for the development of the
microfinance industry in Nigeria18. These stakeholders work hand-in-hand in Nigeria
context in order to achieve the goal of microcredit. Therefore, this study is intended to
measure the perception of poor against this backdrop particularly small-medium
scale enterprise (SMEs) owners who we consider as the main beneficiaries of the
credit schemes provided by this institutions.
2.12 Empirical Evidence of microcredit schemes in other sub-Saharan Africa
countries.
The 48 countries of sub-Saharan Africa (SSA) represent 14 percent of the world’s
population and include seven of the 10 fastest growing nations in the world: the
Democratic Republic of Congo (DRC), Ethiopia, Ghana, Mozambique, Nigeria,
Tanzania, and Zambia (CGAP report, 2012:1). This development was in connection
with increase in FDI, consistent gross domestic product growth rates, increased
political stability, a growing middle class, and reforms that reduce barriers to entry to
the region (World Bank 2011).
Yet despite healthy economic prospects, the region has the lowest share of banked
households in the world (12 percent) and the highest share of poor people, with 50
percent of the population living on $1.25 a day or less (CGAP and World Bank 2010).
These calls for more attention on financial accessibility where government and other
stakeholders need to play a prominent role.
Thus in looking at the performance of microcredit and other financial service in subSaharan Africa, the perspective should be view from the four major regions of the
continent (CGAP, 2012). According to CGAP report (2012) West Africa has many
financial cooperatives that decentralized financial systems or savings which is also
predominate in Central Africa, and they tend to be weak and write-offs based on risk
18
Central Bank of Nigeria report, 2005.www.cbn-ng.com/mfi/policy
41
indicators. While in East Africa, with a growing number of microfinance providers
reaching large scale but this was very small in Southern Africa compare to other part
of the region because conventional banks accounting for a majority of depositors and
borrowers. However with this development, the MFIs in the region still perform worse
compare to other developing region like Asia. This is not fetch from the fact that “SSA
has a large number of smaller MFIs that are often less profitable” (CGAP, 2012:2).
The report emphasized that SSA has a total of 25 Tier 1 MFIs compared to Latin
America and the Caribbean (LAC) with 105 and Europe and Central Asia (ECA) with
62 respectively and this is a pointer to smaller average loan sizes, difficult operating
environments, and in many cases less access to capital for growth with small and
dispersed capital markets while all these weaken the number of the MFIs in the
region. Also, most MFIs in the region are under government administration, the
resultant effect is weak management and governance because most microfinance
providers suffer from human capital deficiencies at all levels, attributable largely to
weak educational systems and the high costs of attracting better educated staff
(CGAP report, 2012:2).
Therefore subjecting government to the full running of MFIs should be abolished
rather government should provide supervisory and monitoring mechanisms so that
the challenge to find skilled senior managers, especially in finance, internal audit, and
law could be solved. This becomes necessary, so that the problem of inadequate
fund and misappropriation on the part of government functionaries will be corrected.
By and large, problem of poor reporting standards, limited availability of information
on MFIs, and concerns about the reliability of external audits of MFIs and lack of
transparency can be averted when government take up full responsibility of
regulation and supervisory rather than involvement in the operation of micro financing
itself.
This will be a catalyst to quick implement of the government policies towards the
eradication of poverty and enhancement of economic growth and development in a
holistic manner.
42
Figure 2: Regional Breakdown of Microfinance Data and provision for coverage
Source: Culled from Obst, 2011:26.
Another major barrier need mentioning in SSA is the lack of market infrastructure and
market information. CGAP report (2012) reveal that of 26 countries survey in SSA
have public credit registries, only six of these cover microfinance and this weaken
local stock market which limits equity investors’ exit options. Although the study
concluded that progress has been made on the regulatory side, yet there is no
restrictions on foreign investments in the banking sector but despite this progress,
“some regulations are inadequate, and implementation, including licensing, remains
challenging, especially in West Africa” (CGAP report, 2012: 2). These are connected
with additional approval requirements which create long delays, confusing changes in
capital and other regulatory requirements as well as challenges of supervisory
capacity among others (ibid:2).
The report also mentioned macroeconomic instability, as well as political instability as
another factor for low level of investment in several countries. Despite these
concerns, many investors are prepared to invest in most SSA countries, motivated in
part by their development mission and their commitment to the region due to
investible opportunities in the region and the new Greenfield operation in postconflicts of the countries (CGAP report, 2012: 3).
43
2.13 Challenges of microcredit schemes as a strategy towards Economic
growth and development in Africa region.
According to Allen et al (2012) many Sub-Saharan African countries have
implemented an extensive package of economic and financial sector reforms over the
last few decades, yet many of these countries were unable to fill-up the financial
development gap relative not only to the advanced economies but also to other peer
developing economies. The authors attributed these challenges to the access of the
unprivileged segments of the population to finance, which would promote economic
growth at the broadest scale, particularly the small-medium enterprises with low
capital base to start-up a business.
According to Soludo (2008, cited in Mejeha & Nwachukwu, 2008:10) said “after
introducing new policy on microfinance, the new focus on small and medium-scale
enterprises was borne out of the realization that the country could not go far in
employment generation and poverty alleviation without these enterprises having their
pride of place, due to uneven spread of the Microfinance Banks (MFBs) across the
states” which make SMEs have no access to banks funds. Another reason
mentioned by these scholars is the competition among micro-lenders and the overindebtedness of many poor borrowers has contributed to the recent instability in
microfinance system of many Africa countries (Allen et al, 2012:23).
Martinez (2011:38) corroborate this assertion when she said “the borrower first gets
the money, but then however faces the task of repaying the money” this was
connected with Credit conditions and high increasing interest rates charge which can
be a risk factors and make the repayment more difficult. However, some of the
borrowers even perceived high interest rates as positive, for the implicit pressure to
repay fast because a structured repayment plan of a loan can be easier to follow than
rebuilding self‐controlled savings (Collins et al. 2009 cited in Martinez, 2011:39).
The latter argument is in line with Scheiner position of microfinance institution over
financial sustainability as against social inclusion mission to reduce poverty and
enhance economic well-beings of the vulnerable poor in the society rather paradigm
of the MFIs has shifted to profit maximization at the detriment of the ultra poor. The
44
latter was attributed to high interest rate charged by the microfinance institution and
other moneylenders. The conclusion is that the objective of microfinance to combat
poverty might be defeated since the clients have to repay back double of what they
have received at all cost .
Mejaha/Nwachukwu (2008:6) also pointed to the challenge whereby most of
microfinance funding goes to the commercial sector at the detriment of the more vital
economic activities, especially agricultural and manufacturing sectors which provide
the foundation for sustainable growth and development. They argued that the
unwillingness and inability of commercial banks to provide financial services to the
rural and urban poor make most of the microenterprises source for fund from informal
sources which are not adequate for expansion of SMEs. However, the rationale
behind microfinance institutions concentrating on commerce and trade is in
connection with its fast yield and high return while this makes Nigeria MFIs have not
been able to adequately address the gap in terms of credit, savings and other
financial services required by the micro entrepreneurs (Mejeha/Nwachukwu, 2008:
9).
Another challenge that leads to the failure of microcredit schemes is the nature of the
credit itself. This has to do with the size and duration of the credit. As argued by
Dichter (2007:5) “the credit are small, fewer in frequency and smaller savings will not
engender much result”. The feature of credit by MFIs sometimes affect its
effectiveness because the borrower will invest in a quick yielding investment which
the return will be very low compare to a long-term investment that will generate
higher return. Therefore, SMEs operators remain perpetually small in their mode of
operation due to the nature of the credit.
Societal norm is another constraint to the success of microcredit schemes in Africa
region particularly. This is connected with the fact that women were considered as
the poorest of the poor in the region and they cannot access credit facilities without
the consent of their husband for the fear of losing household control after women has
been empowered courtesy of microcredit. This assertion was corroborated by Odigie
(2009:22) when he said “the ability to cope with backlash from community due to the
reaction of the husbands, the local capitalist and even leaders who see credit as a
45
mean of control”. All these pose a serious challenge to success of microcredit
scheme implementation in Africa, though not in every part of the region. The next
subheading will advance some solutions in order to overcome these challenges.
2.14 What can be done to make microcredit schemes successful in Africa
continent
2.14.1 The Need for Increased Savings Opportunity: According to Mejeha &
Nwachukwu (2008: 10) “owing to the inadequacy of appropriate savings opportunities
and products, savings have continued to grow at a very low rate, particularly in the
rural areas”, because poor now keep their money at home which does not yield any
meaningful interest. Therefore the microfinance policy should provide the needed
window of opportunity and promote the development of appropriate (safe, less costly,
convenient and easily accessible) savings products that would be attractive to rural
clients and improve the savings level in the economy (Mejeha/Nwachukwu, 2008:10).
They went further to say that this will provide ample opportunities for foreign
communities to invest in micro financing business which will invariably enhance
economic growth and development.
2.14.2 Creation of Social collateral Group to afford Repayment Default: It has
been argued from different angles that one of major constraint of microfinance
sustainability is default of credit repayment. Therefore, supporters of microfinance
claim that solidarity groups, self-help groups, and village banks help build the social
capital of their communities because no one wants a bad credit record that could
keep him or her from accessing financing in the future.
It’s in line with this believe that credit given should be attached to old traditional
system of credit disbursement where group stand as a surety to each other.
However, care must be observed in this direction due to unnecessary stresses and
pressures on community life, introduced by the MFIs in order to ensure loan
repayment so that it will not damage important support relationships with the group or
communities.
In another quarter, it was argued that credit facilitation through social collateral
system enhances the involvement of more members to the scheme due to low
interest rate charge in connection to the idea and it give room for easy repayment.
46
“Independent savings-based self-help groups are viable alternatives for reaching
remote and impoverished rural areas, the very poverty of these areas may make it
difficult to amass the savings necessary to extend credit in the amounts necessary to
stimulate the development of a vibrant microenterprise sector” (Cheston/Kuhn, 2002:
45). But with the idea of social collateral, these hindrances will be overcome.
47
CHAPTER THREE
RESEARCH METHODOLOGY
3.1
Introduction
Research methodology refers to the whole system or approach adopted by the
researcher in gathering information for the purpose of conducting this study and
subsequently arriving at an empirical conclusion. It comprise of research design,
population of the study, sampling design and procedures, data – collection
instrument, administration of the data collection instrument, procedures for
processing and analyzing collected data, field experience and limitation of the
methodology.
This chapter will be divided into two sections; the first part will discuss the
methodology adopted for the study while the second part will focus extensively on
Microcredit scheme in Nigeria and it’s mode of operandi, particularly the MFIs in
ensuring vivid implementation of the scheme in the informal sector of the economy
while the challenges of the schemes in Nigeria will also be discussed.
3.2
Research Design
The research design adopted in this study is the survey research design. In gathering
data or information for the purpose of this study, the researcher adopted a triangular
approach i.e. use of the questionnaires, interview and documented evidence. The
reason behind this is to be able to measure the impact of the microcredit scheme
from both the demand and supply side. That is, to measure the perception of SMEs
owners as well the role of the MFIs in carrying out this task.
3.3
Population of the study
The population of this study were the owners of the selected Small-medium scale
enterprises (SMEs), which comprises of operators in Bakery business, Confectionary
centres and Pastry business that are concentrated in the various divisions of Lagos
state, Nigeria. Though, the population of the SMEs’ differs from one location to
another in Nigeria but on the average of seven to fifteen employees. However, the
study only concentrates on the owners of the SMEs in Lagos State of Nigeria, since
they are directly involved on the issue of microcredit for the starting up of their
48
businesses as well as expansion of their businesses is concerned. The clients’
perception on microcredit schemes in relations to economic growth and development
is what the study intended to measure while the impact as well as the challenges of
the schemes will not be ignored in the study.
3.4
Sampling Design and Procedure
As usual in a survey research, it was necessary to select a sample to represent the
universe in order to facilitate manageability of the study. A sample size of 150, which
adequately represented the population under study, was considered appropriate for
the study under the prevailing situation.
In drawing the sample, cognizance was taken of the similarity and homogeneity in the
nature of their business as well as the divisional distribution of the SMEs. Thus, a
combination of the multi-stage stratified and the probabilistic sampling techniques
were used. Stratifying or clustering a population enhances the representativeness of
the different segments in the population (Olusanya, 1985).
The sample was first broken into three strata of 50, 50 and 50 approximately
representing the respective population at the three selected SMEs that is, Bakery,
Confectionary and Pastry businesses. At the end, due to big nature of the state
(Lagos) in term of landscape and population density, the sample in each of the 3
selected SMEs (Bakery, Confectionary centre and Pastry businesses) was later
prune down to 30 SMEs per division in the state (Lagos) and became 30 SMEs in
Ikeja, 30 SMEs in Badagry, 30 SMEs in Ikorodu, 30 SMEs in Lagos-Island and 30
SMEs in Epe divisions respectively which we still considered representative enough
of the study population.
Respondents for each division of the strata were then picked via the sample random
sampling of relevant SMEs owners. The exercise relied heavily on the sampling
frame, i.e. the list of SMEs provided by the Small and Medium Enterprises
Development Agency of Nigeria (SMEDAN) in Lagos office.
Table 1:
The table one below shows the SMEs/divisional distribution of the sample.
Divisions
Bakery
Confectionar
49
Pastry
Total
y
Ikeja
10
10
10
30
Badagry
10
10
10
30
Ikorodu
10
10
10
30
Lagos-Island
10
10
10
30
Epe
10
10
10
30
Total
50
50
50
150
Source: Sample of the Selected SMEs.
Hence, a random sampling size of 150 was selected from the overall population as
was provided on the SMEDAN lists of the SMEs in Lagos State Nigeria.
3.5
Data Collection Instrument
In collecting data for the purpose of this study, a triangular approach peculiar to a
survey research was adopted i.e. the use of questionnaires, Written interview and
documented evidence.
The questionnaire was structured into two parts via: section ‘A’ and section ‘B’.
section ‘A’ dealt with the personal or demographic data of the respondents such as
sex, age, marital status, educational background, length of operation, source of
funds, and rate of tax payment to the government.
Section ‘B’ was used to elicit respondents view on “The impact of Microcredit
schemes on economic growth and development”. The question was designed
towards measuring the perception of the SMEs owners in relation to poverty
reduction, employment generation, empowerment and well-beings in the informal
sector of the economy. It also probes into coverage and adequacy of the credit
facilities, amongst others challenges.
Written interview was used to elicit direct and first – hand information from the MFIs
operators in Lagos State Nigeria to complement data generated via the
questionnaire. Documented evidence, in terms of textbooks, journals, internet
information, World Bank/other reports and previous thesis were also used in
collecting data for this study.
50
3.6
Administration of Data Collection Instrument
As stated above, the questionnaire method was used as the primary source of data
collection while documents obtained from the existing literatures under study
provided supportive data.
The researcher personally designed the questionnaire and the questions for the
interview but the administration and the collection of the instruments was done with
the assistance of five (5) well trained research assistants in Nigeria. The colleagues
assisted the researcher in retrieving the completed questionnaires from the
respondents while the interview was done personally by the researcher through email
exchange to the target MFIs operator as an expert interview.
3.7
Method of Data Analysis
Analysis of the data collected was done manually through coding and tabulation of
the responses derived from each questionnaire according to the variables involved.
The analysis was done through the conversion of the raw scores into percentages for
easy interpretation of the demographic characteristics of respondents with respect to
age, sex, marital status, level of education among others.
The coding was to facilitate easy cross tabulation and was presented in the form of
tables showing broad distribution of the items in order to further enhance our data
analysis.
Finally, in the test of hypotheses, the chi-square goodness of fit test was used and
this was accompanied by the coefficient of contingency (c) to show the degree of
association between the variables of research. The test of hypotheses was carried
out at 5% (0.05) level of significance, with the appropriate degree of freedom.
The formular is shown below:
X2 = ∑(O-E)2
E
Where;
X2
=
Chi-square
∑
=
Summation
O
=
Observed frequency
E
=
expected frequency
51
However, two by two contingency was used by the researcher to calculate the
expected frequency of the respondents. These are given as follows:
E = RT X CT
GT
Where;
RT
=
Row total
CT
=
Column total
GT
=
Grade total
E
=
expected frequency
3.8 An Overview of the Field Work
Prior to the administration, the research instruments was given to the supervisor of
the researcher and other expert in the field of Microfinance for content validation
while an enlightenment discussion was carried out by the researcher via Skype with
the research assistants in order to educate them of what to be done on the field
during the instrument administration. The reliability of the instrument cannot be
ascertained by the researcher due to inability to carry out a pre-test or pilot test.
3.9 Response Rate
A total of 150 questionnaires were administered to the selected sample and all were
duly completed and returned, representing 100% of the study population. This
became possible because the research assistants visited different divisions of the
State (Lagos) at different time and stay with the respondents to fill the questionnaire
and return instantly.
According to the research assistants, there were initial problem or difficulties arising
from indifference and unwillingness of these respondents who declined to complete
the questionnaire on the ground that they stand to gain nothing, as well as having to
call on the respondents repeatedly to retrieve the questionnaire for those of them
whom the schedule was dropped for, to be completed.
Nevertheless, since the stratified sampling techniques was adopted, replacements of
such sample respondents who declined to fill the study schedule were consequently
selected randomly from their respective stratum to ensure a robust study rather than
a further reduction in our carefully selected sample population.
52
It is however suffice to mention that instance of unwillingness of some individuals to
respond to research questionnaires and inability of some others to articulate their
specific position on certain subjects are not unusual in behavioural research (Asika,
2004).
3.10 Limitation of Methodology
The time and cost of administering the data collection instruments as well as
accessibility of documented evidence were the main limiting factors of the
methodology of this study.
Moreso, its dependence on sampling which is prone to error limits the extent to which
findings emanating therefore can be reasonably generalized to the universe. Above
all, the validity and reliability of the study may be affected by insincerity on the part of
respondents as well as failure on the part of management of the selected MFIs to
release very vital information for the researcher in the course of the study.
Again, the researcher wait endlessly before the research instruments were return
from Nigeria because of the distance between Researcher University of study and
chosen location to conduct the research, finally to give an approval for the conduct of
the expert interview was very challenging for this study. This actually wasted a lot of
time and money, considering the fact that the researcher has a time frame within
which to submit his report.
SECTION B
3.11 Nigeria Modus Operandi of Microcredit Schemes for Small-Medium Scale
Enterprises (SMEs) Development
The small and Medium Enterprises (SMEs) has been identified as one of the engine
room of growth of every economy due to its significant contribution to employment
generation, wealth creation, poverty reduction and sustainable development but this
can only be achieved when there is a stable political atmosphere that initiate policies
for such growth and development.
According to Nigeria Vision 2020 economic program, the sector lack adequate
statistic in the country as a result makes the intervention of government to rescue the
sector very difficult and challenging. However, “the establishment of the Small and
53
Medium Enterprises Development Agency of Nigeria (SMEDAN) in 2003 was among
some of the policies put in place by government to promote orderly development of
the SMEs sector in the country” (Nigeria Vision 2020 Document,2009:109).
The activities of SMEs cut across manufacturing, agriculture, fabrication, trade and
commerce to mention few but lack of an integrated financing system become a
critical challenge to the improvement of the sector. The sector “compete for funds in
Nigeria banks at a very high interest rates averaging 15-20 percent, coupled with the
poor saving culture in the country” (Nigeria Vision 2020 Document, 2009:109).
According to CBN report (2006) the sector only contributed 2 percent of export
earnings and 10 percent to GDP of the country respectively; this was attributed to
lack of skills, management capacity, poor product quality, low production and lack of
working capital. All these reduce profitability in the sector, contribute to high mortality
rate in the country and weaken the performance of the sector globally when compare
to other developing countries.
In other to overcome this constraints particularly non-access to medium and long
term credit facilities as well as poor financial intermediation including lack of venture
capital, the government have designed a policy that increase access to funding and
financial services through the credit guarantee scheme for Micro, Small and medium
Enterprises (MSMEs) (ibid:109).
This ideology gave birth to the establishment of different development finance
institutions (DFIs) such as NACRDB, BOI to finance small-medium scale enterprises
as well as MFIs like Self-help Organization, Microfinance Banks and others that are
saddle with the responsibility of disbursement of SMIEIS funds in order to achieve the
goal of expanding informal sectors activities while at the same time providing funds
for the emerging micro enterprises.
Basically, the chapter will look at the operation of MFIs in the provision of needed
credit to the Small and medium enterprises in Nigeria while the modality adopted for
the coverage of the schemes will also be explore.
3.12 Microcredit schemes and Nigeria Microfinance Institutions (MFIs)
Anyanwu (2004) mentioned that traditional banks were initially responsible for the
financing of SMEs in Nigeria but due to the inability of this set of people to meet up
54
with the transaction cost, the MFIs become main source of fund for the SMEs. The
scholar argues 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” (Anyanwu,
2004: 4).
In Nigeria, MFIs give out credit without necessarily request for collateral unlike the
conventional banks but the loan were given in group of 5 to 10 clients. However, the
credits were in smaller portion to ensure coverage of large number of SMEs
operators that need such facilities. Over 78 per cent of their financing was for trading
activities (Anyanwu, 2004), this is connected to client’s limited assets couple with
quick and high return from the investment by the MFIs. Nigeria MFIs like other from
developing countries source for fund through donations, grants and Aids from
international donors, though it is sometimes complemented with the saving of clients
and that of shareholders.
The activities of the MFIs in Nigeria are regulated and supervised by the Central
Bank of Nigeria towards credit given and also to provide a framework for building
capacity through the training of directors and managers of MFIs. The regulatory and
supervisory role of the apex bank in Nigeria enhances the performance of the MFIs,
particularly the Microfinance banks in the country. According to CGAP report (1996)
that analysis the performance of MFIs in Nigeria, the report measured the
performance from two major angles; Outreach to the clients and Financial
sustainability of the MFIs. These two indicators are in relation to the theory of
microfinance that was discussed in chapter two of this study.
In Nigeria context, MFIs reached their target clients by providing easy access to
banking system and convenience charging rate which other convectional banks
denied them. Although, interest rates in the microfinance institutions are much higher
than the prevailing rates in the traditional banks but the issues of asset as collateral
was limited which makes clients to patronise them and invariably increase outreach.
The average lending rate of MFIs is between 33 percent to 42 percent compare to
conventional banks of 20 percent (Anyanwu, 2004: 9) yet the SMEs operators still
55
prefer to go and get credit from the MFIs because of limited collateral and
convenience in accessing the credit.
Also, the report mentioned that MFIs reach out more to their clients through the
encouragement of savings among their member whereby saving interest rate was
higher compare to the conventional banks, because the saving rate is attractive more
clients were able to bank with MFIs in Nigeria. Nevertheless, the financial
sustainability was able to measure in the report as a result of increase in the number
of the clients saving couple with donation and other personal contribution of the
shareholders the Nigeria MFIs were able to stand the taste of time.
Furthermore, in order to strengthen the activities of MFIs in Nigeria, Ayanwu
(2004:10) pointed that “the Bankers’ Committee has taken a decision that 10 per cent
of the funds accruing to the Small and Medium Industries Equity Investment (SMIEIS)
should be channelled to micro enterprises through registered microfinance
institutions”. He concluded that this initiative has improved the performance of MFIs
in the country because the finance activities in the real sector, particularly agriculture
and manufacturing where bulk of the SMEs are operating increase dramatically. This
conclusion will be probe further in our subsequent section to ascertain the role of the
scheme in real sector development and growth.
3.13 Nigeria Government Reforms towards SMEs’ Enhancement for Economic
Growth and Development.
The SMEs constitute over 80 percent of all business enterprises in Nigeria and cover
the entire range of economic activities (Nigeria vision 2020 Document, 2009: 109).
This is attributed to growth in domestic market that caused by lay-off of some
personnel due to Structural Adjustment program (SAP) in the 1970s coupled with
fresh turnout graduates from Nigeria tertiary institutions that were unable to secure a
gainful employment. This situation lead majority into informal activities such as trade
and commercial activities but lack of adequate funds and credit facilities hinder the
growth and development of the sector.
The need to promote growth and development at this sector trigger government
action towards reforms initiatives that will build a solid foundation for the attainment of
56
Nigeria’s long-term vision, particularly in the area of making the sector the engine of
growth for wealth creation, employment generation and poverty reduction. The
reforms cut across a well designed national economic policy tagged “National
Economic Empowerment and Development Strategy (NEEDS)”.
According to Eniaiyejuni (2005:238) as a nationally coordinated framework of action,
government at the three –tiers levels and other stakeholders are to collaborate to
achieve the aforementioned vision. This is done at the state level through State
Economic Empowerment and Development Strategy (SEEDS) while at the local
government by Local Government Economic Empowerment and Development
Strategy (LEEDS) respectively (NPC, 2004). Basically, the strategies are designed to
rest on how government and its institutions works with the operators in the informal
sector and implementing a social charter that would guarantee people’s welfare,
health, education, pension, poverty reduction, employment security and participation
(Eniaiyejuni, 2005: 239).
The Nigerian people, particularly those working in the informal sector (SMEs) are
being mobilised around the core value of the strategy whereby government makes
concerted efforts to provide institutional support and create the necessary enabling
environment for SMEs to become the engine of economic growth in the country
through innovation, information, enterprises creation and competitiveness, funding,
energy, institutional realignment as well as capacity development (Nigeria Vision
2020 document, 2009:113).
Furthermore, aside the strategy initiated by Nigeria government which were geared
towards economic growth and development, some restructuring exercises was also
carried out at the Development Finance Institutions (DFIs) aimed at strengthening the
performance of the SMEs through adequate provision of credit by these institutions.
For instance, Nigerian Agricultural Cooperative and Rural Development Bank
(NACRDB) that was set up in the year 2000 was the amalgamation of the old people
Bank of Nigeria, Nigerian Agricultural and Cooperative Bank (NACB) and the Family
Economic Advancement Programme (FEAP) (Anyanwu, 2004).
57
The logic behind this restructuring exercise is to finance the Agricultural sector as
well as makes credit available to the Small-medium scale Enterprises (SMEs). The
DFIs were given a mandate to accept saving and offers loans to the operators in the
informal sector with a reasonable interest rate as a charge. Another restructuring
exercise that took place in the Nigeria DFIs in order to enhance growth and
development of the SMEs is the former Nigerian Industrial Development Bank that
was converted to Bank of Industry (BOI) in the year 2001. According to Anyanwu
(2004: 11) he said the banks interest rate on loans range from 10 to 20 per cent per
annum while repayment period for loans range from three (3) to seven (7) years. All
these ideas were in relations to strengthen the sector financially, so has to promote
empowerment, employment creation, improve economic status of the operators as
well as reduce poverty level in the country.
Another reform need mentioning is the intervention of Nigeria Central Bank (CBN)
towards the activities of Microfinance Institutions, particularly Microfinance Banks
(MFBs) through regulatory and supervisory mechanisms. Before the intervention of
this apex bank, there was a proliferation of MFBs in Nigeria not because they want to
assist the SMEs client but with the notion of profit maximisation earned from the
urban poor savings. This was cut short, when the CBN increase the financial Capital
base of the MFBs from 5million to 20million naira for MFBs at local level and 1billion
naira for MFBs to operate at state level with non-refundable licence fees of 50,000
naira while there was an establishment of SMIEIS by the bankers’ committee
whereby 10% of their profit before tax was agreed to be set aside for the
improvement of informal sector through credit worthiness to the accredited MFIs
(CBN, 2005).
Aside this, the apex bank also set out some standards for the administration of the
MFIs operations as well as means for sourcing funds while some penalties were
instituted to guide against violation of the regulations19. By and large, the state
government in Nigeria were also instructed to set aside 1% of the annual budget
towards the empowerment of SMEs via credit facilities. The corollary behind these
initiatives and reforms is towards the enhancement of SMEs performance which will
19
See the Summary of Proposed Guidelines for Micro Finance Institutions (MFIs) In Nigeria
Prepared by the Central Bank of Nigeria
58
invariably increase economic growth and development in the country. As laudable as
the microcredit schemes is designed in Nigeria for poverty reduction and other
socioeconomic crises to be averted, it’s still found of some challenges. These will be
discus in the next subheading.
3.14 The Major Challenges of Microcredit Schemes in Nigeria
Nigeria like other country in the developing nation is face with series of problems that
are peculiar to developing countries, particularly in the area of carrying out an
effective microcredit initiatives. Most of these challenges hinder the performance of
microcredit towards to the achievement of economic growth and development. These
include:
3.14.1 Outreach limitation: In Nigeria, one of the major challenges of microcredit
scheme is the inability to reach the target vulnerable groups. The primary objective of
the scheme is to reach out to the overwhelming population of the poor by providing
credit in order to alleviate poverty but this was not achieved due to limitation in
outreach.
According to Mejeha and Nwachukwu (2008) argues that in Nigeria barely a million of
the poor had been provided with some credit facilities by the MFIs and other DFIs
while a yawning 40 million poor people are still left behind. This implies that more still
need to be done in this regards particularly to the core poor not necessarily for those
who are already in the business that the MFIs are focusing upon all in the name of
sustainability.
In Nigeria, the dismal performance of the conventional banks and other traditional
lending institutions lead to the proliferation of MFIs in the country to about 160
registered micro lending organisations (Anyanwu, 2004). However, with this
development in the year 2001, the challenges of how to get to the greater number of
the poor is still challenging because most of the poor depend on the small and micro
credit for the take-off of their enterprises while some absolutely depend on the
scheme for their livelihood.
According to CBN report (2005) “The existing microfinance in Nigeria serves less
than 1 million people out of 40 million potential people that need the service”. The
59
reasons adduced for this limitation was attributed to low financial capacity of the MFIs
to reach the core poor coupled with their commercial sector orientations at the
detriment of vital economic activities like agriculture and manufacturing that can
promote sustainable development in a country.
3.14.2 Low Regulatory Mechanism: Before the 2005 national microfinance policy in
Nigeria, the credit schemes was tagged with different obstacles ranging from lack of
confidence building among the MFIs which really affect their efficiency of operation.
Because the institutions were not formalised, there was no rules and regulations that
governed the operation of the MFIs and this weaken the capital base, existence of a
huge un-served market and non-utilization of the SMIEIS Fund.
According to Okojie et al (2010) argues that though the regulatory mechanism of the
scheme in Nigeria is too low but pointed out that the 2005 National policy of
microfinance has paved the way not only for wider participants but has also placed
MFIs onto a path of sustainable financial intermediaries which eventually change
their modus of operandi and promote outreach to the ultra poor in the country.
However, the regulatory mechanisms are in place now, yet more still need to be done
in the area of implementation and enforcement in order for the objective of the
schemes to be realised.
Also, some amendment is required in the policy so as to ensure full control by the
state in the area of regulation such as increase the linkages among universal banks,
development banks, and specialized finance institutions in order to cover the majority
of the poor, especially the economically active population by 2020. Another area
need to work more on as far as the regulatory mechanisms are concerned is the
outright exclusion of the traditional system of microcredit from the policy. The policy
does not take into account the activities of the traditional credit system in the country.
Okojie et al (2010) recommended that the Informal microfinance institutions should
be registered at the local government level and encouraged to keep good records in
order to assess their impact. This will increase outreach to the rural dwellers, protect
the savings of the clients and avoid unnecessary duplication of activities among the
60
MFIs. Also the problem of multiple standards and lack of uniformity among the MFIs
mode of operation will be averted.
3.14.3 Limited Funding for the Real sector: In Nigeria before the advent of formal
system of microcredit, there has been traditional informal credit schemes but was
marked with inadequate financial muscle to cut across all the vulnerable groups.
Even the DFIs that were initiated depend absolutely on government subvention for
their survival and fail woefully due to lack of enough fund on the part of government
to carry out most of the financial obligations. MFIs have also been observed to be
limited in financial capacity needed for the development of the real sector.
According to Mejeha/Nwachukwu (2008) observed that the weak capital base of the
present MFIs in Nigeria cannot act as a cushion for the risk of given out credit to
micro- entrepreneurs in the country, particularly the SMEs operator who does not
have substantive collateral. This observation was based on the statistic shown by
CBN of the MFIs in the country. The statistic reveals the existing huge gap between
available funds of the MFIs in the country in relation to what is been required to fill the
financial need of the active poor. This shortage in financial capacity triggered the
calls for more savings by the microfinance banks in the country in order to meet up
with this sole responsibility.
Ayanwu (2004) argues that the MFIs in Nigeria are expanding without financial
resources. It is on this note that SMIEIS funds were clamour for by the bankers
committee to address this financial shortage and act as a long-term financial
assistance to promote growth of the real sector. The scholar also suggested that the
challenge of limited financial resources of the MFIs in the country can be solved
through accessibility of fund from the development finance institutions on on-lending
basis due to the fact that MFIs has a greater capacity to reach the microentrepreneurs than the DFIs.
By and large, the 1% of the annual state budget for real sector development should
be channel extensively through the MFIs on long-term basis to enhance financial
capacity of the microfinance institution most especially the microfinance banks
because of their proximity to the active poor of the country.
61
3.14.4 Low level of Financial Sustainability: Another major challenge of
microcredit scheme in Nigeria is the issue of financial sustainability. By financial
sustainability, it simply means the continuity of the schemes based on limitation in
funds and coverage outreach. Financial sustainability has been link to divergent view
among the MFIs operators which make them focus on profit making at the detriment
of the poor who has nothing to save. Those in this scholar of thought hang on the
notion that the higher people were able to save, the better for the adequate
availability of funds that will cover the vulnerable group that need credit facilities for
their survival.
Anyanwu (2004) stressed that the bulk of fund used by MFIs come from international
donor or grant from external bodies and that these funds are not enough for
sustainability. He attributed the low level of financial sustainability to the fact that the
donors have different project to execute at different regions or locations, therefore
suggest for alternative means of fund for the continuous operation of the MFIs. This
according to him can be done through aggressive mobilisation of savings or deposit
from the clients as well as access the SMIEIS and DFIs funds in order to solve the
problem of sustainability.
Similarly, Jegede et al ( 2011) emphasised that if Nigeria government intended to
alleviate poverty as they used to clamour, demanded for adequate financial
sustainability which can only be achieved by strengthen the national policy in
connection with credit facilities. “The policy seeks to make financial services available
on a sustainable basis to the economically active poor, low-income earners and
micro, small and medium enterprises through privately owned enterprises (Jegede et
al, 2011:102).
That is, the policy should empowered the private MFIs operators who can source for
the fund somewhere else for sustainability purpose but government should put in
place some measures through regulatory to monitor their activities against
exploitation and other unethical behavioural that they may subject the poor. This
assertion corroborated earlier empirical findings on financial sustainability which says
“the poorest can benefits from microfinance from both an economic and socio wellbeing point-of-view, and that this can be done without jeopardizing the financial
62
sustainability of the Micro-financial institutions” (Zaman, 2000; Robinson, 2001;
Muhammed/Hassan,2008; Mejaha/Nwachukwu, 2008).
63
CHAPTER FOUR
PRESENTATION AND ANALYSIS OF DATA
4.1
Introduction
Respondents were classified according to sex, age, marital status, Year of operation,
divisional distribution and educational level. Both the quantitative and qualitative
descriptive analyses are utilized in the analysis of data.
Questions based on the stipulated hypotheses were formulated and questionnaires
were distributed to the respondents.150 questionnaires were distributed and all were
correctly filled, collected and analyzed.
In the test of relevant hypothesis, chi-square [X2] inferential statistical method was
used, to analyze the questionnaires accompanied by coefficient of contingency to
examine the strength of the relationship between the variables of the study at 5%
(0.05) level of significance as well as at the appropriate degree of freedom.
4.2
Analyses of Respondents Demographic Characteristics
Below is the table showing the basic demographic data of the respondents,
presented in tables and percentages, from the selected SMEs in Lagos state Nigeria.
Table 2:
4.2.1 Sex Distribution of respondents
Sex
Frequency
Percentage %
Male
70
46.7
Female
80
53.3
Total
150
100
Source: Field Survey, 2012.
Based on the above table, out of the total respondents, 46.7% [70] were males whilst
the remaining 53.3% [80] were females. This therefore indicates that there were more
females in the selected SMEs than males. These few numbers of males may be
connected with the fact that there are many females in the informal sector of Nigeria
economy.
Table 3
64
4.2.2
Age Distribution of Respondents
Age
Frequency
Percentage %
16 – 25
-
-
26 – 35
30
20
36 – 45
50
33.3
46 and above
70
46.7
Total
150
100
Source: Field Survey, 2012.
The above table shows that the distribution of the respondents fell within age groups
spanning between the ages of 26years to 46years and above while none of the
respondents were in the age brackets of 16 – 25years.
Majority of the respondents, that is, 46.7% [70] were in the age brackets of 46years
and above. This however shows that most of the respondents are middle – aged and
relatively young and agile with vigour and mental alertness to cope with the
challenges of establishing and maintaining SMEs in the country.
Table 4
4.2.3 Marital status of respondents
Marital status
Frequency
Percentage %
Single
40
26.7
Married
110
73.3
Divorced
-
-
Widowed
-
-
Separated
-
-
Total
150
100
Source: Field Survey, 2012
In the table 4 above, 26.7% [40] of the respondents were single, while the proportion
of married respondents was 73.3% [110]. None of the respondents was divorced
neither widowed as well as separated. It could be deduced that the SMEs has more
number of married people than unmarried.
Table 5
65
4.2.4 Educational Qualification of Respondents
Qualification
Frequency
Percentages %
First school leaving cert.
-
-
WASC/GCE ‘O’ LEVEL
10
6.7
NCE/OND ‘A’ LEVEL
40
26.7
Degree/HND
70
46.6
Postgraduate e.g. M.Sc, MBA
20
13.3
Professional qualifications
10
6.7
Total
150
100
Source: Field Survey, 2012
The distribution by respondents’ educational qualifications shows that nobody with
first school leaving certificates was in the sample of the selected SMEs, based on the
fact that this category of people are still receiving tutelage and their little
understanding on the subject matter. On the whole, 6.7% [10] of the respondents
have ordinary level school certificate. 26.7% [40] of the respondents possessed
advanced certificate like GCE ‘A’ level, OND and NCE.
46.6% [70] of the respondents indicated that they had gone through the university or
possessed HND certificates. Whilst 13.3% [20] and 6.7% [10] of the respondents
possessed postgraduate degrees such as M.Sc, MBA etc and professional
qualification such as ACIB, AMNIM, ICAN etc respectively.
From the above analysis, it is visible that majority of the respondents are
degree/HND holders. This must have been informed by the inability of the graduate
to secure a formal gainful employment opportunity in the country as result lead
majority to informal activities for their survival.
Table 6
4.2.5: Year of the respondents in the operation of SMEs
Year of operation
Frequency
Percentage %
0 – 4 years
90
60
5 – 9 years
40
26.7
10 – 14 years
20
13.3
66
15 – 19 years
-
-
20 years and above
-
-
Total
150
100
Source: Field Survey, 2012
The above table shows that 60% [90] of the respondents has spent between 0 and
4years in the operation of the SMEs, representing the majority. 26.7% [40] of the
respondents have been in operation and management of SMEs for 5 – 9years.
13.3% [20] of the sample respondents have been in the operation of SMEs for 10 –
14years whilst none of the respondents operated SMEs for 15years and above. This
implies that most of the respondents are still new in the SMEs businesses; this might
be attributed to inadequate access to credit for the starting up of SMEs business in
the country.
Table 7
4.2.6 Sources of Funds Distribution of Respondents
Job category
Frequency
Percentage %
Individual Savings
70
46.7
Moneylenders
10
6.6
Microfinance Institutions
70
46.7
Government Aids
-
-
Total
150
100
Source: Field Survey, 2012.
With reference to the above, 46.7% [70] of the respondents source for fund through
personal savings, 6.6% [10] of the respondent source for fund from the moneylenders
while 46.7% [70] of the respondent source for fund from the MFIs. This implies that
both individual savings and MFIs are the major sources of SMEs financing in Nigeria.
It is very surprising that none of the respondents source for funds from government to
finance their SMEs projects, this might be connected to the fact that government has
empowered the MFIs to finance the SMEs expansion in the country.
Table 8
4.2.7: Tax rate distribution of the respondents to Government
67
Department
Frequency
Percentage %
Less than #120, 000
50
33.3
#121,000 to #240,000
60
40
#241,000 to #360,000
30
20
#361,000 to #480,000
-
-
#481,000 to #600,000
10
6.7
#601,000 above
-
-
Total
150
100
Source: Field Survey, 2012
Table 8 above indicates the tax distribution of respondents to the government.
Although, it has been confirmed from tax authority in the state that most of the SMEs
did not remit tax to the government but some of the SMEs clients claims they pay tax
to the government. Being that as it may, the respondents of the selected SMEs
ascribed to the following tax remittance. Whilst 33.3% [50] and 40% [60] of the
respondents claim they pay tax less than #120,000 and between #121,000 to
#240,000 respectively. Some of the respondents representing 20% (30) reveal that
they tax between #241,00 to #360,000 and 6.7% (10) claim that they pay between
#481,00 to #600,000. However, none of the respondents mentioned to pay tax above
#600,000 per annum to the government.
By and large, the issue of tax remittance was not taken into serious consideration in
this study because majority of SMEs operators in Nigeria does not pay taxes due to
their organization size, structure and ownership of productive assets. Therefore,
SMEs in this study are not measured basis on tax ability rather its number of
employees, capital requirements and activities performed by these informal sectors
were given adequate consideration.
4.3
THE PERCEPTION OF SMEs OWNERS’ ON THE IMPACT OF MICROCREDIT SCHEMES IN NIGERIAN INFORMAL SECTOR DEVELOPMENT
AND GROWTH.
Keys for Measurement
SA
-
Strongly Agree
68
A
-
Agree
D
-
Disagree
SD
-
Strongly Disagree
S/N
QUESTIONS
8.
Microcredit
9.
SA
A
D
SD
(66.7%)
(33.3%)
-
-
savings of SMEs clients in Nigeria.
100
50
Financial institutions provide soft loan to
(40%)
(40%)
(6.7%)
(13.3%)
SMEs owner at a subsidies rates for easy
60
60
10
20
Joining microcredit schemes improved client
(26.7%)
(53.3%)
(20%)
-
life expectancy.
40
80
30
increases
the
income
and
repayment.
10
11
Participation in microcredit initiatives has a
significant impact on ownership of productive
assets among the clients.
12
(33.3%)
50
-
-
-
(6.7%)
(66.7%)
100
Microcredit reduces cost of living and
(20%)
(73.3%)
enhances consumption of nutritional foods
30
110
The initiation of microcredit schemes has
(60%)
(33.3%)
(6.7%)
increased self-employment opportunities in
90
50
10
Wage rate increased in Nigeria informal
(33.3%)
(40%)
(26.7%)
sector as a result of microcredit schemes
50
60
40
10
among the poor in Nigeria.
13
-
Nigeria.
14
-
initiative.
15
16
The
microfinance
institutions
effectively
study clients’ business proposal before loans
(53.3%)
(40%)
(6.7%)
were granted.
80
60
10
Higher schooling rate participation among
the
poor
children
was
enhanced
by
18
(33.3%)
(46.7%)
(20%)
50
70
30
microfinance institutions are not for business
(13.3%)
(6.7%)
(60%)
(20%)
development or expansion.
20
10
90
30
-
-
microcredit provisions in Nigeria rural areas.
17
-
Most of the financial services provided by
The adoption of microcredit programs leads
69
19
to improved employees productivity in the
(40%)
(60%)
Nigeria informal sector.
60
90
Microcredit has showed significant positive
(26.7%)
(66.6%)
(6.7%)
changes in a number of health practices in
40
100
10
-
Nigeria.
20
21
22
Training and development of employees in
-
Nigeria SMEs has been improved courtesy
(33.3%)
(53.3%)
(13.3%)
of microcredit assistances.
50
80
20
in Nigeria informal sector through the
(46.6%)
(40%)
(6.7%)
(6.7%)
provision of financial services.
70
60
10
10
Traditional decision making in the family has
(20%)
(40%)
(26.7%)
(13.3%)
been
30
60
40
20
-
-
Microfinance institutions empowered women
shouldered
by
women
due
to
microcredit initiatives.
23
Participation in microcredit programs lead to
increased
self-confidence
and
improved
women status within their communities in
(53.3%)
(46.7%)
80
70
Nigeria.
24
My
organization
improves
quality
of
-
employee’s life through adequate medical
(6.7%)
(73.3%)
(20%)
services, as a result of financial assistance
10
110
30
from MFIs.
25
26
There is a significant relationship between
-
-
-
microcredit schemes and poverty reduction
(46.7%)
(53.3%)
in Nigeria.
70
80
Remittance of tax was encouraged in
(13.3%)
(66.7%)
(20%)
Nigeria informal sector due to microcredit
20
100
30
(46.7%)
(46.7%)
(6.7%)
schemes to formalized the informal sector.
70
70
10
Repayments of loans were made easy by
(40%)
(53.3%)
(6.7%)
the microfinance institutions in Nigeria.
60
80
10
Microfinance institutions encourage savings
(46.7%)
(53.3%)
-
initiatives.
27
28
29
Nigeria
government
used
microcredit
70
-
-
-
and micro-pension among their clients in
70
80
The major challenge of microcredit schemes
(60%)
(40%)
in Nigeria is the default of loan repayment by
90
60
Nigeria.
30
-
clients.
Source: Field Survey, 2012.
Data Analysis [Discussion]
As earlier mentioned in the Chapter three (3) of the study that ‘triangular approach’
which is appropriate for survey research design will be utilized for this research, that
is, the combination of research instruments like questionnaire, interview and
documented evidences.
The questionnaire has 30 items that were divided into two sections of demographic
characteristic of the respondents as well as their perception on the subject matter.
Thus, the questions on respondents’ perception to microcredit schemes and its
impact on economic development and growth have 13 items that are relevant to the
stated hypotheses.
However, only 5 peculiar items that are absolutely related to the hypotheses shall be
discussed under this subheading due to time and page limitation given before the
conduct of this study, therefore other items analysis were clearly discussed in the
above table. The items discussed include: Question 12, 13, 18, 23 and 25 as a follow
up questions to the research hypotheses.
It can be observed from Question 12 of the above table that majority of the
respondents, about 110 [73.3%] agreed with the question that “Microcredit reduces
cost of living and enhances consumption of nutritional foods among the poor in
Nigeria”, 30 [20%] strongly agreed while none of the respondents disagreed and 10
[6.7%] strongly disagreed with the question respectively. This is a pointer that
microcredit schemes in Nigeria really improve economic well-beings of the poor in the
country, particularly in the area of consumption of nutritional foods.
At question 13 of the questionnaire, majority of the respondent 90 [60%] believed that
“The initiation of microcredit schemes has increased self-employment opportunities in
71
-
Nigeria”, meanwhile 50 [33.3%] agreed and 10 [6.7%] disagree while none of the
respondents strongly disagreed with the question. This might be connected with the
unemployment rate in the country that makes most of the young school levers
embarked on Small-medium scale business in order to earn a living due to
unavailability of gainful wage employment opportunities.
Again, question 18 depicts that 90 [60%] agreed, 60 [40%] strongly agreed, while
none of the respondents disagreed or strongly disagreed that “The adoption of
microcredit programs leads to improved employees productivity in the Nigeria
informal sector”. The feedback from the respondents was also corroborated by the
one of the expert interview conducted who says:
Interview 1 (Director Ultimate MFB, 2012)
“…… the adoption of different microcredit schemes initiative in the country has
triggered calls for loan by the SMEs owners in the country and this increase their
output to the large industries production system which invariably increase productivity
of this bigger companies because the SMEs act as a supplier of raw materials to this
large industries while this increases the country GDP”
This implies that the higher the accessibility to credit facilities by SMEs operators the
higher their production capacity in the area of raw materials supply to the large
industries and this will increases employee productivity of such organization because
productivity is the ratio of input to output.
In the same vein, we observed that “the Participation in microcredit programs lead to
increased self-confidence and improved women status within their communities in
Nigeria” on question 23 of the table. 80 [53.3%] strongly agreed, 70 [46.7%] agreed,
while none of the respondents disagreed and strongly disagreed with the question.
This is in line with the existing empirical evidences that microcredit schemes initiative
has empowered women folks in most of the developing countries like Bangladesh
and India, the situation is not different in Nigeria as many of the women SMEs
operators confirmed that the schemes makes them to gain respect and honours in
their various locations.
Similarly, the finding reveals in question 25 of the table shown that “There is a
significant relationship between microcredit schemes and poverty reduction in
72
Nigeria”. 70 [46.7%] are strongly agreed, 80 [53.3%] agreed, while none of the
respondents disagreed or strongly disagreed with opinion. This is so because the
scheme has alleviated hunger, sickness and other indices of poverty in the divisions
(Lagos) visited during this study. However, more still need to be done by the
government, MFIs and other development agencies in the aspect of coverage to
reach the core poor because most beneficiaries of the scheme are not ultra poor.
4.4
Test of Hypotheses
This section deals with testing of the hypotheses using chi-square inferential
statistical method, the works of Jill Hussey and Roger Hussey [1997, cited in Azika
2004] are used as a guide for the calculation and analysis of the hypotheses.
A statistical hypothesis is made up of the Null hypothesis [H 0] and Alternative
hypothesis [H1]. The null hypothesis deals with the assumption that there is no
difference between the hypothesis and sample result while the alternative hypothesis
is the opposite i.e. vice-versa. Null hypothesis is always in negative form while
alternatives hypothesis is in a positive form.
Decision Rule
At 0.05 level of significance and a specified degree of freedom, the null hypothesis
should be rejected where the value of the computed chi-square [X2 cal] is greater
than the value of the chi-square obtained from the table [X2 tab] and the alternative
hypothesis accepted.
However, if at 5% (0.05) level of significance and a specified degree of freedom [d.f],
the value of the computed chi-square obtained from the table [X2 tab] is less than the
calculated value, the null hypothesis should be accepted and the alternative
hypothesis rejected.
Degree of freedom = [Column – 1] [Row – 1]
D.f = [c – 1] [r – 1] at 0.05 level of significance
There are five main hypotheses for this study. For purpose of statistical testing, only
two of the hypotheses shall be tested.
73
4.4.1 Hypothesis One
H0:
There is no correlation between microcredit Initiatives and Employment
Generation in Nigeria informal sector.
H1:
There is a correlation between microcredit Initiatives and Employment
Generation in Nigeria informal sector.
The questions that are relevant or that would be used in testing the above hypothesis
are questions 13 and 14 draw from the questionnaire.
Q13:
The initiation of microcredit schemes has increased self-employment
opportunities in Nigeria.
Q14:
Wage rate increased in Nigeria informal sector as a result of microcredit
schemes initiative.
Observed frequency table
Responses
Strongly
Agreed
Disagreed
Agreed
Strongly
Total
Disagree
Q 13
90
50
10
-
150
Q 14
50
60
40
-
150
Total
140
110
50
-
300
Expecting frequency = Row Total X Column Total
Grand Total
E90 = 150 X 140 = 70
300
E50 = 150 X 110 = 55
300
E10 = 150 X 50 = 25
E50 = 150 X 140 = 70
300
E60 = 150 X 110 = 55
300
E40 = 150 X 50 = 25
300
300
Responses to question 13 and 14 on the questionnaire were collected to determine
the significant relationships between Microcredit Schemes and Employment
Generation.
74
O
[O – E]2
O–E
E
∑[O – E]2
E
90
70
20
400
5.714
50
55
-5
25
0.455
10
25
-15
225
9.000
50
70
-20
400
5.714
60
55
5
25
0.455
40
25
15
225
9.000
30.338
X2 = ∑ (O-E)2
E
=30.34
Degree of freedom = [Row – 1][Column – 1]
= [2 -1][4-1]
= [1] (3]
D.F = 3 at 0.05
∑[O – E]
Using chi-square goodness of fit test = 7.81
2
E
Note: X2cal > X2tab = Reject the Ho and Accept Hi
X2cal < X2tab = Reject the Hi and Accept Ho
Decision Rule:
Since the calculated value, 30.338 is greater than the tabulated value X 2 = 7.81. We
reject H0 at 5% (0.05) level of significance and accept H1, that is, there is a
correlation between Microcredit Initiatives and Employment Generation in Nigeria
informal sector.
To determine the strength of association between the two variables, the test of
coefficient of contingency was deployed.
C=
X2
X2 + N
Where; X2 = Calculated chi-square
75
N = Sample size
i.e
30.338
=
30.338 + 150
30.338
180.338
0.1682
c = 0.410
This test however indicates a positive high degree of association or relationship
between the two variables. The test therefore is strong enough to corroborate the
earlier test of hypothesis.
Interpretation of Result
The hypothesis one revealed that there is significant relationship between microcredit
schemes and employment generation in the country informal sector. These was
attributed to the fact that there has been an improvement in the area of skill
development (training) for the indigenous entrepreneurs’ and unemployed youths
courtesy of microcredit initiatives by the development agencies like MFIs and others
in the country which facilitate the development of new enterprises couple with the
harnessing of social capitals, especially through the provision of loan-able funds by
National Poverty Eradication Program of the federal government in the country to the
vulnerable group, particularly the poor.
This finding is also in conformity with Peterise empirical analysis (2003 cited in Kadiri,
2012:79) “SMEs both in the formal and informal sectors employ over 60% of the
labour force in Nigeria”. This is connected to the fact that SMEs productions are not
high-tech or required much automation in production system rather it is a daily route
activities that required the involvement of many people, therefore adequate financial
muscle by these SMEs operators will lead to employment of much personnel to carry
out the task in the sector.
4.4.2 Hypothesis Two
H0:
There is no correlation between Microcredit programs and Economic
Empowerment of the poor in Nigeria informal sector.
H1:
There is a correlation between Microcredit programs and Economic
Empowerment of the poor in Nigeria informal sector.
76
The questions that would be used in testing the above hypothesis are 21 and 23
draw from the questionnaire.
Q21: Microfinance institutions empowered women in Nigeria informal sector through
the provision of financial services.
Q23:
Participation in microcredit programs lead to increased self-confidence and
improved women status within their communities in Nigeria.
Observed frequency table
Responses
Strongly
Agreed
Disagreed
Agreed
Strongly
Total
Disagree
Q 21
70
60
10
10
150
Q 23
80
70
-
-
150
Total
150
130
10
10
300
Expecting frequency = Row Total X Column Total
Grand Total
E70 = 150 X 150 = 75
E70 = 150 X 130 = 65
300
300
E60 = 150 X 130 = 65
300
E10 = 150 X 10 = 5
300
E10 = 150 X 10 = 5
300
E80= 150 X 150 = 75
300
Responses to question 21 and 23 on the questionnaire were collected to determine
the
significant
correlation
between
Microcredit
Empowerment of the poor in the country informal sector.
77
Programs
and
Economic
O
[O – E]2
O–E
E
∑[O – E]2
E
70
75
-5
25
0.333
60
65
-5
25
0.385
10
5
5
25
5.000
10
5
5
25
5.000
80
75
5
25
0.333
70
65
5
25
0.385
300
11.436
X2 = 11.44
Degree of freedom = [Row – 1][Column – 1]
= [2 -1][4-1]
= [1][3]
D.F = 3
Using Chi-square goodness of fit at 5% (0.05), the table value shall be 7.81 with 3
degree of freedom on the Four-figure table.
Decision Rule:
Since the calculated value, 11.44 is greater than the tabulated value X 2 = 7.81. We
shall reject H0 at 5% (0.05) level of significance and accept H1, that is, there is a
significant relationship between Microcredit programs and Economic Empowerment
of the poor in Nigeria informal sector.
Therefore, to determine the strength of the relationship between the two variables the
test of coefficient of contingency was adopted.
C=
X2
X2 + N
11.44
161.44
78
0.071
c = 0.266
Similarly, the test indicates a high degree of association between the two variables.
Thus, corroborating the earlier test of hypothesis that established a positive statistical
relationship
between
significant
of
Microcredit
schemes
and
Economic
Empowerment.
Interpretation of Result
The second hypothesis tested, show that there is a significant relationship between
Microcredit programs and economic empowerment because in Nigeria today, most
women who were initially refers to as poorest of the poor can now stand shoulder to
shoulder with their male counterpart in the area of politics, decision making at home
and communities due to microcredit programs that enlighten them of their respective
rights in the society.
Although, there are still some constraints like societal norm that prevent them from
hundred percent empowerment but relatively have increased in the economic wellbeings such as income generation, increases in their saving as well as their peculiar
involvement in some vital domestic issues with their husbands.
This finding also contravene the existing literatures that emphasis on the empowering
of women to threaten the financial sustainability ratio of the MFIs, rather the scheme
promote equitable status of women in the family and community as well as promote
self-esteem and confidence.
4.5
Discussion of Findings
As earlier presented, findings of this study tends to support some existing theories on
microcredit schemes and economic growth/development. Such theories include
social inclusion and financial sustainability theories and how it affected informal
sector performances in Nigeria, particularly the SMEs.
79
According to the tested hypotheses, one manifestation of the relationship between
microcredit schemes and informal sector development is very cordial, that is, there is
a direct correlation between the variables.
From the responses of the respondents, to test for hypothesis one majority of the
respondents opined that there is a significant relationship between microcredit
initiatives and employment generations. These was attributed to the fact that the
inability of small entrepreneurs to have access to credit facilities couple with lack of
training and technical assistance makes the objective of microcredit schemes
towards employment generation a mirage. Therefore, the limited funds by the MFIs to
SMEs for the starting up of a business need to be increase in order to really create
employment. Similarly, accessibility to microcredit by the SMEs will increases the
business empire which will resulted to specialization on some specific task, therefore
calls for employment of professional in order to meet up with the task of returning the
credit back to the MFIs in the nearest future.
However, it is not just a process of credit return obligation that enhances employment
opportunities but the involvement of many personnel in the new business in order to
increase productivity. All these connote an increment in Gross Domestic Product
[GDP] as well as increase per capital income of such nation; meanwhile the
infrastructure development of the countries will also increase because more labour
force will demand for more social amenities from the government since the sector is
metamorphosis from informality to formal sector as a result of employment
generation.
This study also shows that ‘there is a significant relationship between Microcredit
programs and economic empowerment’. Research question proved this hypothesis
says that putting in place an adequate microcredit programs will triggered training
and development of vulnerable groups particularly women and youth while this will
enhance their rights and thinking which will makes them to overcome the challenges
of poverty caused by social inequality based on gender and societal norms.
Majority of the respondents agreed comprehensively that microcredit programs has
advanced their reasoning and makes them aware of their basic rights in the society
through training organized by the MFIs and other developmental agencies, which
eventually improved their economic status and well-beings in the area of increase in
80
income, savings as well as decision making in the society. Furthermore, the increase
in savings as a result of empowerment is in connection with the theories of financial
sustainability which the MFIs emphasis as the only way for continuity and survival of
microcredit institutions.
By and large, there is a strong correlation between empowerment and financial
sustainability of MFIs, since the empowerment of vulnerable groups is to increase
savings, which will guarantee the continuous survival of the MFIs particularly the
MFBs in their respective business.
81
CHAPTER FIVE
SUMMARY, CONCLUSIONS AND RECOMMENDATIONS
5.1
Summary
The subject of microcredit and informal sector development has for a long time been
of interest to scholars in the field of financial management, informal sector growth
and Human Resources Management. The present study assessed the perception of
the SMEs clients on the impact of microcredit schemes on informal sector
development in Nigeria using some selected SMEs in Lagos State Nigeria as a case
study. The study attempted to investigate the relations between the two variables in
light of existing theories on microcredit schemes as well as assessing the perception
of SMEs clients’ towards informal sector growth and development.
The survey research method was adopted with the questionnaire as the research
instrument. As common in such method, it was necessary to select a sample to
represent the population in order to enhance manageability. This was achieved by a
combination of the multi-stage stratified and the probabilistic techniques. Findings on
the relationships between microcredit schemes and economic growth and
development emanated from the literatures review and responses to questions on the
research instrument.
The studies also identify five [5] objectives on the topic while two [2] of the
hypotheses formulated were tested to determine whether there is a significant
relationship between Microcredit schemes and Employment Generation in Nigeria
informal sector and if there is a relationship between Microcredit initiatives in Nigeria
and Economic Empowerment of the SMEs operators, particularly women.
Remarkably too, the test of the two hypotheses confirmed the existence of a
statistical positive relationship between Microcredit Schemes and Economic growth
and development in the informal sector of Nigeria. Summarily, some of the findings of
this study thus lead credence to some earlier theories.
5.2
Conclusion
This study should support the assertion that Microcredit Schemes is of strategic
importance to third world nations in the quest for socio-economic developments
because poor people have been seen as too poor to save while informal financial
82
providers as mainly harmful. Thus, the formal loan is seen as crucial (Martinez,
2011:52). However, this became difficult because of the divergent view of MFIs and
microfinance clients, particularly in the area of financial management and
sustainability of the schemes.
It is worth to note that SMEs has some features with family-led mode of production,
therefore their financial system has been link to fungible usage in order to meet up
with emergencies situations particularly consumption. However, the systematic
procedure of branch expansion of MFIs might not be a solution due to emergencies
uses of the credit that does not guarantee business expansion.
Therefore nations should develop an effective microcredit schemes that will be
tailored towards proper economic growth and development because 90% of new jobs
are created in the informal sector courtesy of increase in SMEs operation.
Furthermore, basis on financial management for long and short term investment
needs on the part of SMEs might be difficult to achieve because of the interest rate
charges by MFIs which often unbearable by the clients and this affect financial
sustainability of the MFIs.
Krishna (2010) corroborated this assertion when he mentioned that large number of
poor people descend further into poverty because of lack of means to deal with
emergencies shocks. Therefore, to really use microcredit schemes to alleviate
poverty some social protection packages must be complementary rather than just
offering of microloan to SMEs alone.
Again, MFIs should be saddled with the responsibilities of ensuring the provision of
adequate credit for the SMEs operators and create a conducive atmosphere for
immediate assistance not necessarily loan access for the attraction of Multinational
corporations [MNCs], who only invest in nations perceived to be stable and having
requisite infrastructure. This is so, because there is a strong linkage between informal
sector and international organization (MNCs) due to provision of raw materials from
this sector.
83
5.3
Recommendations
In view of the foregoing, we therefore recommend as follows:
In the first place, further research studies should be conducted with the aim of finding
the impact of microcredit schemes on economic growth and development in the
informal sector, particularly in the Small-medium scale enterprises (SMEs). This
when designed will encourage and promote a synergy between MFIs and SMEs
activities in the country.
Furthermore, government should create an enabling environment for the small-scale
business through proper restructuring of the informal sector whereby adequate credit
schemes program will be make available to the core poor and strictly implemented to
the latter without necessary focusing on people who are already in business for
expansion purpose rather for the starting up of new SMEs in order to create
employment and enhance empowerment.
Secondly, the microcredit schemes program should be complemented with other
social protection packages like provision of basic infrastructures (roads, water,
education, electricity, hospital etc). These will reduce cost of doing business and
increase retained earnings of SMEs owners. Furthermore, such provision would
alleviate the diversion of credit for fungible purpose like consumption, paying of
children school fess to mention few because infrastructure would have been provided
by government.
Moreso, we observed that government regulatory policies are often times not
favourable to small-scale business holders because of excess tariffs and interest rate
charge by these authorities such as local government tariffs, business premises
tariffs, and environmental agency tariffs to mention few. All these tariffs affect the
performance of the innocent micro business owners, therefore government should
formulate policies to encourage Small-medium scale enterprises to sail smooth in
their business like granting them tax holiday, interest free loan and low tariffs.
In addition, we implore some kind of integration of activities between formal and
informal financial institutions (MFIs) since majority of the SMEs operators’ source for
their credit from these institutions, therefore collaborative efforts between these
84
financial institutions will broaden the credit base and promote effective means of
starting small business in the country.
Conclusively, the study recommended that MFIs should put more efforts in the area
of coverage and outreach of the microcredit schemes to the core poor in the society
because the microcredit is seen as viable tools for sustainable poverty reduction, if
and when the schemes get to the targeted ultra poor. Therefore, in-depth outreach to
the vulnerable groups is required for sustainable economic growth and development.
5.4
Suggestions for further Studies
As a result of the limitations identified earlier in the previous chapter, it might be
desirable for further studies on the subject to be conducted on a sufficient period of
time and on a wider scale so as to enhance more generation.
Finally, it is suggested here that further studies may also be done to test the validity
and reliability of the instrument employed in the study.
85
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APPENDIXES
Appendix 1
QUESTIONNAIRE
Dear Sir/Madam,
I am a Master’s Degree student of the above named institution and as part of the
requirements for MA degree. I am conducting a study on the topic: The Impact of
Micro-credit Schemes in Nigerian Informal Sector: (A case study of Selected
Small-Medium scale Enterprises (SMEs) in Lagos State, Nigeria).
Your assistance by way of filling this questionnaire will be appreciated. Please be
assured that any information provided shall be treated as strictly confidential, as this
study is purely for academic purpose.
Thanks for your cooperation.
GENTY, K. I. (Mr.)
Researcher
SECTION A
NOTE: Please answer all the questions by ticking (√) in the required space as
provided.
1.
Sex: Male ( )
2.
Age: a. 16 – 25 yrs ( )
& Over (
Female ( )
b. 26 – 35yrs ( )
c. 36 – 45yrs ( )
d. 46 year
)
3.
Marital status:
a. Single ( ) b. Married ( )
( )
e. Separated ( )
4.
Highest Educational Qualifications attained:
a. First School Leaving Certificate ….. (
)
b. WASC/GCE/SSCE/NECO O’level ……….. (
c. OND, A’LEVEL …………… …… (
)
)
d. B.Sc/B.A/HND ……………………… …… (
e. Postgraduate, MBA, M.Sc etc … … (
)
)
f. Professional ……………………… ……… (
92
)
c. Divorced ( )
d. Widowed
5.
How long have you been operating your business Enterprises?
a. 0-4 years…………… (
c. 10-14 years …… (
)
)
)
d.15-19 years ………… (
e. 20 years and above…… (
6.
b. 5-9 years …… (
)
)
How do you source for fund to start or expand your business?
a. Individual Savings …………………………….. (
)
b. Through Money Lender (Relative/community)……………………… (
c. Microfinance Institution………………………………… (
)
)
d. Government Aids……………………………………… ( )
7.
What is the range of Tax your SMEs paid to the government per annum?
a. Less than N120, 000 (less than 600 euro)……………………… (
)
b. N120, 000- N240, 000 (btw 600-1,200 euro) ……….………… (
)
c. N241, 000 – N 360,000 (btw1, 200 -1,800 euro)………………. (
)
d. N361, 000 – N480, 000 (btw 1,800-2,400 euro)……………….. (
)
e. N481, 000 and above (Above 2,400 euro).................................... (
)
SECTION B
THE PERCEPTION OF SMEs OWNERS’ ON THE IMPACT OF MICRO-CREDIT
SCHEMES IN NIGERIAN INFORMAL SECTOR.
Keys for Measurement
SA
-
Strongly Agree
A
-
Agree
D
-
Disagree
SD
-
Strongly Disagree
S/N
QUESTIONS
SA
8.
Microcredit increases the income and savings of SMEs
clients in Nigeria.
9.
Financial institutions provide soft loan to SMEs owner at a
subsidies rates for easy repayment.
10
Joining
microcredit
schemes
improved
client
life
expectancy.
11
Participation in microcredit initiatives has a significant
impact on ownership of productive assets among the
93
A
D
SD
clients.
12
Microcredit
reduces
cost
of
living
and
enhances
consumption of nutritional foods among the poor in Nigeria.
13
The initiation of microcredit schemes has increased selfemployment opportunities in Nigeria.
14
Wage rate increased in Nigeria informal sector as a result of
microcredit schemes initiative.
15
The microfinance institutions effectively study clients’
business proposal before loans were granted.
16
Higher schooling rate participation among the poor children
was enhanced by microcredit provisions in Nigeria rural
areas.
17
Most of the financial services provided by microfinance
institutions are not for business development or expansion.
18
The adoption of microcredit programs leads to improved
employees productivity in the Nigeria informal sector.
19
Microcredit has showed significant positive changes in a
number of health practices in Nigeria.
20
Training and development of employees in Nigeria SMEs
has been improved courtesy of microcredit assistances.
21
Microfinance institutions empowered women in Nigeria
informal sector through the provision of financial services.
22
Traditional decision making in the family has been
shouldered by women due to microcredit initiatives.
23
Participation in microcredit programs lead to increased selfconfidence and improved women status within their
communities in Nigeria.
24
My organization improves quality of employee’s life through
adequate medical services, as a result of financial
assistance from MFIs.
25
There is a significant relationship between microcredit
schemes and poverty reduction in Nigeria.
26
Remittance of tax was encouraged in Nigeria informal
94
sector due to microcredit initiatives.
27
Nigeria
government
used
microcredit
schemes
to
formalized the informal sector.
28
Repayments of loans were made easy by the microfinance
institutions in Nigeria.
29
Microfinance institutions encourage savings and micropension among their clients in Nigeria.
30
The major challenge of microcredit schemes in Nigeria is
the default of loan repayment by clients.
95
Appendix 2
Interview Questions
Dear Sir/Madam,
I am a Master’s Degree student of the above named institution and as part of the
requirements for MA degree. I am conducting a study on the topic: Perception of
Micro-credit Schemes on Growth and Development in Nigerian Informal Sector
(A case study of Selected Small-Medium scale Enterprises (SMEs) in Lagos
State, Nigeria).
Your assistance by way of answering these questions will be appreciated. Please be
assured that any information provided shall be treated as strictly confidential, as this
study is purely for academic purpose.
Thanks for your cooperation.
GENTY, K. I. (Mr.)
Researcher
SECTION A
NOTE: Please kindly answer these questions by filling in the required space as
provided
1.
Name of respondent: …… ………………..
2.
Name of the respondent Microfinance Institution: .................................
3.
Position of the respondent in the institution……………. . . . …………
4.
How long have you been with the Institution: …. …. … ……………………..
5.
How many branches does your microfinance institution have? ………………..
6.
Who are your Microfinance Bank target clients? ………………………………
7.
What is the minimum capital base to start Microfinance Bank business in
Nigeria?
……………………………………………………………………………………………….
8.
How
are
these
fund
sources
for
in
Nigeria?
…………………………………………………………… ………………………
9.
What
are
the
financial
services
your
bank
offers
the
clients
………………………………………………………………………………………………..
96
10. What is the rate of tax your bank paid to the government per annum?
……………………………………………………………………………………………….
SECTION B
PERCEPTION OF MICROFINANCE OPERATORS ON THE IMPACT OF MICROCREDIT SCHEMES IN NIGERIAN INFORMAL SECTOR.
11. Does your microfinance institution target small-medium scale enterprises
operators?......................if yes, what are the financial services your MFIs offers these
categories of people………………………………………………………………………….
12. How does your microfinance institution assist the small-medium scale enterprises
(SMEs)
clients
with
credit
facilities?
……………………………………………………………….
13. How did your microfinance reach out to SMEs owners and other clients?
………………………………………………………………………………………………..
14. What are your interest rate charges for SMEs clients and what modality do your
MFIs
used
for
loan
repayment?....................................................................................................
15. Do your MFIs seek for collateral before credit to SMEs clients?..............if yes,
what
kind
of
collateral
do
your
MFIs
recognized.
…………………………………..................................
16. What is the proportion of credit facilities your bank set aside for SMEs clients in
your
annual
budget?..................................................................................................................
17. Is there any criteria used by your bank to measure who among the SMEs clients
can
benefit
from
microcredit
facilities
………………………………………………………….
18. What techniques do your microfinance institution developed to recover long
outstanding
loans?
………………………………………………………...............................................
19. Does your MFIs get any support from the Government? If yes what type of
support
………………………………………………………………………………………………..
20. How do your MFIs have access to adequate fund for future sustainability in the
provision
of
financial
services
…………………………………………………….
97
to
SMEs
Clients?
21. What modality does your bank used to ensure SMEs clients utilize microcredit for
starting
up
of
a
business
and
not
divesting
the
loan?
……………………………………………………………………………………………….
22. What are the challenges of microcredit as a strategy for economic growth and
development in Nigeria? ……………………………………………………………………
23. Is there any remedies designed by your MFIs to overcome these challenges? If
yes,
what
are
they
………………………………………………………………………......................
24. Do you think microcredit can enhance economic growth and development? If yes,
how…………………. ………………………………………………………………...........
25. What is your perception to microcredit scheme and poverty reduction in Nigeria
…………………………………………………………………………………………………
Thank you for your cooperation.
98