poverty and the failure of macro economic policies

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With the increasing trends of poverty and coupled with the failure of macro-economic policies in providing credit services to the poor, micro-financing is increasingly being advocated as an alternative means of credit delivery to the poor. Microfinance has gradually developed to be a worldwide movement, no longer being a subject matter of microfinance practitioners alone, Governments, donors, development agencies, banks, foundations, corporations, business communities, civil societies, researchers, universities, consultants, philanthropists and others are taking increasing interest in it ( Latifee, 2006).

Microfinance is a general term that refers to the provision of financial services for the poor who conventionally have been excluded from the formal Banking system. Microfinance is hailed as a tool for poverty alleviation because access to financial services assist the poor households in meeting their basic financial needs, protects against risks and develop social and economic empowerment. Notwithstanding these potentialities of microfinance towards assisting the poor, other studies elsewhere have shown that microfinance does not alleviate poverty as claimed by some studies.

In Nigeria, like most other developing countries microfinance provision is both undertaken by formal and informal arrangements. Between 1977-1999 the Nigerian government have initiated and implemented no fewer than 5 microfinance programs in the form of microcredit to assist the poor as a way of alleviating poverty. However, with the drastic reduction of government subvention to them, they all ceased to operate as all of them depended mainly on Government funding. (Mohammed & Hassan, 2008). Considering the failure of the then top-down approach, the Government in 2005 came up with a new microfinance policy under the supervision of the Central Bank of Nigeria. The implementation of this new policy led to the active involvement of the private sector operating along-side with the existing government-owned microfinance institutions in providing financial services to the economically active poor.

1.1 Statement of problem

Being a developing country and the most populous nation in Sub-Sahara Africa, Nigeria according to 2006 census figures has a population of 150 million people. Available statics shows that out of the 150 million Nigerians, 70 million people are living below poverty line (World Bank, 2009). Further, the highest poverty rate of 72% is recorded in the Northern part of the country compared to 43% recorded in the southern part of the country (Kpakol, 2009). This is an indication that the incidence of poverty is more prominent in the Northern part of Nigeria.

In an attempt to address the problem of poverty, Government had between1977-1999 initiated and implemented no fewer than 5 poverty alleviation programs in the form of microcredit provision to assist the economically active poor as a way of alleviating poverty. However, with the drastic reduction of government subvention to them, they all ceased to operate as all of them depended mainly on Government funding (Mohammed and Hasan, 2008).

Considering the importance and increased advocacy of microcredit as a means of alleviating poverty, the Government in 2005 came up with a new microfinance policy under the supervision of Central Bank of Nigeria. Under the new policy, government and private individuals are granted license to open and operate microfinance institutions. This development led to the emergence as of today, more than 900 registered microfinance institutions operating in the country which hitherto been solely a government affair. Available statistics indicates that the formal microfinance institutions only service less than one million clients in a country where over 50% of the country's population of 150 million live below poverty line (Felix and Adamu, 2007). In addition, the formal financial system provides services to about 35% of the economically active people, while the remaining 65% do not have access to financial services (CBN, 2007).

In separate studies about microfinance in Nigeria using different sets of variables, shows that participation in microfinance generally improves the living conditions of its participants which invariably results in alleviating poverty (see for example, Irobi N C,2008; Felix& Adamu, 2007; Mohammed & Hasan, 2008; S B Williams et al, 2007). Of interest to note however, most of available literature on microcredit in Nigeria focused on the impact assessment of microcredit towards poverty alleviation and more importantly, the studies were carried out in southern parts of the country. However, little or nothing is known about the situation of microcredit in the northern parts of the country which statistics have shown to have higher prevalence of poverty.

The purpose of this study therefore, was to understand the perception of selected communities in Northern Nigeria towards microcredit and how it has contributed towards uplifting the living standard of clients

1.2 Significance of the study

Taking into consideration the developmental challenges posed as a result of poverty particularly in developing countries, the significance of the study cannot be over-emphasized. The variables involved in the study namely; microfinance and poverty alleviation are important issues surrounding contemporary development circles. Most studies conducted on the viability and effectiveness of microcredit towards poverty alleviation reveals that microcredit greatly enhances the living conditions of the poor. In view of the foregoing, it is expected that the recommendations offered at the end of the study, will go a long way in providing informed advice and policy opinion on ways and means of evolving genuine microfinance activities especially in areas where poverty is still prevalent. Similarly, the findings of the study will greatly contribute to the existing literature for use in academic and policy issues.

1.3 Research Questions

The research questions are;

What is the general perception of these selected communities towards microcredit?

In what ways does microcredit alleviates poverty among beneficiaries of microcredit?

1.4 Purpose of the study

The study seeks to understand the general perception of some selected communities in northern Nigeria towards microfinance. In doing so, the study will also determine the viability and effectiveness of microcredit as a strategy for poverty alleviation. Contrary to earlier studies on same issue that mainly focused on formal microcredit institutions and the impact of loans particularly to women, this study will examine the role of the informal sector that is believed to be providing financial services to more than 60% of the economically active poor with a view to understanding whether the informal microcredit can equally contribute towards alleviating poverty as is obtained in the formal sector. Moreover, the study also seeks to understand the ways in which the microcredit helps in uplifting the living conditions of the poor.

1.5 Limitations of the study

This study investigated the research problem based on the relevance and or effectiveness of microcredit in selected communities in Northern Nigeria. Due to financial and time constraints, the study was limited to only two communities where two community leaders were selected as samples of the study. Similarly, the Chief Executive officer of Yerwa microfinance Limited was also used, and two (2) beneficiaries of loans from the said Bank also serve as samples of the study. Otherwise, the sample would have been much larger than this. One other thing to consider as limitation in this study is the inability of the researcher to be in the field for the conduct of interview. As such, a research assistant had to conduct the in-depth interview with the respondents based on the interview guide sent to him, except for the CEO of Yerwa microfinance Bank who granted interview to the researcher directly through SKYPE.



2.1 The concept of microfinance

As mentioned earlier, the failure of the conventional banking system to provide credit services to the poor led to the emergence of microfinance institutions as an alternative source of credit delivery with the aim of providing small loans to the poor without collateral. Microfinance therefore, is a way of financing to poor for their business, to alleviate their poverty, empowering them and giving social benefits on sustainable way. Due to microfinance activities, many possibilities have emerged including extending markets, reducing poverty and fostering social change(Agion & Morduch, 2005). Microfinance banks are institutions that are established to provide financial services to the active poor. They can be non-governmental organizations (NGOs), savings and loan cooperatives, credit unions, government banks, commercial banks or non-bank financial institutions (Ledgerwood, 1999).

One important aspect of microfinance to note is its relative success in deliberately reaching out to the poor living in different socio-economic environment. It has been argued however, that the successes of microfinance mediation recorded in some instances cannot be generalized taking into consideration the heterogeneous nature of societies within which a microfinance institution operates. Many researchers had conducted the impact assessment studies on microfinance programs. Some of the researchers have concluded the positive impact of the microfinance on the socio-economic development (Tripathy, 2006, Sundarapandian, 2006; Pandin, and Eswaran, 2002) in India and across the world (Hiatt and Woodworth, 2006). At the same time, some other studies found that the microfinance intervention had little impact on the socio-economic development of people (Kabeer, 2005; Shamsuddoha and Azad, 2004). Also (Kabeer, 2001) found out with the negative impact of microfinance in Bangladesh. So, taking into cognizance the conflicting outcomes of various impact studies conducted using different methodologies in different situations the positive impact of microfinance cannot be generalized and universally accepted in this respect.

2.2: Microfinance Approaches

There are two diverse approaches in the literature treating microfinance;

the welfarist (also called the direct credit approach) and the institutionists approach (or financial market approach.

The welfarist approach focuses on the demand side, which is to say on the clients. This approach support the idea of subsidizing microcredit programs in order to lower the cost for the microfinance institutions so that they can offer low interest rates on their loans, the performance of the MFIs are measured through household studies with focus on the living standards of the individuals, number of savings accounts, number of loans, productivity improvement, incomes, capital accumulation, social services such as education and health as well as food expenditures. (Congo, 2002)

The Institutionists criticize the subsidization because it leads to high, unpaid rates transaction costs, which have led to the failure of many microcredit programs. They mean that it is not sustainable for the MFIs to be subsidized and that the subsidies lead to an inefficient allocation of the financial resources. The economists supporting this view mean that the welfarist made the wrong assumptions when they say that the repayment interest rate must be low, that the clients are not creditworthy and unable to save and that commercial banks cannot survive in rural areas because of high cost of offering financial services to the poor households. The institutionalists suggest that the MFIs should operate according to the conditions of the market, charging high interest rates because of high costs and in that way operate on a sustainable manner. They mean that poor individuals are willing to pay high interest rates in order to have access to credit. The performance of MFIs is measured through the repayment rates, transaction costs, financial self-reliance of MFIs etc (Congo, 2002)

In spite of having innovative ideas for business, if there is no access to financial resources, these ideas go in vain. Microfinance changes whole scenario and reaches to the poor to materialize their ideas and get financial benefits. According to Sengupta, Aubuchon (2008) there are now nearly 70 million people who are getting benefits from 2500 MFIs in over 100 countries by microfinance. Conditions of the poor are different in different countries of the world. These conditions are related to social, ideological and political issues (Weiss, Montgomery, 2004). Therefore, there are distinctive differences between approaches and motive of microfinance. We will see briefly two approaches, one is the famous Grameen model originated from Bangladesh and the other is Banco Sol, in Bolivia.

2.2.1 Grameen Model

In Grameen model, primary unit is a group of 5 members that organize and apply for a loan. In first round, loan is granted for two members to invest in their business. If these two members become successful to repay back, then four to six weeks later, the next two members are granted also. The last one will be eligible upon successful repayment of the previous two. If one member of the group defaults in repayment, the whole group will be disqualified for further loan. Similarly, unique and innovative approach of group lending is used. As Sengupta, Aubuchon (2008) described that group lending has many benefits. First, groups are usually organized in members who are neighbor to each other, those that can understand each other well and recognize their needs. Second, if any of the group members will not be present in a meeting, the leader or other group member can pay its installment. We can say there is mutual understanding among members. Third, in south East Asia generally, and in Bangladesh specifically, there are social pressures among members of society with social binding in them. If one member of group will not pay even one installment, social pressure will be levied from all eight groups on this member. Ultimately, this leads to reduction of risk.

2.2.2 Bonco Sol of Bolivia.

While the Grameen model of microfinance emphasize on lending to villagers, the other core concept is the formation of groups and these groups are eligible to take loans, no option of loans to individuals. The idea of Bonco Sol of Bolivia is progressive lending where the amount of loan will increase after completion of every repayment schedule. But other characteristics of Grameen model (Group lending) are included in this method like targeting to poor, women, group formation and public payment. No doubt, progressive lending is an extension of group lending which many microfinance institutions are now adopting this approach. In this model of progressive lending, micro-lenders are flexible about collateral and lend loan to groups and individuals also. This method is very helpful in areas with low population densities or high diverse population where group forming is not so easy due to different ratio of safe and risky borrowers.

While appreciating the differences in approaches as indicated above, one can say that microfinance are evolved due to different political, ideological and social conditions. According to Weiss Montgomery (2004) "Microfinance in Latin America developed under quite different conditions. In Bolivia, a collapsing populist regime led to widespread unemployment. Bonco Sol, a pioneering microfinance institution in the region was developed to address the problem of urban unemployment and provide credit to the cash-strapped informal sector. The notion of commercial profitability was embraced relatively early in this approach.

2.3 Microfinance- a Development Tool

In developing countries, people from low income communities have innovative ideas for their business, even as shop-keepers or household products manufacturer, but they have no financial resources to implement their ideas. This low economic activity in low income communities due to lack of financial resources lead them to more poverty and poor life standards. Generally, financial services cover savings and credit activities and there is same concept about MFIs. But according to Ledgerwood (2000), MFIs work for general financial services with this they provide insurance and payment services to their clients. But important aspect of MFIs is not only financial mediation but also providing social intermediation and social services to their clients. Social mediation and social services contain many activities including trainings, management development and financial literacy activities. Furthermore, many MFIs, arrange get-together where experienced people guide others, where they give useful suggestions, tips and other tactics for their business. Therefore, microfinance is providing financial services with social services. Normally, social services are not applicable in general banking system. So, microfinance is not simply banking system but development tool, combining both financial and social intermediation. Thus, microfinance provides the following services;

2.3.1 Financial Intermediation

Financial intermediation is by far the most primary objective of MFIs because without loan/money social intermediation cannot work. MFIs in this regard, becomes a bridge to access finance and this results to poverty alleviation, health care and education literacy (Ledgerwood, 2000)

2.3.2 Social Intermediation

Social intermediation that covers the issues of group formation, leadership training and cooperative learning is secondary role of microfinance for borrowers of MFIs. Development in social capital is a basic ingredient of sustainable development in poor's life and especially in society. Social capital actually links between clients of a group and multiple groups and between MFIs and borrowers (Agion & Morduch, 2005). The ratio of social capital will increase with the increase in business activities among members and financial transaction between lenders and borrowers.

2.3.3 Enterprise Development Services

MFIs provides support to individuals or groups in different enterprise development services like marketing , business and accounting services etc. this service can be divided into two parts, enterprise formation and enterprise transformation. In enterprise formation, MFIs provide technical support to group or individual in start up of business with ideas and skills. While, in transformation of enterprise, MFIs arrange trainings for borrowers, workshops and get-together for developing latest skills in their business areas (Ledgerwood, 2000).

2.3.4 Social Services

According to microfinance practitioners, poverty can be addressed by financing poor for productive activities which in result come up to their access to life necessities. Ledgerwood (2000) observes that MFIs serve to their clients with additional social services and financial intermediation. The best way to contact with their clients is in the form of group, that is the easy way to educate them, giving health care and other facilities. So in this way, MFIs role is productive in the life of poor by offering financial services with supportive services. These supportive services actually play important role in sustainable human development and livelihood of the poor (Khan, Rahman, 1998).

2.4 The Goals of Microfinance

The goals of Microfinance banks are;

To provide diversified, dependable and timely financial services to the economically active poor.

To mobilize savings for financial intermediation.

To create employment opportunities.

To provide veritable avenues for the administration of the micro-credit program of government and high net worth individuals.

To render payment services such as salaries, gratuities and pensions on behalf of various tiers of government.

To involve the poor in the socio-economic development of the country (Egbu, 2006).

2.5 The Concept of Poverty

There is no single definition of the word 'poverty due to the relativity of the concept, it can take various forms depending on the context within which the concept is defined. In a more elaborate definition, The United Nations defines poverty as "Fundamentally, poverty is a denial of choices and opportunities, a violation of human dignity. It means lack of basic capacity to participate effectively in society. It means not having enough to feed and clothed a family, not having a school or clinic to go, not having the land on which to grow one's food or a job to earn one's living, not having access to credit. It means insecurity, powerlessness and exclusion of individuals, households and communities. It means susceptibility to violence, and it often implies living on marginal or fragile environments without access to clean water or sanitation" (UN, 1998).

Poverty in many developing countries is largely a matter of not having enough on their tables to eat. Providing the poor with financial services is one way to increase their income and productivity e.g. through self-employment and thus escape poverty (Chowdhury, 2001). Poverty is further classified into three variables; income poverty, vulnerability and empowerment. Income poverty stands for lack of income to afford minimum basic necessities of life. Vulnerability involves the probability of risks of today being in poverty or to fall into deeper poverty in the future. Regarding empowerment, based on the focus of this study, to determine the way(s) microcredit alleviates poverty, most MFIs are working towards empowering economically active to partake in one form of enterprises or the other. Here, empowerment is further classified into three categories namely; Economic, social and political empowerment. They are defined as follows;

Economic empowerment refers to economic security of oneself.

Social empowerment refers to the ability to participate in decision-making in the community including the household and non-family groups.

Political empowerment refers to the ability to interact in the public sphere.

2.5.1 What causes Poverty?

Poverty is a macro problem. The causes are as wide as they are deep also. Some of the key reasons why people all over the world are poor and remain poor are political instability, natural disasters, corruption, socio-economic disparities and prejudice, lack of access to education, lack of infrastructure etc. Some other causes of poverty can be from acute conditions like warfare. The material and human destruction that is often caused by warfare is a major development problem (World Bank, 2000/01).

Apart from destruction caused by natural events such as hurricanes, environmental forces always cause acute periods of crisis by destroying many crops and animals as well.

2.5.2 Measuring Poverty

When poverty is defined in a broader sense, it can raise the question of how to measure overall poverty and how to compare achievements in different dimensions. Below is how the different dimensions of poverty can be measured.

Measuring material deprivation: Under this we have the income and consumption levels of the household. This is measured by using the national poverty line, a critical cut off in income or consumption below which an individual is deemed to be poor.

Measuring Vulnerability: Poverty cannot be fully alleviated in a sustainable way unless intermediaries are designed to tackle the multi-dimensional nature of poverty. Vulnerability being a dynamic concept has its measurement centered on the variability to income or consumption and on the availability of other dimensions of well-being like physical assets, human capital, social capital and prevalence of non-income risks like violence, natural disasters and so on (World Bank, 2000).

Measuring Empowerment: Measuring empowerment may vary according to the context i.e social, cultural and political context of a given society.under this we have:

Economic empowerment: This can be measured according to the ability of individual to command sufficient resources.

Social empowerment: This can be measured in terms of the ability of individual to partake in decision making.

Political empowerment: This has to do with individuals' ability to participate in political affairs.

2.6 Microfinance Profile in Nigeria.

Variously described as the giant of Africa, Nigeria is the most populous nation in sub-sahara Africa with an estimated population of 150 million people. Divided into 6 geo-political regions, operates a federal system of government. Being the 7th largest exporter of crude oil producer in the world which constitutes 70% of the nations revenue and yet more than 70% percent of its 150 million people are living below poverty line. In line with the desire to fight poverty, successive administration in the past have initiated and implemented various poverty alleviation programs with a view to addressing such problem. Notwithstanding these far-reaching policies the issue of poverty has continued to be a recurring problem as most of these programs failed to achieve the desired objectives and by 1999 all government poverty alleviation programs ceased to function due to inadequate subvention from the government.

In realization of its responsibilities to its citizens particularly the poor, the government in 2005 came up with a new microfinance policy under the supervision of the central Bank. Under this policy, prospective individuals, corporate organizations and NGO's willing to partake in microfinancing were granted license to operate. This new policy saw the emergence into operation of more than 900 microfinance banks across the 36 states of the federation. Of interest to note however, these MFIs provide services to only 35% of the 70 million economically active poor Nigerians, the remaining 65% do not have access to credits (Soludo, 2009). One other disturbing aspect of microfinance activities in Nigeria is uneven spread of its operations to the detriment of the Northern parts of the country as most of these institutions are concentrated in the Southern parts of the country.

Generally, microfinance institutions in the country are faced with numerous problems ranging from insufficient funds to lack of managerial skills which in turn effected on the poor outreach of its operations and their inability to cater for the teeming economically active poor.

As specified by the new microfinance policy, microfinance institutions have the following objectives:

To improve the socio-economic conditions of women, especially those in the rural areas through the provision of loan assistance, skills acquisition, reproductive health care service, adult literacy and girl child education;

To build community capacities for wealth creation among enterprising poor people and to promote sustainable livelihood by strengthening rural responsive banking methodology; and

To eradicate poverty through the provision of microcredit and skill acquisition development for income generation (Anyanwu, 2004).



3.1 Research Design:

The study is of qualitative nature which is also referred to as inductive approach. Inductive approach is done by taking into consideration the empirical data first and then researcher goes on to build hypothesis which leads to the development of and consideration of new theories or making addition in existing theories (Bryman, 2004). It is important to note here that the choice of this approach was informed by; non-sufficient data of the researched topic and also because of the debate on the impact of microcredit as a medium of poverty alleviation. Otherwise, the study would have employed the deductive approach in addressing the research questions. Moreover, it is appropriate to use qualitative approach as the study seeks to understand the perception of beneficiaries of microcredit. It is believed that this method will provide rich and thick description from the participants regarding their experiences, perception and understanding of microfinance.

3.2 participants and setting:

The participants involved in the study include the Chief Executive Officer of Yerwa Microfinance Bank, Maiduguri, 2 community leaders and 2 loan beneficiaries of the said Bank. The CEO who is having 5 years experience in microfinance activities also serves as the current manager of the aforementioned Bank. He was chosen because of his wealth of experience and also operating in one of the areas with high prevalence of poverty. The two consecutive interviews he granted to the researcher through skype have provided an institutional perspective on the general nature of Nigerian microfinance industry. Two community leaders of Matara and Bulangu identified as samples of the study represent the voices of the said communities that are considered to be among those areas worst hit by poverty. Their perception towards microfinance is generally believed to represent the view of their communities. Similarly, the two beneficiaries were identified in collaboration with Chief Executive Officer of Yerwa community as his clients, gave a self-account of their perception, experiences as well as their understanding of microcredit as being direct beneficiaries.

3.3: Ethical Measure

Attached as appendix 1 is the consent letter served to all participants seeking their consent to participate in the study as respondents. The objective of the study was clearly explained to them and were assured that all data obtain from them will solely be used for the purpose of the study and that they are at liberty to withdraw at any time they deemed appropriate to do so. In addition, they were promised a copy of the work should there be a need for them to verify the purpose for which the study is intended.

3.3: Ethical Measure

Being a qualitative approach, the researcher is the instrument of the study. Data collection was simultaneously obtained by both the principal researcher and the research assistant employed due to some limitations encountered as a result of the inability of the principal researcher to be in the field. While the principal researcher conducted an in-depth interview with the Manager of Yerwa microfinance Bank through Skype, the research assistant conducted same with the community leaders and the beneficiaries of loans who equally served as respondents guided by the interview guide prepared and sent to him for that purpose. Generally, the following semi-structured questions guided the conduct of the interview;

Would you like to tell us about yourself and what you do for a living?

Would you like to tell us what Yerwa microfinance Bank is doing in this community?

Have you ever collected any loan from the bank? If yes, when?

Would you like to tell us what has happened to you since you obtained that loan?

Would you like to tell us who introduced you to Yerwa microfinance Bank as a client?

What has been the process of obtaining the loan?

How did you experience that your life has changed as a result of the loan you collected.

What advice would you give to others like you who have not collected the loan?

Have you completed repayment of the loan? If yes, would like to go for further loan?

All interviews were audio-taped and later transcribed. Having transcribed the data, common trends and patterns relating to the respondents' perception of microcredit and its impact on the general improvement of their living conditions were marked and coded appropriately. In addition, similarities between coded statements were compared which enables grouping into major themes for final presentation. In all, a total of 49 codes relating to the general perception towards microcredit and the ways in which it has improved the standards of living of participants emerged. These codes were further categorized into major themes as will be presented in the final analysis of the data.



Founded in 2006, the Bank as of today has a total of 3,000 clients with one head office as well as a branch office all situated within Maiduguri township. The operational system is fashioned along the Bangladeshs' Grameen Bank in which loans are offered to groups of between 5-6 members. The amount of loan offered to groups ranges between N500,000 to N700,000 for the purpose of investing into wide range of economic activities like cattle rearing, tailoring, agricultural activities depending on the choice of beneficiaries. The amount of interest charged according to the Bank Manager is for every N100,000 given out as loan, the Bank charges 5% as service charges. These charges are mainly used for employee wages and payment of rents and other administrative costs.

Though relative new with a little capital base, insufficient number of staff and relatively few clients, the Bank was able to continue with the hope of expanding its services in the future.

4.2 Data analysis

Based on the data generated from the interview, a total of 56 statements pertaining to perception of the respondents as well as the impact of microcredit on beneficiaries were coded. These codes were further compared based on their similarities and later grouped into two major themes consisting of several sub-themes as will be presented hereunder. The two major themes are; the general perception of the beneficiaries of microcredit and impact of microcredit towards poverty alleviation.

Table 1

Perception towards microcredit

Impact towards poverty alleviation

Difficulty in accessing loans.

Limited finance.

Default in loan repayment.

Lack of awareness on the activities of MFIs

Increase in income.

Social cohesion.

Table 1 above shows the categories of major themes with sub-themes.

4.3 Data interpretation.

4.3.1 Difficulty in accessing loans: Most of the respondents interviewed complained about the difficulty in processing a loan with the Bank. According to one of the beneficiaries it took them as a group almost six months before they finally obtained the loan. This has to do with the weak capital base of Microfinance Bank. As found out in the study this microfinance Bank is one of the few microfinance institution operational in state that is estimated to be having more than 1.8 million economically active poor that require one form of credit or the other to enable them partake in economic ventures that would lead to financial improvements. Another factor responsible for the delay in processing the loans is that the Bank lacks adequate manpower and even the available ones lack proper training to meet the increasing client demands. The Bank according to the Manager has only 10 employees in its pay roll. This number is quite insufficient compared to the number of clients of the Bank.

4.3.2 Limited finance: One of the revelations in this study which is mentioned by both loan givers and receivers is insufficient funds. Insufficient capital according to the Bank Manager is one of the problems the microfinance industry is facing. This has a resultant effect on the number or amount of loan the Bank is able to give out as loans. Apart from that, the bank could not embark on expansion projects such as staff recruitment and training, opening of other outlets to diversify its operations etc. One of the beneficiaries interviewed also testified to that fact he had initially applied for N100,000 but finally secured N40,000 which according to him is grossly inadequate to take care of his planned expansion of business.

4.3.3 Default in loan repayment: loan default is also one of the problems associated microcredit. Although according to the Manager the Bank was able to record 87% and 90% in the preceding years, but still the Bank is putting all necessary measures to ensure impressive rates in the coming years. On the part of beneficiaries they usually complained of higher interest rates and high inflationary rates as factors responsible for their repayment as and when due. Short repayment period is also mentioned by clients as one of the reasons for their inability to repay back according to schedule.

4.3.4 Lack of awareness on the operations of MFIs: though relative new in their operations, Microfinance Banks are still not known to majority of the poor and even if they know they cannot appreciate the differences between them and other conventional Banks. Most of the beneficiaries interviewed said that they were introduced by friends who have been clients of the Bank and they were also told that it is a place where one can borrow money even if don't have a house or land to show as collateral. According to the Bank Manager, due to the weak capital base of MFIs, they cannot be able to sponsor adverts in the print and electronic media and as such they have to rely on the existing method to reach out to their clients. This, he added will be a history as the Bank is gradually growing day by day.

4.3.5 Increase in income: generally, most of the beneficiaries acknowledge though not significantly, changes in the general conditions of their living as a result of the loans they collected from the Bank. One of the beneficiaries said that because he has invested the loan he received, after paying back the loan he noticed an increase in his overall capital base from N200,000 to N500,000. With the expansion of his business he was able to employ an assistant and at the same time enroll into adult evening class which he is about to graduate in the next three months. To him this loan has brought succor as it has empowered him economically and educationally. Similarly, another beneficiary also said that as a result of the loan was able to buy a fairly used motorcycle which he uses for commercial purposes. As a result, he is now gainfully employed, able to buy another new motorcycle which he will give out for same commercial purpose. In addition, he was able to purchase a small piece of land that he hoped to develop gradually.

4.3.6 Social Cohesion: apart from the financial mediatory role that microcredit plays, the study also found out that participation in microcredit unites its participants socially as a result of group lending policy of microfinance institutions. As pointed out earlier, the microfinance institutions only lend money to groups. Coming together of group members to apply for a loan has afforded them the opportunity to conduct meetings on how to obtain, utilize and pay back the loans. The individual groups also register themselves under one umbrella of association of microcredit beneficiaries within the whole community. This has not only further their sense of belonging but also afforded them the opportunity to form themselves into a formidable group that in most cases influences the decisions taking by the community. As one of the respondents remarked, " "Because of the formation of this association we are now politically empowered as most of the political parties always seek our support and input as a group, we support candidates that we feel capable of protecting our interest. In this respect we can say that our participation in microcredit has given us a stronger voice to be heard even by the leaders contrary to what it used to be before our participation in microcredit". In another instance, another beneficiary also said " "Because we are now formed into a strong group, we always during our meetings raised and assist in solving personal problems of our members such as visiting hospitals to assist the bed-ridden, attending social gatherings like marriage and naming ceremonies. Most importantly, we were able to recruit a teacher who conducts evening adult literacy class to us on weekly basis. Also, field officers from the Bank educates us on the basics of accounting and record keeping which has greatly helped us in conducting and managing our businesses".



In conclusion, the study has succeeded in understanding the perception of some beneficiaries of microcredit in Northern Nigeria. The study found out that though microfinance institutions are faced with series of problems ranging from insufficient fund to give out as loans to prospective clients, inability to expand its operations to reach out to the majority poor who mostly live in the rural areas. In addition, the operations and goals of these microfinance institutions is not known to majority of people due to their concentration in urban areas. Yet, with the little they were able to loan out, has made an appreciable improvements on the living conditions of its clients in different respects. As other studies have indicated the positive as well as the negative impacts of participation in microcredit programs, the findings of this study suggest that microcredit has impacted positively in improving the living conditions of participants.

In view of the foregoing and as revealed by this and other previous studies I wish to suggest as follows;

Government should as a matter of priority, find a means of providing more sufficient and accessible funds to this microfinance institutions so that they too can have enough to lend out to prospective clients.

As most microfinance Banks are concentrated in urban areas to the detriment of rural areas where majority of the poor resides, the Bank should embark on conscious efforts in opening their branches in rural areas. By taking their services to the door steps of the poor, it is believed the that this will attract more customers and thereby resulting in the expansion and growth on the part of the Bank and to serve as a means of alleviating poverty amongst the generality of rural dwellers.

Another issue that needs to be observed and which has always been complained of by beneficiaries is the twin issues of high interest rates and short repayment periods. Government and these financial institutions should look into this aspect with a view to providing microfinance services with ease to the poor. It is believed that high interest rate and short repayment periods are the major obstacles militating against popular participation of the economically active poor segment of the society in microcredit programs. Intervention of the Government and all stakeholders of Nigerias' microfinance industry in this direction will encourage the poor to participate and engage in micro-enterprises activities that will eventually ameliorate poverty.


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I, Sule Ahmadu a student of the above mentioned course is required to undertake a qualitative study entitled "Microfinance and poverty alleviation in Nigeria: perception of microcredit beneficiaries in Northern Nigeria". You have been invited to be in this study due to your experience either as an operator of microfinance Bank or as a client.

Note that your participation in this study is totally voluntary and you may decide to withdraw at any point you may deem it appropriate. If you decide to participate you will be asked to give an account of your perception on microcredit. You will as well be asked to also describe in what way(s) does microcredit improves the living conditions of beneficiaries as a result of their participation. As you may decide to hide your identity, you are assured that pseudonyms will be used to describe your identity throughout in the presentation and analysis of the research work.

Additionally, if you wish to cross-check the authenticity of the data obtained from you, a copy of the research work will be forwarded to you for that purpose. For further clarification and information, I can be reached on 0102737786

Thank you for your cooperation!

Signature of participant Date ……………………..

Bukar Modu

Name of research Assistant Date & Sign………………………..

Sule Ahmadu

Name of Researcher Date & Sign………………………..