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JOURNAL OF AGRICULTURE &SOCIAL SCIENCES

ISSN Print: 18132235; ISSN Online: 1814960X10010/AWB/2010/649195

http://www.fspublishers.org

Full Length Article

To cite this paper:Nudamatiya, A.B., D.Y. Giroh and J.F. Shehu, 2010. Analysis of micro finance impact on poverty reduction in Adamawa state, Nigeria.J.

Agric. Soc. Sci., 6: 9195

Analysis of Micro-finance Impact on Poverty Reduction in

Adamawa state, NigeriaA.B.NUDAMATIYA,D.Y.GIROH1 AND J.F.SHEHUCEMIT Department, Federal University of Technology, P. M. B. 2076, Yola, Adamawa State, Nigeria

Farming Systems Research and Extension Department, Rubber Research Institute of Nigeria, P. M .B. 1049, Benin City,

Nigeria

Department of Agricultural Economics and Extension, Adamawa State University, P.M.B 25, Mubi, Nigeria1Corresponding authors e-mail: [email protected]

ABSTRACT

Micro finance impact on poverty reduction in Adamawa state was studied by a random selection of 88 beneficiaries of four

micro finance institutions through a questionnaire survey. Data collected were analyzed using descriptive and inferential

statistics. The result revealed that majority of beneficiaries was females constituting about 70% and were in the active agegroup of between 26-45 years representing about 68%. Also, it was found that the respondents were mostly civil servants with

the preferred sectors being commerce and crop farming constituting about 85%. The survey also revealed a regressioncoefficient of 0.53, correlation coefficient of 0.71 and computed t-test value of 2.16 all showing to the positive impact that

micro finance has on the income of beneficiaries. It is therefore, recommended that policy should address issues of inadequate

access and high interest rates. It should also concern itself with capacity building in the beneficiaries of micro finance as wellas the creation of markets for their products. It is also recommended that policy should focus on issues of growth and

development, which are noted to be critical to the successful use of micro finance as a poverty reduction tool. 2010 Friends

Science Publishers

Key Words: Micro finance; Micro credit; Poverty Reduction; Impact

INTRODUCTION

The important role played by credit in leverage and

poverty reduction was realized early in the history of thiscountry. This realization has made governments at all levels

try to reach the poor with one form of credit or the other,

through the numerous credit and agricultural Policies. In

spite of all these efforts however aimed at poverty reduction, poverty level index according to the National Bureau for

Statistics (NBS) has remained high especially in the rural

areas (Federal Bureau of Statistics, 1999). According to theBureau, in 1960, about 15% of Nigerians was poor. But by

1996, poverty incidence in the country was 66% or 77

million Nigerians out of a population of 110 million were

poor. Today, it is estimated that 54% of Nigerians are poorout of a population of 140 million or 75.60 million peopleare poor and this is in spite of the fact that Nigeria since

independence in 1960 has embarked on several poverty

alleviation measures and similarly said to have earned a lot

of revenue from the sale of oil and gas from among othersources (Iheduru, 2002). Additionally, Nigeria was said to

have over-investment in the credit sector as was identified

by international financial institutions (The World Bank &The International Monetary Fund) and the consequent

restructuring of the economy embarked upon by Nigeria in

the mid 1980s.Poverty is a phenomenon that has generated a lot of

interest in recent times. The term poverty does not lead to

a straight forward definition. It is a complex universal

phenomenon of multiple dimensions (Giroh et al., 2008).World Bank (2004) defined poverty as a condition of

insufficient resources or income, where in its most extreme

form is the lack of basic human needs such as health

services, education, drinking water etc. Insufficient

resources may include land, tools, supportive network offriends and families.

The distribution of extreme poverty by occupation

category further revealed that agriculture and forestry

contributed the highest percentage (64.7%) of nationalpoverty in Nigeria. This millions of small scale farmers are

entrapped in self-reinforcing cycle of poverty, low incomeleading to low savings, which in turn leads to low

investment and consequent low consumption, low health

status, low productivity and eventual persistence of poverty

(World Bank, 1996). Poverty can be absolute or relative.

Absolute poverty is lack of physical minimum requirementsfor a person or household for existence, while relative

poverty refers to a situation, where the provision of goods


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and services to an individual or household is lower than that

of others the report added (Giroh et al., 2008). Zanna (2000)

and Salvia (2007) reported that social indicators, which

include illiteracy level, health, nutritional status, housing,

water, sanitation and access to credit reveal the incidences,depth and severity of poverty in Nigeria. These indicators

are compressed into Human Development Indicators (HDI).

Nigeria is ranked among the 25 poorest countries and thepoorest in OPEC country.

The cause (s) of this state of poverty has remained a

subject of debate not only among members of academia but

also policy makers and administrators. The consensus nowhowever is that such efforts or credit never reached the

target population and that lack of access to and cost of

finance still remains the greatest challenge to our poverty

alleviation efforts (Central Bank of Nigeria CBN, 2004).According to Anyanwu (2004), Commercial Banks

traditionally lend to medium and large enterprises, which

are judged to be credit worthy. The banks avoid doingbusiness with the poor and their micro-enterprises, because

the associated cost and risks are considered to be relativelyhigh. Micro finance institutions and micro entrepreneurship

have therefore evolved in past two decades in Nigeria andelse, where around the world to cater for this group of

people.

According to Iheduru (2002), micro finance programs

and institutions have gained widespread acceptance in

Africa and else, where around the world. Researchdemonstrates that large scale directed government credit

programmes as mentioned above have proved far too costly

to manage as they have always been dogged by poorcoordination, inadequate funding, administrative overlap,

corruption, general inefficiency and ineptitude. With the

help of external funding from agencies, most countries inAfrica including Nigeria have adopted micro-entrepreneurship as an alternative approach to development

in order to avoid these negative tendencies. The intension is

to by-pass corrupt public officials make credit directly to the

very poor and thereby promote their self-sufficiency.Micro finance institutions have rapidly evolved in the

last two decades and have created significant income and

employment opportunities for the poor in developingcountries (Iheduru, 2002). In Nigeria's particular case,

however, micro finance programs founded on sound

conceptual footings and channeled through rural banking

have also failed, because of these shortcomings. This is in

spite of the over-investment in this sector by government aswas identified by international financial institutions (The

World Bank & The International Monetary Fund) and the

consequent restructuring of the economy embarked upon by

Nigeria in the mid1980s (Iheduru, 2002). Other scholars and policy analysts have identified the inhibiting factors that

make micro finance enterprises unsuccessful. Yaron (1994),identified "high risks", "heavy transaction cost" and

mounting loan loses" as some of the many factors that

drained state resources, yet the programmes have reached

only a fraction of the target population consequently have

failed to provide financial self sustainability.

However, as Khandker (2003) observed, to exhibit a

stronger impact on poverty reduction, micro finance should

perhaps go beyond the provision of financial services. Itshould find ways to improve the skill of its poor borrowers

to improve their productivity and income. It should also

assist its borrowers in marketing and improving the qualityof their products. Micro-finance or micro entrepreneurship

is only one of the many instruments of poverty reduction

and development; growth matter even more significantly

than other instruments. Investment in human capital andmeans to empower the poor also matter. He therefore,

opined that to achieve sustainable poverty reduction, the

other means must be explored as well. Micro finance

institutions have rapidly evolved in the last two decades andhave created significant income and employment

opportunities for the poor in developing countries (Iheduru,

2002). A survey conducted by Central Bank of Nigeria(2001) identified about 160 MFIs operating in 28 states of

the 36 states of the federation (Anyanwu, 2004). Thegrowing importance of MFIs in the country has made the

federal government develop a policy, regulatory andsupervisory framework for the MFIs so as to monitor their

activities and has equally directed that they convert micro

finance banks by the end of 2007. In spite of all these

however, little or nothing is known about the existence,

operation, impact or practice of MFIs in the state.Accordingly, the objectives of the survey included the

following; to describe the socioeconomic characteristics of

beneficiaries of micro finance institutions in the area, todetermine the sources of funds available to existing micro

finance institutions in the area, to determine the impact of

micro credit on the income of beneficiaries of micro financein the area, to identify problems to the practice of microfinance in the area and recommend measures.

MATERIALS AND METHODS

The study area: The study covered two (2) LocalGovernment Areas of Adamawa State, namely, Yola South

and Yola North purposefully sampled. The research

collected primary data directly from the respondents, which

included both operators of micro finance institutions and

their clients. The method used was the use of questionnairesand supplemented with oral interview. The selected Micro

finance institutions included Ummah Community Bank(UCB), Yola, Jimeta Community Bank (JCB), Jimeta,

Nigerian Agricultural, Cooperatives and Rural Development

Bank, (NACRDB) Yola and Hududullah Micro credit

company (HMCC) Ltd, Jimeta. The intension of the study

was to use only formal micro finance institutions, but sincedata was yet available on formal micro finance institutions

in the state, the research used government owned micro

finance oriented institution, the NACRDB, Community

Banks and Hundudullah Micro Credit Company. In all, 88


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93

clients of these MFIs were selected using simple random

sampling technique from the list of their beneficiaries

(sample frame) to form the sample size. The data collected

covered the past five years i.e., from the year 2003 to 2007

using lending records of these micro finance institutions.The data were analyzed using simple descriptive statistic,

Simple regression analysis and Simple correlation

coefficient analysis. T test of hypothesis was also carriedout to determine if the difference in income of beneficiaries

before and after credit was statistically significant.

Four functional forms of the production function

analysis were fitted to the data and linear function gave thebest fit and is stated as follows:

Y = b0 + b1x1 + Ui (1)

Where:Y = Change in income of beneficiaries (naira)

bo = Constant term

bl = Coefficient of regression to be estimatex = Available credit to beneficiaries

Ui = Error term.Correlation coefficient analysis: A simple correlation

coefficient analysis was also computed to see theassociation of income with credit as follows:

rxy = xy _______ (2)(x2) (y2)

Where x = Credit Availabley = Change in income of beneficiaries.

Test of hypothesis: Hypothesis was tested using t-test

statistic given by the formula:

X1 - X2

t = S12 + S2

2

n1 + n2

Where:

X1 = Mean income before credit

X2 = Mean income after creditS1 = standard error of mean before credit

S2 = Standard error of mean after credit

n1 = Sample size before creditn2 = Sample size after credit.

RESULTS AND DISCUSSION

Socioeconomic characteristics of respondents: Data in

Table I showed that majority of the respondents (42.05%)aged between 36 and 45 years, while those of 26 to 35 years

was represented by 26.13%. The age group of 25 to 45 years

corresponded to the active/working population (80.68%).This may be as a result of the fact that the study area is

located in the administrative capital of Adamawa State with

beehive of business activities. Gender distribution showed

that women were the major beneficiaries (70.45%). Theimplication of this is that it is good for poverty reduction

among women who constitute majority of the poor people

with less access to productive resources and income

generation. Anyanwu (2004) reported that Nigerian women

are marginalized in terms of economic opportunities and

should have a separate promotional agenda to reduce their poverty. This assertion was further confirmed by

Hududullah micro credit company limited one of the micro

finance oriented institution in the study that majority of theirclients were mostly women.

Educational level is another important yardstick to

assess the poverty status (Salvia, 2007). Distribution of

respondents by level of education and occupation alsorevealed that all are educated and had one form of formal or

informal education (adult/Islamic). On the basis of

occupation, the tables showed that majority of the

respondents are either petty traders 51.14%, civil servants

29.55%.

The distribution of the respondents by the type ofenterprise or sector that is most favoured has been presented

in Table II. The result showed that petty trading (61.36%)and crop farming (23.86%) are the enterprises that are most

preferred. The disproportionate coverage of commerce/petty

trading in the sample is also to be expected. Yola and Jimetatowns with over a hundred and twenty thousand people

mostly civil servants will offer a very big market for trade

and commerce. The beneficiaries will therefore want to take

advantage of the quick and high returns that come from

Table I: Socio economicdistribution of respondents(n = 88)

Variable Frequency Percentage Cumulative percentage

AgeUp to 25

26 35

36 45

45 55

GenderMale

Female

Education

Adult/IslamicPrimary

Secondary

Post Secondary

OccupationCivil Servant

Farming

Petty Trading

Fishing/HuntingOthers

11

23

37

17

26

62

2111

31

25

26

13

45

22

12.50

26.13

42.05

19.32

29.55

70.45

23.86

12.5035.23

28.41

29.55

14.78

51.14

2.272.27

12.50

38.63

80.68

100.00

29.55

100.00

23.86

36.3671.59

100.00

29.55

44.33

95.47

97.74100.00

Table II: Distribution of Respondents by Enterprises

Enterprises Frequency Percentage Cumulative

Percentage

Crop FarmingPoultry Production

Fattening

Petty Trading (commerce)

Fishing/HuntingMarketing

Total

211

6

54

33

88

23.861.14

6.82

61.36

3.413.41

100.00

23.8625.00

31.82

91.18

96.59100.00

100.00

Source: Field Survey, 2007


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investments in the sector, compared to other sectors with

longer gestation period and lower returns. It may also be dueto the small nature of the micro amount being extended to

them with short repayment period.

Impact of micro credit on poverty reduction: In impact

studies, data is usually collected before and/or after aninnovation you want to test, or with or without theinnovation. The difference is used as a measure of the

impact of the use of such innovation. In this study, before or

after option (Pitt & Khandker, 1998) was used, because oflack of information on non-users.

Regression analysis: This was used to determine the effect

or impact that micro credit has on the income ofbeneficiaries, using the ordinary least square estimates. Four

functional forms were tried in the analysis namely linear,

semi-log, exponential and double log functions. The result is

presented in Table III. After satisfying the economic,

statistical and econometric criteria, the linear function gave

the line of best fit with coefficient of 0.53, t-ratio of 9.78and significant at 1% probability level. The result shows that

53% of change in the income of beneficiaries can beattributed to credit use with about 47% explained by the

factors not captured in the model.

Correlation analysis: Correlation coefficient (r) was also

computed to show the association of income and credit (datain Table IV). The result showed an rxy value of 0.71, 0.685

and 0. 589, respectively for the three methods used and are

all significant (p>0.01). This indicates positive association

between income and credit i.e., increase in credit increases

the income of beneficiaries.ttest result: The result of the test showed that while the

value of t calculated was 7.804, the table t value is 2.16 at

1% level of significance. It therefore means that the test wassignificant at 1% level of significance. It also means that

mean incomes of beneficiaries before and after credit were

statistically different. The work therefore, rejects the nullhypothesis and accepts the alternative. In all, the results of

the regression analysis, the correlation coefficient analysis

and t-test result tend to agree with (Khandker, 1998), where

he estimated that about 21% of the GrameenBank borrowers

managed to lift their families out of poverty within about

four years of participation. Also that extreme povertydeclined from 33% to 10% among its participant. In the case

of Bank Rakyat Indonesia (BRI), that incomes of borrowers

increased by 76% and employment increased by 84% within

3 years of programme participation. They all tend to portray

the positive impact, which credit has on income ofbeneficiaries and poverty reduction. The problem howeveris how the poor can have a sustainable access to credit.

CONCLUSION

Micro finance has a positive impact on povertyreduction in the state. Moreover, the use of micro finance as

an effective poverty reduction tool is being impaired by a

number of problems, which need to be dealt with if micro

finance is to have or exert the desired impact. It isrecommended that policy should address issues of

inadequate access and high interest rates. It should also

concern itself with capacity building in the beneficiaries ofmicro finance as well as the creation of markets for their

products; it is also recommended that policy should focus

on issues of growth and development, which are noted to be

critical to the successful use of micro finance as a povertyreduction tool.

REFERENCES

Anyanwu, C.M., 2004. Micro-finance Institutions in Nigeria: Policy

practice and potentials. Paper presented at the G24 Workshop on"Constraints to Growth in Sub-SaharanAfrica," Pretoria, South

Africa, November 29-30, 2004

Central Bank of Nigeria, 2001. Survey of Micro-finance Institution in

Nigeria, in Anyanwu (2004) Micro Finance Institutions in Nigeria

Policy, Practice and Potentials. Paper presented at the G24

Workshop on "Constraints to Growth in Sub-Saharan

Africa,"Pretoria, South Africa, November 29-30, 2004

Central Bank of Nigeria, 2004. Draft National Micro-finance and

Regulatory Guidelines for Nigeria, Anyanwu (2004) Micro-

Finance Institutions in Nigeria: Policy, Practice and Potentials.

Paper presented at the G24 Workshop on "Constraints to Growth

in Sub-Saharan Africa," Pretoria, South Africa, November 29-30,

2004Central Bank of Nigeria, 2005. Micro Finance Policy, Regulatory and

Supervisory Framework for Nigeria

Table III: Summary of regression Result

Functional form variable Constant X F.Value T.value R2 S.E

Linear

Semi-logExponential

Double log

Y

YLnY

LnY

5534.01

-57316.128.968

6.289

0.338

80591.188E-05

0.330

95.78

26.41101.17

42.55

9.78***

5.13***10.06***

6.52***

.527

.235

.549

.339

0.035#

1568.390.000

0.051

Source: Field survey, 2007. *** Significant at 1 percent # Lead equation

Table IV: Summary of Correlation Result

Correlation Correlation coefficient Significance level

Spearmans correlation

Pearsons correlation

Kendalls correlation

0.711

0.685

0.589

0.01

0.01

0.01


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MICRO FINANCE AND POVERTY ALLEVIATION / J. Agric. Soc. Sci., Vol. 6, No. 4, 2010

95

Federal Bureau of Statistics, 1999. Poverty Profile for Nigeria 1980-1996,pp: 2425. A Report

Giroh, D.Y., F.O. Igbinosun, P. Ogwuche and V.P. Wuranti, 2008.Assessment of Rubber Research Institute of Nigeria Benin City

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Iheduru, G., 2002. Women Entrepreneurship and Development: The

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International Interdisciplinary Congress on Women. 21-26 July,2002, Makere University, Kampala, Uganda

Khandker, R.S., 1998. Fighting Poverty with Micro-credit: Experience in

Bangladesh.In: Nissanke, M. (ed.),Donor' Support for Micro-credit

as Social Enterprise. A critical reappraisal. United Nation Discussion

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Khandker, R.S., 2003. Micro-finance and Poverty: Evidence using panel

data from Bangladesh: United Nations policy research workingpaper No. 2945

Pitt, M. and S.R. Kandker, 1998. The impact of Group-Based credit

programmes on poor households in Bangladesh. Does the Gender of

participants matter? Marr, A. (ed.), Studying Group Dynamics: An

Analysis of micro-finance Impacts on Poverty Reduction and its

Application in Peru. In Nissanke, M. (ed.), DonorsSupport for

Micro Credit as Social Enterprise: A Critical Reappraisal. United

Nation Discussion paper No 2002/127

Salvia, H.W., 2007. Analysis of Poverty and Inequality Among Small scaleFarmers in Hong Local Government Adamawa State. Unpublished

M.Sc. Thesis Department of Agricultural Economics and Extension,Federal University of Technology, Yola, Nigeria

Yaron, J., 1994. What makes Rural Financial Institutions Successful. In:

Iheduru, N.G. (ed.), Women, Uganda Entrepreneurship Development

and Gendering of Micro-finance in Nigeria Presented at the 8 th

International Interdisciplinary Congress on Women 21-26 July,

2002, Makere University, KampalaWorld Bank, 1996. Poverty Amidst Plenty: Nigerias Poverty Assessment,

Washington DC

World Bank, 2004. Millennium Development Goals. The World BankGroup Washington DC

Zanna, B.G., 2000. The Status of Poverty Alleviation in Nigeria, pp: 123.

A paper presented at the Annual conference of NERA, University of

Nigeria, Nsukka, Nigeria

(Received 09 February 2010; Accepted 20 April 2010)

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