However, conventional finance institutions seldom lend down-market to serve the needs of low-income families and women-headed households. Therefore fundamental approach is to create the self employment by financing the rural poor through financial institutions. Microfinance, thus, creates the hope and increases the self- esteem of the poor by giving the opportunities to be employed.
The participation of women in SHGs made a significant impact on their empowerment both in social and economic aspects. Vast sections of the rural poor are even now deprived of the basic amenities, opportunities and oppressed by social customs and practices. Several programmes were implemented by various governments and nongovernmental organizations to uplift them both economically and socially.
It has been an accepted premise that women were not given enough opportunities to involve themselves in the decision making process of the family as well as in the society.
Hence, women were the main target groups under SHG programme. Microfinance can provide an effective way to assist and empower poor women, who make up a significant Proportion of the poor and suffer from poverty.
Improved access and efficient provision of savings, credit, and insurance facilities in particular can enable the poor to smooth their consumption, manage their risks better, build their assets gradually, and develop their micro enterprises. Microfinance is only a means and not an end. The ultimate goal is to reduce poverty.
The SISIs would help in the identification of such intermediaries in different areas. Budgetary Provision for the Scheme During 10th plan There was a budgetary provision in 10th five year plan and hoping more funds in next plan. Stumbling Blocks of Micro-finance Institutions Microfinance institutions have faced a lot of issues about its performance and sustainability.
Microfinance institutions have been viewed as an important tool in poverty alleviation and financial inclusion. It is an important sector which would improve the living conditions of the poor and lead to the development of the country. Some of the issues faced by microfinance institutions include high interest rates, multiple lending, coercive methods of recovery, lack of transparency etc. This makes it difficult in creating awareness of microfinance and even more difficult to serve them as microfinance clients.
Though most of the microfinance institutions claim to have educational trainings and programmes for the benefit of the people, according to some of the experts the first thing these SHG and JLG members are taught is to do their own signature.
The worst part is that many MFIs think that this is what financial literacy means. Though NBFCs are able to raise funds through private equity investments because of the for-profit motive, such MFIs are restricted from taking public deposits.
In absence of adequate funding from the equity market, the major source of funds for MFIs are the bank loans, which is the reason for high Debt to Equity ratio of most MFIs.. After the Andhra crisis, it is reported that banks have stopped issuing fresh loans and even though currently few banks have resumed, they want MFIs to increase their equity to get fresh loans.
So the only mode for the MFIs to increase their portfolio size is to increase their equity. The problem of inadequate funds is even bigger for small and nascent MFIs as they find it very difficult to get bank loans because of their small portfolio size and so they have to look for other costlier sources of fund. The two major problems with the group concept are dropouts when one or more members leave the group and migration when one or more members move to another group. Most MFIs lend on the basis of the past record of the group i.
In absence of a decent past record, members are deprived of getting bigger loan amounts and additional services. The micro institutions development and Regulation bill, which was introduced in the house by finance minister Pranab Mukherjee, confers power upon the RBI to fix the maximum Interest rates that micro finance institutions MFIs can charge and also decide on the fair and reasonable method of loan recovery.
They should have minimum net owned funds of 5 lakh. However, as the sector completes almost two decades of age with a high growth trajectory, an enabling regulatory environment that protects interest of stakeholders as well as promotes growth, is needed.
Field Supervision In addition to proper regulation of the microfinance sector, field visits can be adopted as a medium for monitoring the conditions on ground and initiating corrective action if needed.
This will keep a check on the performance of ground staff of various MFIs and their recovery practices. This will also encourage MFIs to abide by proper code of conduct and work more efficiently.
However, the problem of feasibility and cost involved in physical monitoring of this vast sector remains an issue in this regard. Encourage rural penetration It has been seen that in lieu of reducing the initial cost, MFIs are opening their branches in places which already have a few MFIs operating. Encouraging MFIs for opening new branches in areas of low microfinance penetration by providing financial assistance will increase the outreach of the microfinance in the state and check multiple lending.
This will also increase rural penetration of microfinance in the state. Transparency of Interest rates As it has been observed that, MFIs are employing different patterns of charging interest rates and a few are also charging additional charges and interest free deposits a part of the loan amount is kept as deposit on which no interest is paid.
All this make the pricing very confusing and hence the borrower feels incompetent in terms of bargaining power. So a common practice for charging interest should be followed by all MFIs so that it makes the sector more competitive and the beneficiary gets the freedom to compare different financial products before buying. NGOs and Section 25 companies are having a very high value of cost per unit money lent i. Also initiatives like development of common MIS and other software for all MFIs can be taken to make the operation more transparent and efficient.
Alternative sources of Fund In absence of adequate funds the growth and the reach of MFIs become restricted and to overcome this problem MFIs should look for other sources for funding their loan portfolio.
This transformation is due to the profit motive of the microfinance institutions. The microfinance institutions should be given the access to raise funds from capital markets providing they are well rating in their performance. NBFC: Without investment by outside investors, MFIs are limited to what they can borrow to a multiple of total profits and equity investment. The first and the most crucial step to receive equity investment are getting converted to for-profit NBFC.
Along with the change in status the MFI should also develop strong board, a quality management information system MIS and obtain a credit rating to attract potential investors.
The above clause ensures that the MFI retains the correct incentive to collect these loans. To ensure security to the buying institution, MFIs are allowed to sell off as much of the outstanding portfolio as is financed by accumulated earnings or equity.
Sufficient Repayment Time Most of the micro-loans are given for the start of micro-enterprises and the loan would have to be repaid from the cash flows generated from the business. Hence, sufficient repayment time should be given by the microfinance institutions to the borrowers.
In Nigeria, it has been asserted that poverty is more devastating in the rural areas where the majority of the population resides. In the Southwest, the poverty incidence stood at Poverty incidence in Nigeria became worse in s.
The oil prices downturn in the international market further aggravated the poverty condition in Nigeria. The Government Policy on fuel subsidy removal in worsens the poverty situation. Microfinance has been adjudged as a reliable tool for poverty alleviation.
It can be used to boost the investment which eventually entails the reduction of poverty and improves the standard of living of the poor Obisesan and Akinlade, However, microfinance has been used on several occasions to reduce poverty, in rural areas in particular which are believed to harbour the poorest people in the world. It is an important aid that can improve the economic performance of the poor.
The poor people need microfinance to improve their entrepreneurial skill and socio- economic needs. They continue to wallop in abject poverty and vicious circle. This study has its target on the rural poor as statistics have confirmed that the rural sector harbour more poor and impoverished people Chukwuemeka, Table 2 depicts the contribution of Urban and Rural sectors to the poverty incidence in Nigeria. Despite the fact that microfinance has been used for decades as an important development tool and as a formidable programme for poverty alleviation, development practitioners still know little about the possible efficiency of microfinance activities in reducing poverty Khandker, Consequently, little efforts have been advanced to study the effect of these programmes on the rural poor particularly in the study area of this research.
This exercise will be the foremost study in this geographical area when an independent research will be conducted to study the impact of microfinance on the rural poor. The study is expected to spur the government policy directed to empower the poor with adequate credit facilities and necessary infrastructure for economic development. In this study, an attempt was made to appraise the content and performance of Micro- Finance Bank as a catalyst for enhancing economic growth, income redistribution and poverty eradication particularly in South-West Nigeria, having adjudged that Micro- Finance Banks have a key role to play in poverty alleviation programmes.
The research study is grouped into five sections. Following the introduction is Section 2 where the previous literature on the subject matter is reviewed. Section 3 enumerates the methodology of the study while section 4 discusses the findings.
Section 5 concludes the report with necessary recommendations to the policy makers and other stakeholders. The level of poverty is determined by the income level and degree of inequality among others. The roles of microfinance in poverty reduction have attracted various researchers to the extent that different opinions have been formed. Even microfinance reduces poverty at the macro level Anriquez and Stamoulis, In view of the fact that Microfinance programmes have been identified as the necessary development strategies to reduce poverty, researchers have made it expedient to carry out studies on the effectiveness of the programmes.
To this end, the impact of microfinance loan on poverty reduction has attracted the attention of some scholars in the last three decades. For instance, Khandker and Pitt studied the impact of microcredit on 1, households in Bangladesh and concluded that the loan obtained by women in particular increased the household expenditure, family level of education and good nutrition among others. In the same vein, Morduch conducted research on the impact of microcredit on about 1, microfinance clients and non- client households taken from Cross-sectional survey in Bangladesh.
The findings revealed that microfinance loans encourage mild increase in consumption and less vulnerability of the clients to poverty.
Also Khandker conducted research on microfinance and poverty in Bangladesh; and concluded that there is always 20 percent increase on microcredit given to women. The research further emphasised that impact of microfinance is always greater on the extreme poverty than the moderate one and that microfinance accounted for 40 percent of the entire reduction of moderate poverty in rural Bangladesh. Coleman studied the beneficiaries of microfinance in Northeast Thailand.
It was opined that the wealthy people do participate in microfinance loan and become wealthier. Edgcomb and Garber assessed the microfinance participants and non-participants in Honduras.
It was revealed that the profits of microfinance loan participants increased by 75 percent over that of non-participants. Also, MkNelly and Lippold assessed the impact of microfinance loan on clients in Mali. The findings revealed that the more the circles or rounds of participation in microfinance, the greater the income.
In his study on microfinance in Peru, Alenxander cited in Goldberg, affirms that microcredit assists the poor. Khalily also agrees that microfinance institutions can achieve the poverty reduction objective through their impact on increase in income, employment generation, increase in consumption of basic necessities, greater acquisition of assets and savings. Furthermore, in his study of an area in Pakistan on the impact of microfinance on poverty alleviation Ayuub, concludes that microfinance contributes tremendously in the reduction of poverty, increase of standard of living and income, adequate empowerment, and it also revives the economy.
This was agreed upon by Kashif, et al. Assessing the impact of microfinance on the Millennium Development Goals in a district in Pakistan Setboonsarng and Parpiev, affirm that microfinance has positive impact on production capacity, consumption, assets and Income.
The above studies confirm that microfinance activities have been categorized as an effective development intervention which plays a vital role in poverty reduction. Microfinance Institutions are much more concentrated in South West Nigeria than any other zone of the country. In addition, cross-sectional data collected through the structured questionnaire were used.
Purposive survey was also used to select three out of six states from the Geographical zone namely Ogun, Oyo and Osun states. In this context, loan beneficiaries are those individuals who obtained microfinance loan in at least previous three years.
While the non-Beneficiaries are those who have similar characteristics with the latter and applied for microfinance loan in the previous three years but could not scale through the process. In this study, an individual beneficiary of microfinance loan is regarded as a derived one from the household perspective. In essence, if one or more members of a household obtain microfinance loan, the entire household is classified as beneficiary Ashraf and Ibrahim, From the total sample size of 1, household heads, An indication that both loan beneficiaries and non- beneficiaries have similar gender characteristics.
Considering the education level, the sampled respondents are grouped into five categories. This consists of those with no formal education, those with primary education, those who attended High School, Graduates of National Diploma and those who are degree holders. The proportion of no formal education for the microfinance loan beneficiaries is About Moreover, the proportion of microfinance loan beneficiaries with post High School education Diploma and Degree is higher than that of non-beneficiaries The age dimension indicates that the respondents have age range of between 20 and above 60 years old.
And the mean age for the sample is around 39 years. A confirmation that most of the respondents are still active and young enough to exhibit their entrepreneurship. When grouped into different age categories, the vast majority of both microfinance loan beneficiaries and non-beneficiaries fall into similar age bracket of 40 years old It was also revealed that a large proportion of the respondents are married This shows that most of the sampled respondents are responsible to their families and have the tendency to cater for them.
The religion category for the respondents is similar for both Islam and Christianity. Only 2. The vast majority of the respondents have acquired less than 10 years business experience.
Table 3 shows that monthly income for the household head is grouped into five levels. The monthly income for most of the microfinance loan beneficiaries reported is above 30, Nigerian Naira Also the household head monthly expenditure of microfinance loan beneficiary group respondents is mainly less than 5, Nigerian Naira There is also indication that the proportion of the household size is similar in the sampled survey.
The survey also revealed that mostly less than 2 persons work and earn income N - N Table 4 shows the cross-tabulations of the percentages of some of the variables that can be used to measure the level of poverty. As depicted in table 4, the acronym in the first column BN1 indicates the percentage characteristics of microfinance loan beneficiaries before obtaining the loan; column two NBN1 shows the same characteristics of non- beneficiaries before applying for the loan.
In the same vein, column three BN2 shows the percentage characteristics of microfinance loan beneficiaries after obtaining the loan while column four NBN2 indicates the same for non-beneficiaries after the application for the loan.
Column five D1 shows the difference in percentages of the microfinance loan beneficiaries before and after obtaining the loan with regards to the listed variables; while column six D2 shows the same characteristics for non-beneficiaries before and after the application for the loan.
Column seven shows the difference in the differences that indicate the final results. The negative signs in the last column indicate the situation where the percentage increase in the difference characteristics of the non-loan beneficiaries is higher than that of loan beneficiaries. Taofeek Aremu Kasali, Siti Aznor Ahmad and Hock-Eam Lim differences of the percentage characteristics of the microfinance loan beneficiaries than non-beneficiaries.
Therefore, the overall results revealed that the microfinance beneficiaries have higher level of education, greater increase in household size, greater level of sales, greater level of income and moderate improvement in health standard than the non-beneficiaries from the loan programme. This indicates that microfinance loans extended to the rural poor have transformed their wellbeing. These assertions can be justified by the success glory ascribed to microfinance institutions in some parts of the world.
For instance, Amanah Ikhtiar Malaysia AIM in Malaysia, Bank of Rakyat in Indonesia and Grameen Bank in Bangladesh to mention three have performed creditably towards the poverty reduction and increase in income of the rural poor households in their respective domains. In addition, the notion that microfinance can contribute towards the poverty reduction by increase in income, improved health standard, increase in the level of education and others have been confirmed by various studies for example, Asghar ; Green et.
The outcome of the study revealed that there is marginal contribution of microfinance institutions towards the increase in the welfare of the households in the study area as a result of benefiting from microfinance programmes. This is in line with the findings of Morduch However, in order to make Microfinance Institutions MFIs more effective in the rural poverty reduction and to reach the target poor in the rural areas, the Government should create more enabling environment by improving on the rural physical infrastructural facilities.
Also, there has to be constant promotion of health and education facilities. All this would reduce the operational costs of MFIs and make their services in the rural areas more attractive.
Moreover, MFIs should always adjust their loan terms and conditions towards the situation of their potential rural clients. For instance, short term loan and weekly repayment may not augur well for a rural peasant farmer whose harvesting period is seasonal and the crop gestation period is a bit long. In essence, MFIs should endeavor to make flexible client specific repayment schedules.
In addition, MFIs can reduce the cost of operation and improve on Corporate Governance by recruiting the local educated people that can earn less than their counterparts in urban centers. Officers from local areas are expected to understand rural poverty better and should be able to convince the poor to join microfinance programmes.
The issue of security is also paramount in the development process. An Empirical Analysis of Microfinance: Who are the clients? Boston, September, Anriquez, G. Rural Development and Poverty Reduction: Is agriculture still the key?
Arun, T. Does the Microfinance Reduce Poverty in India? Asghar, N. International Journal of Advances in Management and Economics, 1 4 , Ashraf, M. Journal of Economic Cooperation and Development, 35 3 , Ayuub, S. Finance and Management Sciences, 3 1 , Bashir, M. Micro-credit and Poverty Alleviation in Pakistan. World Applied Sciences Journal, 8 11 , Abuja, Nigeria: Central Bank of Nigeria.
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