Local estimation of poverty and malnutrition in Bangladesh. Dhaka: BRAC. Haseen, F. Hashemi, S. Focus Note.
Khandker, Shahidur R. Morduch J.
Journal of Economic Literature; 37 4 Pitt, Mark M. Khandker Haseen, F. Hashemi, S. Focus Note. Khandker, Shahidur R. Morduch J. Journal of Economic Literature; 37 4 Pitt, Mark M. Khandker Rahman A and Razzaque A The Bangladesh Development Studies, 26 1 : Rahman observes that microfinance borrowers have had to sell household assets or their own food supplies, or have to leave their homes in search of wage labour in urban areas to repay their loans.
There are other cases to the effect that delinquent borrowers of microfinance institutions are ostracized by joint liability groups and communities while they become destitute in their communities. Marr examines the impacts of microfinance on poverty reduction with application to Peru. It is found that the Marr Group dynamics engendered by the joint-liability microcredit programme had negative impacts on the well-being of participants. Mayoux observes that access to microfinance services credit, savings, insurance and pensions is still highly unequal between men and women.
Of course there are abundant literatures and empirical evidences that considerable efforts were made in the s to increase women access to small loans and savings facilities. The author further observed that microfinance is being promoted as a key alleviation strategy to enable poor women and men to cope with the adverse economic and social impacts of structural adjustment policies and globalization Mayoux While many express the opinion that microfinance is doing well for women empowerment, other researchers have questioned the benefits of microfinance for women Goetz and Sen Gupta Some are of the view that microfinance is a diversion for women from other forms of effective strategies for empowerment Ebdon, Such researchers also are of the view that attention and resources of donors have been drawn from possibly better alternative means of alleviating poverty Rogally, However, Lafourcade et.
The following as some of the challenges that are militating against microfinance: i The need to scale up the quality of microfinance services in order for it to serve large numbers of people scale challenge ; ii The need to reach increasingly poorer and more remote people depth challenge ; iii The need to lower costs, both to clients and financial service providers cost challenge ; iv Optimizing technology which will help to lower costs of operations and also expand the reach of financial services to the clients of microfinance; v Low level of leveraging Cross-border Remittances of funds and other remote rural transfers; vi Difficulty in reaching farmers and other remote rural clients; vii Inability to protect poor consumers.
Many poor and vulnerable consumers fall prey to predatory lenders and many depositors are having problems accessing their deposits as a result of failure of many microfinance institutions; and viii Infrastructure inadequacy.
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Financial institutions in countries that lack strong communications and electric infrastructure may have a hard time implementing technology solutions which rely on internet connectivity. There are other challenges confronting microfinance institutions. However, from region to region peculiar challenges and those that are global are being tackled by the day and hopefully the challenges will give way for microfinance to make its mark in poverty alleviation and economic development of nations around the globe.
Mago and Mago stated that Africa has received billions of dollars in foreign aid for four decades but has failed to develop. There are, however, evidences of success stories of microfinance in Nigeria. Kefas submitted that microfinance was often considered one of the most effective and flexible strategies in the fight against global poverty.
Microfinance services provided by the Development Exchange Centre DEC , Bauchi, Nigeria, a microfinance institution consists of small loans, usually less than N30, granted to individual women groups to establish or expand small self sustaining business. Other services include weekly savings mobilization, business management advice, counseling and entrepreneurial skill acquisition programme. If a borrower encounters a failure in her ability to pay back a loan, members of the group assist in defraying the loan. This contributes substantially to the high repayment rate of loans achieved by the microfinance institution DEC.
Microfinance Poverty Assessment Tool
As at end of August, , according to the Central Bank Governor, microfinance banks had been licensed but with all the regulatory incentives, the policy objectives, goals and targets of the banks have not been realized Olufemi Fabanwo — Deputy Director CBN, The studies carried out by Pollinger and Cordero-Guzmen and Hennessey confirmed that microfinance in its various models do assist the world to reduce and alleviate poverty and enhance economic development, particularly in developing economies. Micro-entrepreneurs have difficulty in accessing capital from mainstream financial institutions for various reasons ranging from non availability of appropriate and adequate collateral and inability of the entrepreneurs to provide acceptable accounting records of their businesses.
All microfinance institutions operate with the objective of overall success. In other words, being able to make loans available to customers and delivery of other services are not enough. Kimotho identified maintaining minimum portfolio at risk, adequate provisioning, capacity building: zero tolerance for loan default, and product packaging as the critical and key success factors to microfinance operations.
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The Finish Micro Credit Ltd was set up to remove boredom among the young women and encourages them to stay in Northen Finland and the nearby region of Northern Russia. The microfinance institution mainly finances production of sweaters, paper weights, postcards and wooden troll statues and also serves to preserve social integration. From the study reviewed, it has been observed that microfinance through its services to the poor and lowly has filled certain gaps which the mainstream financial institutions — the conventional banks have neglected.
Such gaps include provision of start-up finance, rehabilitation of the destitute, provision of business training skills etc. Microfinance structure and superstructure hinges on the following framework. The study examines few theories that shape anti-poverty strategies. Bradshaw opined that theories of poverty may originate from five sources including 1 individual deficiencies, 2 cultural belief systems that support subcultures in poverty, 3 political-economic distortions 4 geographical disparities or 5 cumulative and circumstantial origins.
There are two poverty and two finance theories that are germane to this study. These are vicious cycle theory of poverty, power theory of poverty, demand following and supply leading hypothesis and financial liberalization or repression hypothesis.
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In the following paragraphs, the study looks in these theories. The Vicious Cycle of Poverty. Jhingan and Bradshaw are front runners of the poverty theory. The trajectory is that poverty is caused by low income. Low income engenders low savings and this in turn leads to low investment. The latter provokes low productivity and the cycle continues. According to Jhingan , the basic vicious cycle stems from the facts that in low developing countries LDCs total productivity is low due to deficiency of capital, market imperfections, economic backwardness and underdevelopment.
Power Theory of Poverty. This theory further stated that the society has been dominated by the ruling class owners of properties who exploit the non-property owners, made possible by their ownership of the means of production. They held religion responsible for sustaining this power structure between the rich and the poor by denying the poor of any initiative to fight to improve their condition which prevails and subject them to poverty. Thus, an effective poverty reduction programme should have exploitative property that could be addressed and dislodged.
The demand following financial theory refers to a kind of finance development that reacts positively to economic activities.
The supply-leading finance on the other hand refers to the establishment of financial institution in some areas before the demand for their service is considered. Demand-following and supply-leading financial theory are rooted in the fact that the financial system may be simultaneously growth inducing and growth induced. Jhigan , emphasized that the most relevant issues for development is the efficiency with which the financial system provides financial institutions. They linked the supply of initiatives, enterprise and finance by financial institution to be the creation, transformation and expansion of industries and other development oriented ventures.
Financial Liberalization or Repression Hypothesis. In the s and s, government intervention in the financial sector was rampant. It was done through setting of interest rates, imposition of high reserves requirements as well as quantitative restrictions on credit allocation. In the literature, it is explained by low savings, credit rationing and hence low investment: the so called financial repression. These authors then proposed the financial liberalization thesis which essentially involves the freeing of financial markets from government intervention and allowing the market determine the price and allocation of credit.
This theory is based on the assumptions of perfect information, profit maximizing competitive behaviour by financial institutions. However, the theoretical background of this study is rooted in the demand-following hypothesis and the vicious cycle of poverty. This is because most microfinance banks are sited in the urban areas or semi-urban areas where there already exists the demand for financial services.
Thus, for these MFIs to function efficiently and effectively to break the poverty cycle, they are demand driven and not supply leading. Bruno, Squire and Ravallion indicated that there are ample evidences that policies designed to foster economic growth significantly reduce poverty, Besley posited that there are two separate approaches to poverty reduction — which he called the technocratic and the institutional.
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The technocratic approach associated with economists, focus on targeting, exploring the theoretical and empirical implications of trying to direct limited resources to people with the greatest need while deemphasizing target groups. The institutional approach is more common among non-economists. They believe that antipoverty policies fail because the poor lack political power or because administrative incompetence or corruption keeps governments from delivering services. Thus improving the lives of the poor requires developing the social institutions, improving government performance, and changing political structures and attitudes towards the poor.
The target population and sample design for this study consists of the microfinance banks MFBs in Lagos and Ogun States as well as the micro entrepreneurs patronizing the MFBs in the two states. These banks are categorized into those with final licences and those with Provisional Licences Out of the total, Lagos State controls the lion share of MFBs with 74 in the licenced category while 73 have provisional licences. Ogun State, on the other hand has a total of 51 MFBs with 29 licensed while the remaining 22 have provisional licenses.
In total, the two States have MFBs, with of them in the licensed category while the remaining 95 have provisional licences.
The rationale for the choice of the two States is that most of the MFBs in Nigeria are concentrated there. It follows that sample drawn from the States are, all things being equal, more likely to reveal the characteristics of the MFBs and their customers. Both secondary and primary data are being used in this research work. The primary data were collected through the use of well-structured questionnaires, and administered by well trained enumerators in the study area.
The questionnaire employed for the primary data in this study was pilot-tested and found very reliable. The Sampling Technique is on two levels including the MFIs in the first level and the micro-entrepreneur customers in the second level. In each level, the sampling is multistage. In the first level, there are two stages of selection. In this case, the target population is the total entrepreneur-customer base of the selected banks. From the books of the banks, a sampling frame of these classes of customers has been generated from which 10 per cent of these customers has been selected, using the stratified random sampling approach.
Each of the categories a through c was translated to actual Naira value.