EFFECT OF MICROFINANCE LOANS ON POVERTY ALLEVIATION OF WOMEN IN GOMBE METROPOLIS

Transcription

1 EFFECT OF MICROFINANCE LOANS ON POVERTY ALLEVIATION OF WOMEN IN GOMBE METROPOLIS By Bala, Abubakar Department of Business Administration Gombe State University, Gombe Gombe State, Nigeria Phone No: And Ali, Yakubu Mbasua Department of Business Administration Gombe State University, Gombe Gombe State, Nigeria Phone No: And Yusuf, Enoch Esther Department of Banking and Finance Federal Polytechnic, Mubi Adamawa State, Nigeria Phone No: Abstract Poverty is a worldwide phenomenon that affects almost all countries of the world, both developed and developing countries. However, poverty is much more widespread in developing countries like Nigeria and women are the worse affected due to their vulnerability. No doubt, microfinance emerges as a very powerful tool to alleviate poverty among women and poor population. Therefore, this study assessed the effect of microfinance loans on poverty alleviation of women in Gombe Metropolis. The paper employed both primary and secondary sources of data. Sample of 90 respondents was selected from a population of Descriptive statistics and chi square were used to analyze the data and test the hypotheses. The study discovered that microfinance loans play significant role in income generation and poverty alleviation in general. It recommends that government and non-governmental agencies should encourage the establishment of more microfinance institutions and strengthen the existing ones in both rural and urban areas so as to alleviate women poverty. Keywords: Microfinance, Loans, Poverty, Poverty Alleviation, Women 132

2 Introduction The magnitude of poverty in developing countries like Nigeria cannot be over emphasized. That is why the problem associated with the incidence of poverty is high in Nigeria especially among women. It is said that Nigeria is one of the countries with the highest poverty level in the world, because about 70% of its estimated million people are living on less than one US dollar a day (State of World Population, 2014). The National Bureau of Statistics (NBS) Poverty Profile 2012 which studies poverty incidence nationwide using 2009 and 2010 data identified North Eastern zone of Nigeria as the poorest zone in the country. Gombe State being one of the States in the North Eastern zone suffers from such poverty too especially among women. It is estimated that about 68% of women in Gombe State are living with poverty (Nwaobiala and Ogbonna, 2015). This means that, they lack adequate income, good health, education, food, shelter etc to carter for their living. Lack of adequate finance has made it very difficult for women to engage in viable businesses that generate income to support themselves as well as their families. Consumption pattern of women is low arising from inadequate income. Similarly women find it difficult to provide for their health needs. Majority of the children of the poor lack access to basic education and where they have access some could not afford to cope with expenses leading to school dropout. The realization that many of these poor women cannot escape poverty without skill acquisition, capacity building, ideas and willingness to work, must have propelled or engineered both government and nongovernmental agencies to make finance accessible to women. The fact that finance is one of the backbones of achieving these objectives has motivated government to set up poverty alleviation programmes. Some of the programmes set up to address the problems of finance towards eradicating poverty and unemployment in women by successive Nigerian government are; People Banks, Rural Banking Scheme, Agricultural Development Programme (ADP), Better Life for Rural Women, National Poverty Eradication Programme (NAPEP), Nigerian Economic Reconstruction Fund (NERFUND), National Directorate of Employment (NDE), Family Economic Advancement Programme (FEAP), Community Banking etc. Most of these programmes failed to achieve their objectives and were liquidated or scrapped. One of the last programmes to suffer this fate was community banking and it was replaced by microfinance banking institutions. Microfinance is generally understood as the provision of basic financial services including savings, credit, money transfer and even insurance, to the poor or in a broader sense, those who are unable to access such services due to exclusion by mainstream retail banking sector (Irobi, 2009). No doubt microfinance is a very powerful tool to alleviate poverty among women and poor population. This is because microfinance helps to provide financial services such as credit (loan), savings, micro leasing, micro insurance and payment transfers to economically active poor and low income households to enable them engage in income generating activities or expand (grow their small businesses). That is to say, microfinance emerged as an economic development approach intended to benefit the low income (poor) part of a given society, both men and women to escape poverty. Furthermore, several studies revealed that microfinance loans play significant role in poverty alleviation in different places. For example Alooma, Msheliza and Adefila (2010) examined the impact of formal microfinance loans on poverty alleviation in Borno State, Nigeria. Akinlo and Oni (2012) assessed the impact of microfinance on poverty alleviation in Ondo State, Nigeria. Alooma (2010) studied the role of informal microfinance on poverty alleviaton in Borno State, Nigeria. Equally, Awojobi (2014) conducted a study on empowering women through microfinance in Lagos State, Nigeria. Despite these studies, a study of this nature has not been conducted on Gombe State. 133

3 This leaves a clear gap that this paper, the effect of microfinance loans on poverty alleviation of women in Gombe Metropolis, attempts to fill Objectives of the Paper The main objective of this paper is to assess the effect of microfinance loans on poverty alleviation of women in Gombe State. The specific objectives are to; i. examine the effect of microfinance loans on income generation of women in Gombe metropolis; ii. assess the effect of microfinance loans on consumption pattern of women in Gombe metropolis; iii. examine the effect of microfinance loans on health status of women in the metropolis and; iv. assess the effect of microfinance loans on education of women in the metropolis. Hypotheses Ho: There is no significant relationship between microfinance loans and income generation among women in Gombe metropolis. H1: There is no significant relationship between microfinance loans and consumption pattern of women in Gombe metropolis. Methodology The methodology used in this study is survey design. It involved the use of both primary and secondary sources of data. Primary source of data was used because it allows the researcher to gather the sample opinions of microfinance loans beneficiaries in Gombe metropolis, Gombe State. Cluster sampling was used in the selection of respondents. In using this method, Gombe metropolis was divided into two, namely; Gombe North and South from where respondents were selected. Having done this, simple random sampling technique was adopted in selecting forty five (45) respondents from each category making ninety (90) drawn from the total population of The data collected were analyzed and tested by descriptive statistics and chi-square test. Conceptual Issues Concept of Poverty Poverty has been identified as a worldwide social problem that is multidimensional in nature. This is because poverty has been described by scholars and experts depending on its nature, place and volume. It is a multifaceted concept being perceived by different people while using different criteria to assign a meaning to it, and therefore, this makes it difficult to give a concise meaning to the term (Kurfi 2009 as cited in Ebimobowei, Sophia and Wisdom 2012). United Nations Development Programme (UNDP) observed that, around 2.7 billion people are considered to be living in poverty. These people are having a consumption level of less than 2 US dollars per day. Around 1.1 billion of the poor live in extreme poverty and majority of them are women. Extreme poverty is defined as living in less than 1 US dollars per day. People living in extreme poverty often lack opportunities to have their basic needs met, meaning access to food, clean water, clothes and decent shelter. Most lack education and are vulnerable to diseases (Lindvert 2006). In similar vein Momoh 2005 cited in Ebimobowei, Sophia and Wisdom 2012:5) note that: Poverty is multidimensional phenomenon related to the inadequacy or lack of social, economic, cultural, and political entitlements. Poverty is hunger. Poverty is lack of shelter. Poverty is being sick and not being able to see a doctor. Poverty is not being able to go to school and not knowing how to read. 134

4 Poverty is not having a job, is fear for the future and living a day at a time. Poverty is losing a child to illness brought about by unclean water. Poverty is powerlessness, lack of representation and freedom (World Bank 2000). Poverty entails a condition characterized by severed deprivation of basic human needs including food, safe drinking water, sanitation facilities, health, shelter, education and information (World Summit for Social Development 1995). It includes people who earn and spend less than one US dollar per day. It is lack of or inadequate access to social services (Agba, Ushie, Bassey & Agba 2009). However, poverty is relative, what an individual might consider as poverty may not be poverty to others. That is why it has different dimensions by the viewers as whether a woman is suffering from poverty or not. Therefore, poverty is defined as situation where individual is deprived or fail to meet his/her need, the need may be basic or ordinary. To others lack of basic needs is poverty while social or ordinary needs are not indicators of poverty. Meanwhile lack of ordinary needs is clear sign of poverty by others, this make it difficult assign meaning to it as stated by Kurfi. Although, Kurfi opined that it is difficult to assign a meaning to the concept of poverty due its relativity by difference scholars. However, for the purpose of this study poverty is a condition where a woman cannot afford to provide herself with the basic needs. These basic needs include income, consumption, health care, education etc. This implies that poverty is a situation whereby an individual woman lacks the adequate basic need. It might be lack of adequate income, food, health facilities, shelter, education as well as other social needs which prevail among majority of our women in Gombe metropolis. Concept of Microfinance Microfinance is a term used to describe different methods that give poor women access to financial services so as to engage viable economic activities to generate income. Haruna (2007) defined microfinance as the provision of credit, savings and other financial services to low income earners so as to generate more income. It is considered distinct from the intermediation of the formal financial sector because it specifically target low income people who lack access to credit for their income generation or production activities. The cost of administering large number of very small loans without collateral is considered by deposit money banks to be prohibitive. As a result poor people are effectively being denied access to formal credit. Thus, underlying objective for employing microfinance as poverty reduction strategy is to assist the economically active poor who cannot make savings, accumulate asset or invest in any meaningful income generating activities that would help them to escape from the circle of poverty. Irobi (2009) sees microfinance as the provision of financial services such as credits (loans) savings, micro leasing, micro insurance and payment transfers to economically active poor and low income households to enable them engage in income generating activities or expand (grow their small businesses). He further said, microfinance evolved as an economic development approach intended to benefit the low income part of given society, both men and women. Therefore it can be viewed as a financial intervention that focuses on the low income group of a given society. The intervention may primarily involve giving credit services, savings and insurance on credits and savings. 135

5 Microfinance Loans and Income Leikem (2012) established that microfinance loans help the clients to engage and increase economic productivity. Increasing productivity, in turn not only increases income, enabling the borrower repays the loans and interest, but also to save. This clearly reveals that the beneficiary of microfinance loans can generate more income as a result of a loan that he collected and invested in viable economic activities. Ameer & Jamil (2013) concluded that microfinance institutions loans have significant impact in reducing poverty by increasing income and therefore microfinance could be proved as the more powerful source of poverty alleviation if the programme started on depth (grassroots) and outreach (cover all areas) than the present outreach (coverage areas). Microcredit leads to an increase in household income. The use of loans and deposit services can result in a diversification of income sources e.g. enterprise growth (Cohen and Deena, 2003). Base on these views, this study defined microfinance loans and income as a situation where microloans or small loans induce low income earners (women with poverty) to generate more income. This arises as woman with poverty when collected the loans will invest it in income generating activities, thereby escaping poverty. This is because majority of such women with poverty lack adequate income that will support them to engage in business activities. Microfinance Loans and Consumption Murdoch (1995) identified that, first, households can make smooth income; this is most often achieved by making conservative production or employment choices and diversifying economic activities. In this way households take step to protect them from adverse income shock before they occur. Second, household can make smooth consumption by borrowing and saving, adjusting labour supply and employing formal and informal insurance arrangement. These mechanisms take force aftershocks occur and help insulate consumption patterns from income variability. Poor people are very vulnerable and move from one crisis to another. Access to microfinance loans enables them to manage risk better and take advantage of opportunities. In Bolivia, many Pro Mujer (microfinance) clients use loans to protect their level of consumptions when crisis occur, avoiding large dips in material wellbeing (Cohen & Deena 2003). Britta, Ralp, Heike and Costas (2012) finding revealed that, there are no significant changes in consumption pattern of the borrowers of microfinance loans. This is because the beneficiaries focus on expansion of their businesses. However, for the purpose of this study microfinance loans and consumption can be seen as a mechanism of promoting consumption. This is because consumption pattern of women is low arising from low or inadequate income. But as a result of the loan poor women or low income earners can afford to invest the viable business that can generate more income thereby helping them to smoothing their consumption. Microfinance Loans and Health The poor or low income women use a variety of mechanisms for financing direct health cost most often borrowing, selling assets and avoiding health care but often with negative consequences. However, microfinance clients can benefit from health financing products such as health savings, health loans and health micro insurance. Khan (2014) findings show improvement in spending on health after microfinance loans. In other way it shows that a unit of microfinance loans taken leads to increase in health spending of client and her children. 136

6 Chan (2008) observed the effect of credit programmes and the health status of children in rural Bangladesh using Grameen Bank, Bangladesh Rural Advancement Committee (BRAC) and Bangladesh Rural Development Board (BRDB) rural develop TD-12 programme, its focus was on the impact of participation between men and women and the health outcomes on their children. The main conclusion from the study is that credit given to women has significant impact on key indicators of health, while credit given to men had no effect. This implies that microfinance institutions help in improving the health status of women as well as their children. Microfinance Loans and Education Ayuub (2013) posits that loan facility collected through microfinance institution has helped the clients to give better education to their children. This is because the income of households increases after taking loans and leads to increase in expenditure on their children education. Increase income arising from microfinance loan can assist women to send their children to school and sometime where there are inadequate public schools make decision to relocate them to private schools because they can now afford it. Women that were unable to continue with their education could find it easier to enroll or continue their education even up to higher level thereby completely escaping poverty. Meanwhile Hytopoulos (2011) rejects the claims made as the implication of microfinance a developing nation, no statistically significant correlation exist between number of loans and enrollment in school was found. This implies that while the income generated as a result of loan helped others to send their children to school, others felt better to remain in business together with them so as to generate more income. Empirical Studies Ameer & Jamil (2013) in their study on effectiveness of microfinance loans in Pakistan. It found out that microfinance loans affect consumption, but loans do not depend on the consumption. In the same vein Khan (2014) examined the impact of microfinance on the household income and consumption level in Danyore, Gilgit-Baltistan, Pakistan. The study conclude that microfinance loans positively affect the household income level and consumption by spending more on food items compare to before the loan. Ayuub (2013) assessed the impact of microfinance on poverty alleviation in Pakistan. The study also found out that microfinance helps in increasing income, health, education as well as improving the general standard of the living of the clients. However, only few of the respondents show no difference before and after the loans in their standard of living depicting negativity in poverty alleviation. Rafiq (2014) conducted a study on the effect of microfinance on human capital formation. He tests the impact of microfinance loans on education spending of 1200 households from 64 towns and villages in Thailand. Data gathered were analyzed by regression model. The finding revealed that spending on education varied, the clients of microfinance loans have positive increase on education spending while the clients of non microfinance has negative spending on education. Britta, Ralp, Heike & Costas (2012) studied microfinance, poverty and education in Bosnia and Herzegovina. It comprises a simple size of 674. Regression analysis was used to analysed the data. The findings revealed that consumption and school attendance decreased while increase in the labour supply and businesses increase. Noreen, Imran, Zaheer & Saif (2011) assessed the impact of microfinance on poverty in Pakistan. A sample of 384 customers of four microfinance institutions was selected using multi-stage cluster sampling. The results 137

7 reveal a positive and significant effect of microfinance programme on children education and household expenditure, whereas, there was no significant impact of microfinance on housing conditions, consumption of food items and ownership of household assets. Although most of the studies conducted on impact or effect of microfinance loans on indicators (income, consumption, education and health) of poverty proved to be positively effective on them. But when thoroughly look at them; they were not carried out in Gombe metropolis as well as on women. Therefore creating a gap that this study the effect of microfinance loans on poverty alleviation of women in Gombe metropolis intends to fill so as to see how the loans has impacted on the variables of poverty vis a vis poverty in general. Theoretical Framework This study uses microfinance theory of change to explain how microfinance loans intervene in poverty alleviation of women. The classic microfinance theory of change was advocated by Srikant, Marc & Kristi 2008 and cited by Dunford (2012). They argued that the classic microfinance theory of change is simple, a poor person goes to microfinance provider, and takes a loans (or saves the same amount) to start or expand a micro-enterprises which yields enough net revenue to repay the loans with major interest and still have sufficient profit to increase personal or household income enough to raise the perso achieved through three key steps; i. Take a loans from a (or save with) microfinance institutions (or similar entity). ii. Invest the money in a viable business. iii. Manage the business to yield major return on the investment. This theory is on the notion that microfinance is the world most powerful solution to poverty, as well as wars, disease and suffering that poverty ignites. The supporters contend that small loans fuel economic self sufficiency. They point to the billions of dollars that Microfinance Institutions (MFIS) such as Grameen Bank, Accion International, and Opportunity (IO) have given to millions of small time, impoverished entrepreneurs. They cited research showing that micro loans increase household consumption, give women more clout in their communities, encourage the use of contraceptives and improve the nutrition of young children (Nathanael 2004). Therefore, microfinance theory of change that stands as the most significant theory to underlie this study. This is because the theory is on the notion that low income earner (women with poverty) will take microfinance loans from microfinance institutions which invest the money in a viable business or income generating activities and manage the business to yield major return on the investment. Therefore this results in improved cycle of alleviation of poverty. Data Analysis and Findings Table 1: Respondents Opinion on Effectiveness of Microfinance Loans on Income Level Respondents Percentage (%) Very Effective Effective Neutral Ineffective Very Ineffective Total Source: Field Survey (2015). 138

8 Table 1 shows how microfinance loans beneficiaries rate the loans on their income. The women beneficiaries that viewed the loans as effective in increasing their income accounted for the highest with 44.44%. Very effective accounted for the second highest with 33.33%, and those that were neutral with 11.11%. While those that considered the loans as ineffective or very ineffective in income generation accounted for the least with 5.56% each. Table 2: Respondents Opinion on Effectiveness of Microfinance Loans on Consumption Level Respondents Percentage (%) Very Effective Effective Neutral Ineffective Very Ineffective Total Source: Field Survey (2015). Table 2 represents the responses for consumption pattern by women beneficiaries of microfinance loans. Criteria score comprised very effective, effective, neutral, ineffective and very ineffective. The loan rated on consumption as very effective and effective with 22.22% and 44.44% respectively. However, those who are neutral about the loans capability on improving consumptions represent 16.67%. While the loan viewed as ineffective and very ineffective on consumption with 11.11% and 5.56% respectively. Table 3: Respondents Opinion on Effectiveness of Microfinance Loans on Education Level Respondents Percentage (%) Very Effective Effective Neutral Ineffective Very Ineffective Total Source: Field Survey (2015). Table 3 shows the responses of women beneficiaries of microfinance loans on education % and 33.33% of women respondents revealed that the loan impacted on their education and that of their children as very effective and effective. While 22.22% and 11.11% respondents view the loan as very ineffective and ineffective in improving their education. And only 22.22% respondents that were neutral about the effectiveness of the loan on education. Table 4: Respondents Opinion on Effectiveness of Microfinance Loans on Health Level Respondents Percentage (%) Very Effective Effective Neutral Ineffective Very Ineffective Total Source: Field Survey (2015). 139

9 Table 4 reveals the views of women beneficiaries of microfinance loans on their health. Those that view the loan as effective and very effective recorded highest scores with 22.22% and 16.67% respectively. The second highest score which is 33.33% accounted for those respondents that are neutral about the impact of the loan on their health. While only 11.11% and 16.67% of the respondents view it as either ineffective or very ineffective. Chi Square Test Ho: There is no significant relationship between microfinance loans and women income generation in Gombe metropolis Table 5: Respondents opinion on Effectiveness of Microfinance Loans on Income Level/Loans N10000 N20000 N30000 N40000 N50000 Total Very Effective Effective Neutral Ineffective Very Ineffective Total 90 Expectancy Table O E O-E (O-E) 2 (O-E) 2 /E Total Degree of Freedom (DF) = (R 1) (K 1) = (5 1) (5 1) = (4)(4) = 16. At 5% level of significance, the table value is Therefore, since the calculated chi square value (57.23) is greater than chi square table value (26.30) we should reject the null hypothesis. That is there is significant relationship between microfinance loans and income generation of women. H1: There is no significant relationship between microfinance loans and consumption pattern of women in Gombe metropolis 140

10 Table 6: Respondents Opinion on the Effectiveness of Microfinance Loans on Consumption Level/Loans N10000 N20000 N30000 N40000 N50000 Total Very Effective Effective Neutral Ineffective Very Ineffective Total 90 Expectancy Table O E O-E (O-E) 2 (O-E) 2 /E Total Degree of Freedom (DF) = (R 1) (K 1) = (5 1) (5 1) = (4)(4) = 16. At 5% level of significance, the table value is Also the computed value of chi square (40.56) is greater than the table value (9.49) we should reject the null hypothesis that state that there is no significant relationship between microfinance loans and women consumption pattern. Discussion of Findings Microfinance loans play significant role in increasing th Khan (2014) and Ayuub (2014) findings that proved the effect of microfinance loans on income increase of their customers. Contrary to Noreen, Imran, Zaheer and Saif (2011) studies that stated that loans have not impacted on consumption, the study revealed that loans have positive effect on consumption. This finding is supported by the work of Ameer and Jamil (2013) on effectiveness of microfinance loans on consumption in Pakistan. Also this study is in contrast to Hytopoulos (2011) findings that the loans have no relationship with education attainment. But this research proved that the loans have positive effect on increasing education spending, meaning that loans have helped the low income earners (women) to enrolled in schools and this corroborated by the work of Rafiq (2014). Lastly, the study identified the effect of microfinance loans on improving health status. This implies that 141

11 the loans have contributed in assisting women to attend health care institutions and afford to settle their medical bills. This is supported by the work of Ayuub (2014). Conclusion and Recommendations Poverty is a worldwide problem that affects most of the countries. However, microfinance loans prove to be the tool for alleviation of all indicators of poverty (inadequate income, lack of good consumption pattern, lack of access to education, lack of access to good health care etc). Therefore, the study recommends the following; 1. Government should make soft microfinance loans facilities available through both governmental and nongovernmental financial institutions to women so as to increase or generate more income. This is because the loans are used in income generating activities. 2. The government should support and strengthen microfinance institutions to have more capital and branches in both rural and urban areas so that poor women will obtained the loans in order to smoothing their consumption pattern. This is because loan lead to more income generation, and the increased income smoothen consumption of women. 3. The government should put in place policies that will direct commercial banks to be lending microloans to the poor women as the loan helps in education attainment of both women and their children. 4. Government should come out with effective policy that will compel all tiers of government (Local, State and Federal) to establish microfinance loans schemes so as to be borrowing loans to poor women in order to promote their health status. 5. The government should set up special scheme and programme meant for provision of microloans to poor women apart from microfinance institutions that were responsible for micro lending, so as to effectively help in poverty alleviation level. References Agba, A.M.O and Ushie, M.A, Bassay, A.O. and Agba M.S (2009) Human Development trend in Nigeria. The Need for Concrete Implementation of the Seven Point Agenda, Nigerian Journal of Social Development 6 (1). Akinlo, A.E and Oni, I.O. (2012) Australian Journal of Business and Management Research Vol. 2 No. 9. Alooma A.G, Msheliza S.K and Adefila J.J (2010a) Impact of Formal Microfinance Loans on Poverty Alleviation in Borno State of Nigeria International Journal of Administrative and Development Studies, University of Maiduguri Nigeria Vol. (2) Ameer B. and Jamil M (2013) (A Borrower Perspective) Global Journal of Management and Business Research Finance Vol.13 Issue 7. Awojobi O.N. (2014) Evidence from Nigeria. Australian Journal of Business and Management Research Vol. 4 No. 4. Ayuub, S. (2013), Impact of Microfinance on Poverty Alleviation: A Case Study of NRSP in Bahawalpur of Pakistan. International Journal of Academic Research in Accounting Finance and Management Services Vol. 3, No 1. Britta, A. Ralp, D. Heike, H. and Costas, M (2012) Microfinance, Poverty and Education. Chan, K. (2008) Microfinance, Microcredit and Health Munk Centre for International Studies 142

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