THE IMPACT OF MICROFINANCE BANK IN POVERTY REDUCTION

CHAPTER ONE
GENERAL INTRODUCTION
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 Nigeria? 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. KADSEEDS doc. 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 (Soludo 2006). 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 percent respectively. 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 (Salami 2003). 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 facilities.