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Poverty has such an adverse effect that those under it remain trapped in a vicious circle
because access to basic necessities of life is lacking or inadequate. The antipoverty
programmes of the federal government were targeted at the rural and urban poor with
emphasis on women and unemployed youth. The intervention took the form of the provision of
basic infrastructures to facilitate rural development as well as provision of credit facilities to
improve the lot of the underprivileged by encouraging micro-enterprises in the cities and
training programmes for the unemployed youths. This was done because it was realized that
Structural Adjustment policies did not achieve steady economic growth and poverty has
become more acute as evident among the rural and urban dwellers. The objective of this
study was to examine the impact of microfinance banks on poverty alleviation using the
Ahmadu Bello University microfinance bank as case study. Both primary and secondary data
were collected and used. Also, descriptive statistics were used. The results showed that
microfinance banks enhanced rural and urban development; there was improved savings
mobilization which improved credit facilities which in turn improved the lot of the rural and
urban dwellers by the larger output from micro-enterprises. Data were analyzed by the use of
simple percentage and Chi-square statistics. It was found that microfinance banks
contributed to poverty reduction. It was concluded that Ahmadu Bello University
Microfinance Bank charges high interest rate because of their incapacity to mobilize its funds
from the local community but rather borrowing from other banks; thus this has continued to
undermine the contribution of microfinance banks to poverty reduction. More study on the
design, effects and effectiveness of these antipoverty banks are needed.
Title Page ———————————————————————————– i
Declaration ——————————————————————————— ii
Certification ——————————————————————————- iii
Dedication ——————————————————————————— iv
Acknowledgement ———————————————————————— v
Abstract ————————————————————————————- vi
Contents ———————————————————————————— vii
List of Tables —————————————————————————— viii
List of figures —————————————————————————— xii
1.0 Chapter One: GENERAL INTRODUCTION
1.1 Background of the study————————————————- 1
1.2 Statement of problem—————————————————— 5
1.3 Objectives of the study—————————————————– 7
1.4 Research Question/Hypothesis——————————————– 7
1.5 Justification /significance of the study ———————————– 9
1.6 Organization of the study ————————————————– 9
1.7 Limitation ——————————————————————– 9
2.0 Chapter Two: LITERATURE REVIEW
2.1 Definitions of key terms ——————————————————– 11
2.1.1 Microfinance ——————————————————————- 12
2.1.2 Microfinance Banks ———————————————————– 12
2.1.3 Credit/ Loan ——————————————————————– 12
2.1.4 Micro-credit ——————————————————————— 12
2.2 Theoretical Literature Review ————————————————– 13
2.2.1 Empirical Literature ———————————————————– 19
2.2.2 Local Government Areas —————————————————– 26
2.2.3 Established Poverty Line: Poorest of the poor —————————– 29
2.2.4 Established Poverty Line: Horizontal Results —————————— 30
2.3 Theoretical Framework ———————————————————- 34
2.4 Goals of Microfinance Banks ————————————————— 36
2.5 Brief History of Microfinance ————————————————— 37
2.6 Review Of Some Microfinance Banks —————————————– 38
2.6.1 The Shore Bank —————————————————————– 38
2.6.2 The Grameen Bank ————————————————————- 38
2.6.3 The Bangladesh Rural Advancement Committee (BRAC) —————- 39
2.6.4 An Overview of the Characteristics and Policy of Microfinance
Institutions in Nigeria ———————————————————– 40
2.7 Community Banks —————————————————————– 42
3.0 Chapter Three: RESEARCH METHODOLOGY
3.1 History Of The Study Area ——————————————————- 50
3.2 Source of Data Collection ——————————————————– 51
3.3 Instrument of Data Collection ————————————————— 51
3.4 Sampling Method (Techniques) ————————————————– 52
3.5 Sample Size ————————————————————————- 52
3.6 Statistical Techniques ————————————————————– 52
3.6.1 The Chi- square (X2) Test ——————————————————- 52
3.7 Variables on Which Data Were Collected ————————————— 53
3.8 Descriptive Statistics ————————————————————— 54
3.9 Interest Rate Regime ————————————————————— 54
4.0 Chapter Four: DATA PRESENTATION AND ANALYSIS
4.0 Introduction ————————————————————————– 55
4.1 Brief History Of A.B.U. Microfinance Bank And Its Activities ————- 55
4.2 Socio- Demographic Profile Of The Respondents —————————– 57
4.3 Individual Savings And Income ————————————————— 59
4.4 Condition Of Loan —————————————————————— 62
4.5 Health And Medical Services —————————————————— 63
4.6 Summary Of Findings ————————————————————— 64
Chapter Five: SUMMARY, CONCLUSION AND RECOMMENDATION
5.1 Summary —————————————————————————- 66
5.2 Conclusion ————————————————————————– 67
5.3 Recommendations —————————————————————– 68
Appendices ————————————————————————— 70
References —————————————————————————- 79
LIST OF TABLES
Table 2.2.1 Poverty levels in Nigeria from 1980 – 2004 —————————————– 20
Table 2.2.2 Poverty levels by Proportion From 1980 – 2004 ———————————— 21
Table 2.2.3 Relative Poverty Incidence by Sector and Region for 1980 –2004 ————— 21
Table 2.2.4 Regional Poverty Rate for 1980 – 2004 ———————————————- 23
Table 2.2.5 State with Highest Incidence of Poverty ——————————————— 23
Table 2.2.6 states with lowest incidence of poverty ———————————————- 24
Table 2.2.7 Self Assessment of poverty by State (Some Selected States) ———————- 25
Table 2.2.8 Aged Group by relative Poverty Incidence ——————————————- 26
Table 2.2.9 Established Relative Poverty Line for Giwa by Income Sources —————– 27
Table 2.2.10 Established Relative Poverty Line for Kaduna South by Income Sources —– 28
Table 2.2.11: Established Relative Poverty Line for Kaduna North by Income Sources —- 28
Table 2.2.12: Established Poverty Line for Poorest among the Poor: Vertical Analysis —– 29
Table 2.2.13 Poverty Line: Giwa ——————————————————————– 31
Table 2.2.14 Poverty Line Kaduna North ———————————————————- 31
Table 2.2.15 Poverty Line: Kaduna South ——————————————————— 32
Table 2.7.1 Antipoverty Programmes by the Government of Nigeria ————————- 47
Table 4.2a: General information of respondents ——————————–
Table 4.2b Distribution of respondents based on type of marriage, number of
children and religion. — 58
Table 4.2c Distribution of respondents based on educational and accommodation status — 58
Table 4.2d Children and educational status ——————————————————— 59
Table 4.3a: Distribution of respondents based on occupation, duration in business
and if they have savings ———————————————————————- 59
Table 4.3b: Distribution of respondents based of source of investment
and awareness of microfinance loan ——————————————————– 60
Table 4.3c: Distribution of respondents based on application of loan, type of loan,
and duration before granting. ————————————————————— 60
Table 4.3d: Demand of collateral and kind of collateral offer ———————————– 61
Table 4.3e: Status of savings and income in the last 12 months ——————————— 61
Table 4.4a: Perception of interest, Lending condition and strictness on loan repayment —- 62
Table 4.4b: amount received as loan, repayment period and condition for repayment ——- 62
Table 4.4c: loan granted, for how long, and problem of paying on schedule —————— 63
Table 4.6.1 Chi-Square Tests ———————————————————————— 65
LIST OF FIGURE(S)
FIG.1 Keynes Theory of Interest Rate ————————————————————– 35
1.1 BACKGROUND TO THE STUDY.
Poverty is defined in many ways by a number of rural and urban characteristics. It is strongly
influenced by education, age, the nature of employment and level of income among others.
The level of income has been used to construct poverty line. This is the value of income
necessary to purchase the minimum standard of nutrition and other necessities of life.
In Nigeria, the poverty line (at 1985 prices) of N395 per person per month and the extreme
poverty line of N198 per person per month is used to designate the poor and extremely poor
respectively (World Bank Report, 1996). In Nigeria, those without education account for
most of the poor. According to the World Bank Report, about 79% of the urban extreme poor
and 95% of the rural poor had only primary education or less.
Poverty has such an eroding effect that those under the poverty line remain trapped in a
vicious circle of poverty. In such a situation, access to basic necessities of life eludes them
and it takes the intervention of the government in most cases for them to be rescued from
their plight. In response to their plight and as part of its social responsibility, the government
undertakes poverty alleviation programmes targeted at this group. In Nigeria, these poverty
alleviation programmes come in many forms. Some are sectoral in nature, while others are
multi-sectoral. In whatever nature or form the programmes are, the primary objective remains
the same – how best to reach the poor communities in the society.
Government provides funds either through direct statutory budgetary allocations or through
sectoral allocations to execute poverty alleviation programmes. The question now is whether
these budgetary allocations have been adequate, well managed and have alleviated poverty in
Zaria, one out of the eight local governments along with Sabon Gari, Soba, Makarfi, Kubau,
Kudan, Ikara and Lere that constitutes zone one area of Kaduna state with a population
408,198 is the highest followed by Lere Local Government 331,161 and the least is Markarfi
with 146,259 people. The Local Government (Zaria has received increased subvention and
grants from federation account of almost N1.6billion from June 1999 to May, 2003;
N4.2billion in June 2003 to May 2007 and N5.8billion in June 2007 to June 2010.
Majority of these people in Zaria are known to engage in farming as a means of earning
livelihood. The bulk of it is subsistence –farming for family consumption. Others are engaged
in small and medium scale enterprises like cloth making-tailoring, tie and dyeing of clothes,
leather works, laundry services; blacksmith, roadside mechanics, sale of ‘suya’ and frying
yams and ‘akara’ either along the road or in their houses, sale kuli-kuli, etc; some women do
weaving for neighbours which they receive a small token. These activities are usually on
small scale capital outlay. As such, these economic activities if observed closely contribute
little for the sustenance of an individual or a household. There is a need to expand in order for
it to bring a meaningful growth and development of a society.
Widespread poverty is one of the major problems of mankind and its alleviation is one of her
major agenda (Zubair et al 2008). Successive Nigerian Governments have at one time or the
other pursued national goals through the introduction of different programmes to alleviate
poverty. Such programmes are either aimed at alleviating people’s sufferings or are to
convince them to adopt innovative practices which are meant to achieve new socio-economic
development (Fasoranti 2006). People perceived poverty as a threat to the very existence of
human kind and that unequal distribution of global wealth has exacerbated the problem of
developing countries (Duru 2008). Many nations of the world especially developing
economies like Nigeria experience poverty having at its base lack of basic needs (food,
clothing and shelter). The awareness of the lowest level of poverty has been with the nation
for decades and successive governments have developed several policy packages to tackle the
problem yet a significant number remain poor especially in the northern part of the country
The fourth National Development plan emphasized an increase in the real income of the
average citizen and more even distribution of income among individuals and socio-economic
groups among others as a way of dealing with poverty. Programmes like River basin
Development Authorities (RBDA), Agricultural Credit Guarantee Scheme (ACGSS), Rural
Electrification (RES), Rural banking Scheme (RBS) and Agricultural Development
Programme (ADP) were initiated by governments or in collaboration with international
agencies in order for it to have effect on poverty alleviation.
More recently, with the coming in of an elected democratic government in 1999, the NEEDS,
7-Points Agenda, Millennium development Goals, and other policy packages all contain in
them objective of poverty alleviation.
Experts in China estimated that small and medium scale enterprises (SMEs) are now
responsible for about 60 percent of China’s industrial output employing about 75% of the
workforce in Chinese cities and towns. Similarly, in Indonesia, SMEs account for 98 percent
of employment creation and growth with Japan and Thailand contributing 81 percent and 78
SME provided practical solutions to such challenges as poverty and declining household
income to meet family basic needs such as food, school fees and access to health services
among others (Gono 2006). In Nigeria, the SME contribute about 70 percent of total
industrial employment accounting for only 10-15 percent of total manufacturing output
Despite vital role play by SME in development every where, it was constrained by inadequate
funding and poor management (Ogujiuba et al 2004). They lacked access to finance; their
perceived risk and lack of collateral made formal financial institutions like commercial banks
and others reluctant to lend to them (Gono 2006). Informal financing which consists of
personal savings, borrowing from friends, credit from cooperative societies provide more
finance opportunities to SMEs but lack the capacity and regulatory framework to impact
more significantly on the financing needs of SMEs (Musilimat 2005). According to Soyibo,
(1996) the non-institutional sources of credit were still much more important than
institutional source in Africa. Informal savings and loan associations were reported to have
been utilized by local population. As much, this necessitates the need of a microfinance
policy which recognizes the existing informal institutions and brings them within the
supervisory preview of the CBN. It is as a result of these that CBN in 2005 decided to present
a National Microfinance Policy Framework for Nigeria so as to enhance the provision of
diversified microfinance services on a long term, sustainable basis for the poor and low
income groups. (CBN 2005).
Robust economic growth cannot be achieved without putting in place well focused
programmes aimed at achieving reduced poverty through empowering the people by
increasing their access to credit. The latent capacity of the poor for entrepreneurship would
be significantly enhanced through the provision of microfinance services to enable them
engage in economic activities and be more self reliant. Increase employment opportunities,
enhance household income, create wealth, gain access to quality education and better health
1.2 STATEMENT OF THE PROBLEM
With a population estimated at about 140 million, Nigeria is the largest country in Africa and
one-sixth of the world’s black population (National Bureau of Statistics 2007). Nigeria is the
8th largest oil-producer and the 6th largest deposit of natural gas in the world. Currently,
barely 40 percent of its arable land is under cultivation. With over 100 tertiary institutions
producing more than 200,000 graduates per annum, the basic human capital for progress is
there yet the Nigerian economy (on the average) has stagnated since 1960 to date. The
country’s poverty situation has worsened consistently such that by 1999 when the new
democratically elected government came to being, the incidence of poverty has reached an
estimated 70 percent despite the growth in the nominal GDP (Soludo 2006).
In a household survey by the FOS, it was indicated clearly that the incidence of poverty in
Nigeria had worsen most especially with the northwest geopolitical zone having 77.2 percent
of the total population as poor; northeast 70.1 percent north-central 64.3percent; south east
53.5 percent. These groups of poor, lacked access to formal financial services. (NEEDS
In Nigeria, the formal financial system provides services to about 35 percent of the
economically active population while the remaining 65 percent of the economically active
population (working or able-bodied individuals) are excluded from access to financial
services (loan). This 65 percent are often served by the informal financial sector through
money lenders or credit unions that often charged them comparatively high interest rates. The
non-regulation of the activities of these informal actors has serious implications for CBN
ability to promote monetary stability and sound financial system (CBN 2005).
Microfinance is about providing financial services to the poor who are traditionally not
served by the conventional financial institutions (commercial banks and other institutions)
microfinance is created in response to the missing credit market for the poor. The problem
here is that government has in the past, initiated a series of publicly-financed micro/rural
credit programmes and policies targeted at the poor. Notable among such programmes were
the Rural banking Programme(1977-1990), Sectoral allocation of credits, a concessionary
interest rates and the Agricultural credit Guarantee Scheme (ACGS). Other institutional
arrangements were the establishment of NACB Ltd., the National Directorate of Employment
(NDE), the Nigerian Agricultural Insurance Corporation (NAIC), the Peoples Bank of
Nigeria (PBN,1987-1990), the Community Banks (CB,1990-2005), and the Family Economic
Advancement Programme (FEAP). In 2000, Government merged the NACB with the PBN
and FEAP to form Nigerian Agricultural Cooperative and Rural Development Bank Limited
(NACRDB) to enhance the provision of finance to the agricultural sector. It also created the
National Poverty Eradication Programme (NAPEP) with the mandate of providing financial
services to alleviate poverty.
Despite all these efforts, a higher percentage of Nigerian is still poor. Also, studies by Zubair
(2008) found out that microfinance institutions charge interest rate as high as up to 100% for
lending and pay as low as 5% on savings.
The existing microfinance in Nigeria serves less than one million people out of 40 million
being the potential number that need the service (Zubair et al 2008). Also the aggregate
micro-credit facilities in Nigeria, account for about 0.2 percent of GDP and is less than one
percent of total credit in the economy.
Despite all the programmes established by the Federal Government of Nigeria to provide
resources for development of small scale enterprises in Nigeria, they still suffer from scarcity
of funds, either to start up business or expand existing ones. Small scale enterprises have
limited access to institutional credit sources because of the high risks with which many of
them are associated.
Given the complex nature of poverty together with the current microfinance intermediation
approach, it has become difficult to assess whether such a programme does alleviate poverty.
This study will investigate the role played by A.B.U. Micro-finance Bank in alleviating
poverty by providing individuals with low income an opportunity to borrow and invest; and
the challenges facing the bank in discharge of its functions.
1.3 OBJECTIVES OF THE STUDY
The general objectives of this study are to evaluate how Ahmadu Bello University
Microfinance Bank (A.B.U. MFB) has alleviated poverty among people in its community.
The specific objectives are as follows:
i. To examine the conditions of the bank on borrowing and repayment.
ii. To investigate the interest rate charged by the bank.
iii. To examine the impact of credit (loan) by A.B.U. MFB on the income of the poor
and low income earners.
1.4 RESEARCH QUESTIONS/HYPOTHESIS
The research hypothesis is:
Ho: α = 0 (Credit or loan by ABU MFB does not have a positive impact on the poverty level
H1: α ≠ 0 (Credit or loan by ABU MFB has positive impact on the poverty level (welfare of
the low income earners in Zaria).
1.5 JUSTIFICATION SIGNIFICANCE OF THE STUDY.
Microfinance is the provision of a broad range of financial services to low-income micro
enterprises and households. The range of financial services usually includes savings, loans,
insurance, leasing, money transfers and others.
United Nations referred to year 2005 as international year of micro-credit. (Bakhtiari 2006).
Also at the micro-credit summit held in 2006; it set its attention to achieve the goals set forth
in the MDGS by 2015 of reaching to 125 million around the world and alleviating their
poverty. In Nigeria, the coming of a democratic government in 1999, the NEEDS document
and the 7-point Agenda of the recent past government all contain in them an objective of
Therefore, a clear appraisal of this microfinance institution would help in establishing the
relationship between increase access to credit and income. It is also likely to see how far
fetched are the objectives of a number of policy packages (NEEDS, 7-Point Agenda, MDG)
being close to reality or otherwise.
The research work is important in the sense that poverty level is rising in Kaduna State and
Zaria local government. Also there is a need to examine the relationship between access to
credit and increase income that will in turn increase savings; investment and promote
economic growth and development of the immediate community.
Furthermore, there is a need to compare the microfinance institutions with convectional
commercial banks most especially in the areas of poverty reduction.
This thesis could serve as a reference material for study on other microfinance institutions in
Zaria and for policy making.
1.6 ORGANISATION OF THE STUDY.
This research work will consist of five chapters: Chapter one which is on general introduction
contains background to the study, problem statement, objectives of the study, research
hypothesis, significance of the research and limitation of the research.
Chapter two is on the literature review. These include conceptual literatures, theoretical
literatures and empirical literatures.
Chapter three deals solely with research methodology which contains the history of the study
area, source of data collected, instrument of data collection, population, sampling technique,
descriptive statistics, instrument of analyzing the data and a test procedure.
Chapter four of the work deals with the presentation of analytical data, interpretation and
analysis of results of the findings.
Chapter five of the work bears the summary, conclusion, and recommendation of this
The major limitation of the thesis is the small sample size. Rather than taking samples across
Kaduna State, we focused on the Ahmadu Bello University Microfinance Bank, Zaria only.
Consequently, the results of the study should be taken with caution. Besides, since some of
the people that were chosen for the study (respondent) were not familiar with the researcher,
they were reluctant in filling the questionnaire and when they did, they did not provide true
data. Also, the bank officials in the process of seeking for ethical permission in order to carry
out the research were not willing to release information despite the official introduction letter
by the Department of Economics, Ahmadu Bello University, Zaria. Ahmadu Bello University
Microfinance bank was chosen because it is thought by the researcher to be the largest bank
for gathering that information.
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