Academic journal article Journal of Financial Management & Analysis

Poverty Alleviation through Micro Financing in Nigeria : Prospects and Challenges

Academic journal article Journal of Financial Management & Analysis

Poverty Alleviation through Micro Financing in Nigeria : Prospects and Challenges

Article excerpt

Introduction

The issue of micro finance or micro credit or small amount of money loaned to a person or a group of persons has become a topic of interest in the Nigerian finance industry and economy in general. This interest is as a result of the growing awareness both nationally and internationally of the important role which smallscale business organizations play in the economic development and poverty reduction of any country. Robust economic growth cannot be achieved without putting in place well focused programmes to reduce poverty through empowering the people by increasing their access to factors of production, especially credit. The latent capacity of the poor for entrepreneurship would be significantly enhanced through the provision of micro finance services to enable them engage in economic activities and be more self reliant, increase employment opportunities, enhance household income and create wealth1.

Prior to 1979, Nigeria was classified as a rich country by the western world with a strong-role in the economy by multinational companies (MNCs)2. The country was therefore deprived of millions of US-dollar worth of soft credit from international financial institutions like the IDA, the profit lending associate of the World Bank. Also the MNCs were responsible for the late starting of SMEs, etc in Nigeria as all emphasis was on the large multinationals without any serious attempt by the regulatory authorities in Nigeria to grow the SMEs in Nigeria as a possible viable tool for economic growth and development. This wrong assessment by the western world and erroneous classification of Nigeria as a rich country was corrected by Swamy in 1979 in the epoch making paper presentation at the National Conference on Cooperative Development in the 4'" National Development Plan of Nigeria organized by the Federal Ministry of Trade, University of Nigeria and Co-operative Federations from all over then 19 states of Nigeria. According to the Professor M. R. K. Swamy measure of poverty gap in the Nigerian economy, Nigeria was classified as a poor country with 76 per cent of its population falling below poverty range (or level 1 -5) and 20 per cent in the middle income category (or level 6-10) and 4 per cent in the rich/high income category (or level 11 and above)3.

Also, the World Bank corrected their earlier erroneous classification of Nigeria as a rich country (based on the Professor M. R. K. Swamy measure of poverty gap in Nigeria) by presenting GNP per capita data for 1987 as US $370 (poor country) against their earlier erroneous figure for 1 986 of US $700 (rich country)4. Based on its low Gross National Product (GNP) per capita, Nigeria has ever since then been classified as a poor nation. The United Nations Development Programme (UNDP) using its Human Development Index (HDI) ranked Nigeria 142nd among the 172 countries listed in 1 997 and 1 56lh out of a list of 1 79 countries in 200 1 (Central Bank of Nigeria5.

To increase public access to micro finance and hence alleviate poverty, the Central Bank of Nigeria (CBN) embarked on a detailed thirteen-point reform agenda in July 2004, on the consolidation of the Nigerian Banking industry to meet the development challenges of the 21sl century6. The major thrust of the plan was that all banks should increase their capita! base to N25 billion within 1 8 months and also to consolidate their operation through mergers and acquisitions before December 3 15' 2005. Banks not able to meet the minimum capital base at the stipulated time frame were given the options, if they so wished, to re-apply for license to operate as micro finance banks. This would enable them to fully help complement the emergent and already existing micro finance institutions operating in both the formal and informal sectors of the nation's economy.

The thesis of this paper is that a sustainable micro finance policy which is properly implemented, especially through micro finance banks, is a very potent instrument that can be combined with other initiatives for poverty alleviation to the benefit of the vast majority of Nigerians. …

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