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Journal of Rural Res. & Information (Vol.6; No.1:2011) Adersoji, Ojo and Oni

ASSESSMENT OF THE IMPACT OF MICRO CREDIT ON POVERTY

ALLEVIATION AMONG RURAL HOUSEHOLDS IN EKITI STATE, NIGERIA.

*Adesoji, S.A., *T.F. Ojo and **Oni Busayo

*Department of Agricultural Extension and Rural Development, Obafemi Awolowo

University, Ile Ife, Nigeria.

**Department of Agricultural Economics and Extension Services, University of AdoEkiti, Ekiti State, Nigeria.

ABSTRACT

The study was designed to assess the impact of micro credit scheme on poverty alleviation

of rural household in Ekiti State with a view to measuring its efficiency. A multistage

random sampling technique was used to collect primary data from micro credit

beneficiaries in the state. Five Local Government Areas (LGAs) from the sixteen in thestate were first selected, then four rural communities from each of the LGA and five micro

credit beneficiaries from the state micro credit scheme were randomly selected from the list

of beneficiaries from each rural community. A total of ninety nine suitable beneficiaries

were identified and interviewed using well structured and pre -tested interview schedule.The results show that the mean age of beneficiaries was 47.7 years and 52.5% were female.

Majority (86.9%) used the credit to improve their existing enterprise. Also 96% of thebeneficiaries claimed that their enterprise improved after the credit. Status of beneficiaries

in their communities also improved after the credit. Results of paired sample t test show a

positive and significant difference in the size of enterprise (t = 8.532; P < 0.000); labouremployed (t = 7.449; P < 0.000); and income of beneficiaries (t = 5.254; P = 0.000) before

and after the credit. The study concluded that micro credit scheme of Ekiti state was

effective to reduce poverty among citizens of the state.

INTRODUCTION

Micro credit as a tool of rural development through the development of micro enterprises

was introduced into the economy for over two decades. This credit was introduced as astrategy to reduce poverty especially among rural populace of the country. Introduction ofmicro credit was due to the failure of formal credit institutions (capital markets) as well as

the informal lending systems. Lack of savings and capital make it difficult for many poor

people to become self employed and to undertake productive employment generatingactivities. Providing credit seems to be a way to generate self- employment, opportunities

for the poor. But the poor lack physical collaterals, they have almost no access to

institutional credit. Informal lenders can be a source of credit, but poor households do not

gain from investing in productive income increasing activities because of high interest rates(Khandker,1998).

The poor can rarely save enough to form and participate in such informal groups. Also

village based informal groups, as they are formed with people living in the same agro-climatic areas are risky sources of finance for business / enterprising activities because of

covariance risk that affects equally every member of the group. A micro credit programme

which is able to pool risk across agro-climatic areas can help them became productivelyself employed.

Many government in Nigeria, have employed various poverty alleviation strategies through

development programme such as the national Accelerated Food Production Programme

(NAFPP), Rural Roads and Infrastructure, National Directorate of Employment (NDE);

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River Basin and Rural Development Authority; Agricultural Development Project (ADP);

National Fadama Development project (NFDP) to mention but a few. When the laudable

objectives of the above programmes failed, subsequent government then think of what nextto do to bail out the poor from poverty. Households may derive benefits such as income,

employment and consumption from access to micro- credit progamme. However, the

benefits from programme participation include induced changes in income, employmentand other welfare indicators.

One of the most important benefits of micro credit programmes is its ability to reduce

vulnerability among the poor. Micro credit programmes help borrowers to insurethemselves against crises by building up household assets. Such assets can be sold if

necessary. They can also be used as security or proof of credit worthiness when dealing

with businessmen or more traditional lending agencies. Diversification of assets which can

be aided through micro credit can reduce the risks of catastrophic loss. For example, afamily which relies on share cropping could easily be bankrupted by a single crop loss,

whereas those with a diversified base crops and livestock or handcraft income could

survive until the next harvest (Jason, 2001). Micro credit programmes also reduces income

poverty. Borrower tends to make more money over time and once the cycle of poverty hasbeen broken and some stability provided, many borrowers go on to make profitable

investment and lift themselves out of poverty. Wahid (1993) reported that 21% ofmembers of the Grameen Bank micro credit programme lift themselves from poverty

within four years of joining the programme. Another benefit of micro credit programme is

the increase in household consumption. It was reported by Zaman (2001) that incomesmoothing, which is the result of lessened vulnerability, also leads to consumption

smoothing. Small increases in consumption and increased regularity in consumption can

lead to better health and nutrition, and enhance the ability to make long range plans for the

family.Nigerian governments have tried through many programmes to alleviate/ reduce poverty.

Agricultural credit was to improve the lots of beneficiaries in the areas of agriculture,

health and education. The task of alleviating poverty includes, fight against child labourand child abuse, girls prostitution and forced or early marriages, street begging and

hawking. Activity based micro-credit scheme is to serve as investment promotion and

poverty alleviation programme that will stimulate appropriate economic activities acrossthe landing order to raise the level of productivity and economic power of people,

especially the vulnerable ones, through the establishment of cottage development projects.

If all the poverty alleviation programmes exhibited in Nigeria have really worked, there

may not be the need for different programmes under poverty alleviation. Ekiti State startedmicro credit scheme in 2003 with the aim of alleviating poverty of the populace of the

state, the relevant questions to ask are, and does the micro credit scheme introduced by

Ekiti State government either through agricultural credit or activity based truly reducepoverty? What is the current economic status of beneficiaries? The study therefore aims at

the following objectives.

i Identify the socio economic characteristics of households in Ekiti State.ii Determine the impact of micro credit on poverty status of the rural households and

iii Examine the effect of micro credit on the status of the households in the study

area.

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METHODOLOGY

The study was carried out in Ekiti State, Nigeria. The State was created in 1996. There are

sixteen Local Government Areas (LGAs) in the State. The State is agrarian with about10,898.70sq kilometers. The population of the State by 2006 census was 2,384,212.

A multistage random sampling technique was used to collect primary data from micro

credit beneficiaries in the state. The first stage involved the selection of five LGAs from thesixteen. The second stage involved the selection of four rural communities from each of the

LGAs and five micro credit beneficiaries were randomly selected from the list of

beneficiaries from each rural community. Only the beneficiaries that used credit frommicro credit scheme of the state alone were identified during pre interview survey and

were used for the study. This was to prevent interference from the use of different credit.

A total of ninety nine beneficiaries were identified and interviewed using well structured

and pre -tested interview schedule. The instrument collected information such as socio economic status of the beneficiaries before the micro credit and after the micro credit.

Data were summarized with descriptive statistics such as frequency count, mean, and

standard deviation; paired sampled T test was used to determine the impact of the micro

credit before the credit and after the credit was obtained.

RESULTS AND DISCUSSION.

Socio economic characteristics of the micro credit beneficiaries.

Results in Table 1 show that 17.2 percent of the surveyed respondents were single, 61.6

percent were married. Others were once married but were either separated or widowed. Theresults show that majority (82.8%) were married. This is in agreement with Jibowo (1992)

and Ipaye (1995) that majority of adults in farming communities were married. The table

further shows that 52.5 percent of respondents were female while 47.5 percent were male.

This may indicate that female were more vulnerable to poverty than male. Majority(78.4%) of the respondents were between the age range of 25 60 years. Only 21 percent

were above retirement age of 60 years. The mean age was 47.7 years. Only 26.3 percent

had primary school education, less than average (48.5%) had education in the tertiaryinstitutions. Respondents with tertiary education may likely be those trying to be self

employed. Farming (39.4%) top the respondent primary occupation. This was followed by

trading (31.3%), civil servants (20.2%). Trading (49.5%) topped secondary occupationwith farming (35.4%) coming second.

Result in Table 2 show that about 41 percent of respondents had between 1 and 2 years in

the programme while those between 4 and 5 years were 35.3 percent. Only 23.2 percent

had spent 3 years in the programme. Amount collected as loan ranged between N20,000and N120,000. However, 55.6 percent of the beneficiaries indicated that the credit was

insufficient. About 86.9 percent of respondents indicated that the credit was used to

improve their business enterprise; only 11.1 percent indicated that the credit was used tostart a new business. While 2 percent indicated that the credit was used to purchase

household materials. Majority (96%) of the respondents claimed that their enterprise

improved after the credit was obtained and invested.

Table1:Distribution of respondents by socio economic characteristics

Frequency Percentage

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Marital status

Single 17 17.2

Married 61 61.6Separated 5 5.1

Widowed 16 16.1

SexFemale 52 52.5

Male 47 47.5

Age

20 -30 8 8.0

31 -40 17 17.0

41 -50 28 28.2

51 60 25 25.261 70 18 18.0

> 70 3 3.0

Education Attained

Primary school 26 26.3Modern school 9 9.1

Secondary school 16 16.2Tertiary education 48 48.5

Primary occupation

Trading 31 31.1Farming 39 39.4

Private salaries job 7 7.1

Civil services 20 20.2

Artisans 2 2.0

Table 2: Distribution of respondents by Years spent in programme, Amount collected,

sufficiency of loan, use of the loan.

Frequency Percentage

Years spent in programme

1 2 years 41 41.43 4 years 45 45.4

5 years 13 13.1

Amount collected in 000

20 40 50 50.5

41 60 25 25.25

61 -100 17 17.17100 - 120 7 7.07

Sufficiency of loan

Yes 44 44.4No 55 55.6

Use of the money

To improve business 8 48.5

Increase business 38 38.4

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Start new business 11 11.1

Purchase household materials 2 2.0

Source: Field survey, 2009.

Results in Table 3 show that recipients of the loan claimed an improvement in their

enterprise after the loan was collected. This was observed by comparing the enterprisebefore and after the loan was collected. Parameters used include, perceived size of

enterprise, employment level, income and status of the beneficiaries after the loan.

The table show that 59.6 percent of the beneficiaries perceived the level of their enterpriseas low before the credit but after the loan, only 26.3 percent claimed that the level was still

low. Only 5.1 percent perceived the level of enterprise as high before the credit but 29.3

percent claimed that the enterprise level was high after the credit. This implies that there

was an improvement in the level of their enterprise after the credit was obtained. In termsof the number of people employed, the table shows that 40.4 percent did not employ

anyone but after the loan 49.5 percent had one employee. Also, only 1 percent had up to

five employees before the loan but after the loan, 11.1 percent had up to seven employees.

In addition, only 6 percent of the beneficiaries generated income of not more than N60,000before the credit. But after the credit, income generated was up to N120,000. These results

show that the loan beneficiaries actually had improvements in their enterprise after thecredit was obtained. Because of the improvement in their enterprise, their status in the

communities also improved. For example, 6.1 percent of the beneficiaries were given

chieftaincy titles, 10.1 percent changed the schools of their children to fee paying, 31.3percent purchased motor cycle, 28.3 percent purchased cars and 2.0 percent bought houses.

Above result shows that the credit had improved the status of the beneficiaries.

Improvement in the status of beneficiaries as well as improvements in their income after

the credit was obtained was an indication that the programme was effective to reducepoverty among the citizen.

Table 3: Distribution of beneficiaries by size of enterprise, employment, income and

status before and after the credit.

Before After

Size of enterprise Frequency Percentage Frequency Percentage

Low 59 59.6 26 26.3

Medium 35 35.4 44 44.4

High 5 5.1 29 29.3

Number employed

Non employed 40 40.4 0 0

1 employed 27 27.3 49 49.52 4 employed 31 31.3 40 40.4

5 employed 1 1.0 2 2.0

5 7 employed 0 0 9 9.1

Income (N)

1000 20,000 54 54.3 37 37.0

21,000 40,000 37 37.0 44 44.0

41,000 60,000 11 11 11 11

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61,000 80,000 0 0 2 2.0

81,000 120,000 0 0 5 5.0

Status of beneficiaries after the loan

Chieftaincy 0 0 6 6.1

More wives/ Children 7 7.1

Change in childrens school 10 10.1Purchase motor cycle 31 31.3

Purchase bicycle 1 1.0

Purchase car 28 28.3Bought a land 14 14.1

Bought a house 2 2.0

Using paired sample t test analysis, results in Table 4 show that a significant differenceexists between the size of the enterprise of beneficiaries before and after the credit was

taken (t = 8.532; P < 0.000). The positive value of the coefficient is an indication that after

the credit was favoured. It then means that size of the enterprise was better after the credit.

Number of labour employed before and after the credit was also compared with pairedsampled t test. A significant difference also exist in the number of labour employed

before and after the credit was obtained (t = 7.449; P < 0.000). The coefficient was positivewhich is an indication that favoured after the loan. It means that more labour was

employed after the loan was obtained. In addition, income of the beneficiaries before and

after the loan was subjected to paired sample t test. The result show that a positive andsignificant difference exists between the income of beneficiaries before and after the loan.

The coefficient of the t value which was positive indicates that income after the loan was

favoured. The t value was (t = 5.254; P < 0.000).

The significant difference in the parameters used to test improvement in the enterpriseshow that the enterprise embarked upon by the beneficiaries was better after the credit was

obtained. This is an indication that the programme was strong enough to reduce poverty

among members of the state.

Table 4: Results of paired sample t test on improvement parameters before and

after the credit.

Parameters t df P value

Size of enterprise before and after credit 8.532* 98 .000

Number employed before and after credit 7.449* 98 .000

Income before and after the credit 5.254* 98 .000

* Significant at 0.01 level.

Source: Field survey, 2009.

CONCLUSION

The study found that there were improvements in the enterprise of beneficiaries of the

Ekiti state micro credit programme after the credit was obtained and utilized. The studyconcludes that for effective poverty reduction in Ekiti State, micro credit could be a good

option.

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Policy Recommendations

Based on the findings of this study, the following recommendations are made

(1). Since the programme was well applauded by all beneficiaries more people should beencouraged to participate in the programme.

(2).Amount given to beneficiaries should be increased to cover both the small and medium

scale enterprises.(3).The micro credit of Ekiti State programme should be legislated so that it could be a

continuous programme and not politicized.

(4).Since the programme was significantly effective in poverty reduction; NonGovernmental Organizations and Local Government Councils should be encouraged to

provide micro credit to citizens of the state.

REFERENCES

Ipaye G.A.(1995) Analysis of Role Performance of contact Farmers in T & V Extension

System of Lagos State ADP (Unpublished Ph.D thesis) Department of Agricultural

Extension Services. University of Ibadan, Ibadan, Nigeria. Pp 83.

Jason, M. (2001) An Examination of the micro credit movement.Jibowo A.A. (1992): Essentials of Rural Sociology, Gbemi Sodipo Press Ltd. Abeokuta,

Nigeria. Pp 223 225.Khandker, S.R. (1998): Fighting Poverty with micro credit: Experience in Bangladesh,

Oxford Univerity Press.

Wahid, Abu N. M. (1993): The Grameen Bank: Poverty Relief in Bangladesh; Oxford;Westview Press.

Zaman R. (1999): Assessing the poverty and vulnerability impact of micro credit in

Bangladesh: background paper for the WRD 2000/2001. Washington, DC, World

Bank, P.12.

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