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IMPACT OF MICRO CREDIT ON POVERTY ALLEVIATION SCHEME IN EDO STATE, A CASE STUDY OF LIFT ABOVE POVERTY ORGANIZATION (LAPO)
BY
DEPARTMENT OF BUSINESS ADMINISTRATION
FACULTY OF MANAGEMENT SCIENCE
ABSTRACT
The level of poverty in Nigeria since the implementation of the Structural Adjustment Programme (SAP) is on the increase despite several measures put in place by successive governments in Nigeria to check the menace. Recently, greater emphasis is being placed on micro credit as a poverty alleviation strategy in most developing countries of the world including Nigeria. The study is an attempt to assess the impact of micro credit as a poverty alleviation scheme in Edo State using LAPO as a case study.
The following objectives were stated:
To identify the socio-economic characteristics of the loan borrowers in the study area.
To find out how the beneficiaries assess the micro financing scheme.
To identify and assess the volume of credits to the loan borrower.
In addition, one hypothesis was stated for validation. To achieve the above objectives, the survey research design was adopted. Both primary and secondary sources of data were utilized. The list of LAPO cooperatives groups in all the three Local Government Areas in Benin City was obtained from the LAPO Head quarters which serve as the sampling frame. A total of 36 members were randomly selected from each of the Local Government area. A total of 106 members were used for the study. The main instrument of data collection was the questionnaire. Out of the 106 questionnaires administered to respondents, a total of 101 were completely filled and returned back to the respondents. The study reveals that micro credit scheme as a poverty alleviation scheme in Edo State is having a positive impact on the poverty level of individual members of LAPO cooperatives. The study reveals that majority of the LAPO cooperative members were women. About 95% of the cooperative members have benefited from the programme. The study also shows that the main determinant of the amount of loans an individual secures from LAPO is the number of years they have spent as a member of the cooperatives. Individual members that have spent up to five years secured the highest amount of loans. Finally, the study shows that respondents had higher income after their involvement in micro credit scheme. Similarly, they were able to send a number of their wards to school after their involvement in micro credit scheme. Thus, it was recommended that more NGOs should be involved in the micro credit scheme with a view to reaching most of the poor masses. It also recommends that Government should partner with the NGOs by providing more funds to them to disburse to the rural people or can even provide collateral securities for the NGOs to access funds from banks.
TABLE OF CONTENTS
Title page i
Certification ii
Dedication iii
Acknowledgement iv
Abstract vi
Table of Contents ix
List of Tables xi
List of Figures xiii
CHAPTER ONE: INTRODUCTION
Background to the Study 1
Statement of the Research Problem 4
Research Questions 6
Research Objectives 7
Hypotheses of the Study 7
Justification of the Study 8
CHAPTER TWO: LITERATURE REVIEW
Introduction 9
Concepts of Micro Credit and Poverty 9
The Nigerian Experience in Micro-Credit Financing 13
Development Finance Institutions (DFIs) 15
Peoples Banks of Nigeria 17
Community Banks 18
Micro-Credit Delivery by Commercial and Merchant Banks
in Nigeria 19
Impact of Micro-Credits on Poverty 21
Micro Credits and Non-Governmental Organization 30
Operating Assumption of LAPO 33
Structure 45
Sister Organizations 48
Networking 52
CHAPTER THREE: RESEARCH METHODOLOGY
Introduction 55
Research Designs 56
Sampling Framework 59
Operationalization of the Variables 61
Method of Data Gathering 63
Method of Data Analysis 63
Problems in the Research Process 63
Summary 64
CHAPTER FOUR
DATA ANALYSIS AND PRESENTATION OF RESULTS
Introduction 65
Age Distribution of the Respondents 67
Marital Status of Respondents 68
Ethnic Group of Respondents 70
Average Family Size 71
Occupational Distribution of Respondents 72
Educational Qualifications of Respondents 74
Year of Joining LAPO cooperatives 75
Relationship Between the Respondent’s Year of Joining LAPO
Cooperatives and the Number Times they have benefited 77
Amount of Loan Benefited 78
The Impact of Micro-credit on the Poverty Level 79
Average Income per month Before Involvement in Micro-Credit 80
Average Income per month now 81
Number of Children in School Before the Loan 85
Number of Children in School Now 85
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS
Introduction 92
Findings 92
Conclusion 95
Recommendations 96
References 98
Appendix 101
LIST OF TABLES
Table 3.1 Operationalization of the Variables 62
Table 4.1 Sex of the Respondents 66
Table 4.2 Age Distribution of the Respondents 67
Table 4.3 Marital Status of Respondents 68
Table 4.4 Ethnic Group of Respondents 70
Table 4.5 Average Family Size of Respondents 71
Table 4.6 Occupational Distribution of Respondents 72
Table 4.7 Educational Qualification of Respondents 74
Table 4.8 Year of Joining LAPO cooperatives 76
Table 4.9 Relationship Between the Respondents’ Year
of Joining LAPO Cooperative and The Number
Times they have Benefited 77
Table 4.10 Amount of Loan Benefited 78
Table 4.11 Average Income per Month before Involvement
In Micro-Credit Scheme 81
Table 4.12 Average Income per month now 81
Table 4.13 t-test Analysis of the Income of Respondents
Before and after involvement in Micro-Credit
Scheme 83
Table 4.14 Number of Children in School Before the Loan 85
Table 4.15 Number of Children in School After the Loan 86
Table 4.16 t-test Analysis of the Number of Children
Respondents were able to send to school
Before and after involvement in Micro-credit
Scheme 87
Table 4.17 Is the Loan Enough for your Business? 88
Table 4.18 Problems Encountered by Respondents
Involved in Micro Credit Programmes 89
CHAPTER ONE
INTRODUCTION
1.0 BACKGROUND FO THE STUDY
the level of poverty has increased in Africa and in Nigeria since the implementation of the Structural Adjustment Programme in the ‘80s (UNDP Nigeria, 1998; World Bank, 1999). Data from the Federal Office of Statistics (FOS) on poverty profile in Nigeria (1999) showed that the incidence of poverty increased from 28.1% in 1980 to 43.6% in 1985 but declined to 42.7% in 1992 and rose again to 65.6% in 1996. Since 1990, the country has been classified as a poor nation.
For the period 1980 to 1996, the population of poor Nigerians increased fourfold in absolute term. The percentage of the core poor increased from 62% in 1980 to 93% in 1996, whereas the moderately por only rose from 28.9% in 1992 to 36.3% in 1996. The proportion of total income spent on food by the core poor and moderately poor was approximately 75% and 73%, while the non-poor category spent about 53% of their total income on food (FOS, 1999).
The analysis of the depth and severity of poverty in Nigeria showed that rural areas were the most affected. Several reasons accounted for this situation; the large concentration of the populace in the rural area, many years of neglect of the rural areas in terms of infrastructural development, and lack of information on the way government is being run. The CBN/World Bank study on Poverty Assessment and Alleviation in Nigeria (1999) attested to the fact that the living and environmental conditions of those living in the rural areas have worsened. Urban poverty is also on the increase in the country. This has been attributed to the under provision of facilities and amenities which are inadequate to match the growing demand of the urban populace as well as the rural-urban movement which has caused serious pressure on the existing infrastructural facilities.
Concern about the problem as well as efforts made to reduce it cannot be said to be new. However, while major reductions in poverty level have been in the developed countries, the same cannot be said regarding the undeveloped countries of the world. Indeed, Sub-Saharan Africa has been characterized as being among the poorest regions of the world. Poverty in the region has increased due to global economic policies political instability, civil wars and Structural Adjustment Programme (SAP) among others. About 250 million Africans (about 45 percent) of the population are poor (World Bank, 1996). In rural areas, where most Africans live, the situation is worse. The high poverty level in Sub-Saharan Africa has been attended by the decline in per capita income, wages and employment in the surroundings of the population pressures, fragile national resources and weak institutional financial structure (Afonja, 1996).
1.1 STATEMENT OF THE PROBLEM
The concern over increasing poverty level especially in the developing countries and the need for is alleviation as a means of improving the standard of living of the people has led to the conceptualization and implementation of various targeted or non-targeted poverty alleviation schemes worldwide. In Nigeria, both the Nigerian government and donor agencies have implemented a number of efforts to analyze and find solutions to the menace of poverty in the country.
Despite these measures, the level of poverty in the country is on the increase. The inadequacies of these approaches prompted the emergence of a people centered development strategy. This approach recognizes the potentials of the people especially the poor in improving their own socio-economic conditions. But what is required is capital, which is not accessible to the poor. The need to meet this financial demands of the poor brought to the fore the concept of micro financial which is being propelled by both local and international NGOs. Macro financing recognizes the availability of capital to the poor.
Over the past two decades, micro finance institutions have created access to micro credits to the poor in Asia, Latin America and Africa. The potentials of micro-finance in Nigeria are enormous and hence, its importance as a tool for poverty reduction has dawned on governments, non-governmental organizations (NGOs) and individuals alike. This awakening has brought about concerted action from all these sectors to make credit available to the poor to fight against poverty. Hence, this study is based on an organization geared towards this effort. It is called Lift Above Poverty Organization (LAPO) in its effort to alleviating poverty and ensuring economic development in Nigeria in the area of micro financing. It is in this context that this study is set to assess the impact of micro credit as a poverty alleviation scheme in Edo State using LAPO as a case study.
1.2 RESEARCH QUESTIONS
From the foregoing, it becomes pertinent to raise and address certain questions, which will guide the course of this study. The following questions therefore, provide the bedrock of this research:
What is the volume of credit available to the loan borrowers?
What is the relative impact of micro-credits on poverty level?
How do the beneficiaries assess the micro financing scheme?
What are the measure that will enhance the effectiveness of micro financing as a poverty alleviation scheme in Nigeria?
All these are questions that will be addressed succinctly in this study. The answers should suggest some lessons for development planners, policy makers and other stakeholders in the field of poverty alleviation, particularly in Edo State of Nigeria.
1.3 RESEARCH OBJECTIVES
The main objective of the study is to determine the impact of micro credit on poverty alleviation scheme. Other objectives include:
To identify the socio-economic characteristics of the loan borrower in the study area.
To find out how the beneficiaries assess the micro financing scheme.
To identify and assess the volume of credits to the loan borrower.
1.4 HYPOTHESIS OF THE STUDY
In this study, one major hypothesis is formulated for validation:
There are significant differences in the income of the loan borrowers before and after micro credit assistance.
1.5 JUSTIFICATION OF THE STUDY
Given the geometric increase in the number of poor people in the last few decades in Nigeria, this study forms a major contribution towards developing a relevant and appropriate poverty alleviation scheme in Nigeria.
This study will also help in assessing the effectiveness of micro credit as a poverty alleviation scheme in Edo State and it is hoped that the result of the study will be applicable to other states in Nigeria.
In addition, the study will contribute to the literature of micro credit and poverty alleviation schemes in Nigeria.
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