Microfinance Horizon

Author: Godwin Chigozie Okpara (Department of Banking and Finance, Abia State University, Uturu, Nigeria)

Abstract:

This study is focused on the identification of critical factors that cause poverty in Nigeria and the investigation of the extent to which microfinance institutions have helped in the alleviation of poverty. To identify the critical factors, the researcher adapts the data on reasons for poverty generated by National Bureau of Statistics and employed the method of factor analysis. For the purpose of investigating the contribution made by the microfinance institutions in poverty reduction, the researcher uses the method of regression analysis on a quadratic equation model which is found to be most appropriate in explaining the variations between the two variables. Also, the microfinance – poverty trend is presented for analysis. The result of the analysis identifies five factors: low profit, prices of commodities are too high, hard economic times, lack of finance to start or expand their business, and business not doing well, as critical factors causing poverty. The analysis also reveals that the impact of microfinance on poverty in Nigeria can be explained in two phases. The first phase, the take-off stage, sees poverty as increasing though at a decreasing rate as microfinance credit increases. In the second phase, precisely starting from the year 2001, persistent increase in microfinance credit reduces drastically the poverty index in Nigeria. Thus, currently, microfinance credit lowers poverty in Nigeria. The researcher therefore, calls on the monetary authorities to put in place the financial superstructure necessary for making mandatory the establishment of microfinance banks in every community, if poverty will be aggressively fought.

To download the paper Click Here