JOURNAL OF AGRICULTURE & SOCIAL SCIENCES ISSN Print: 18132235; ISSN Online: 1814960X 10010/AWB/2010/649195 http://www.fspublishers.

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Full Length Article

Analysis of Micro-finance Impact on Poverty Reduction in Adamawa state, Nigeria

A.B. NUDAMATIYA, D.Y. GIROH1 AND J.F. SHEHU
CEMIT Department, Federal University of Technology, P. M. B. 2076, Yola, Adamawa State, Nigeria Farming Systems Research and Extension Department, Rubber Research Institute of Nigeria, P. M .B. 1049, Benin City, Nigeria Department of Agricultural Economics and Extension, Adamawa State University, P.M.B 25, Mubi, Nigeria 1 Corresponding authors e-mail: girohydengle@yahoo.com

ABSTRACT
Micro finance impact on poverty reduction in Adamawa state was studied by a random selection of 88 beneficiaries of four micro finance institutions through a questionnaire survey. Data collected were analyzed using descriptive and inferential statistics. The result revealed that majority of beneficiaries was females constituting about 70% and were in the active age group of between 26-45 years representing about 68%. Also, it was found that the respondents were mostly civil servants with the preferred sectors being commerce and crop farming constituting about 85%. The survey also revealed a regression coefficient of 0.53, correlation coefficient of 0.71 and computed t-test value of 2.16 all showing to the positive impact that micro finance has on the income of beneficiaries. It is therefore, recommended that policy should address issues of inadequate access and high interest rates. It should also concern itself with capacity building in the beneficiaries of micro finance as well as the creation of markets for their products. It is also recommended that policy should focus on issues of growth and development, which are noted to be critical to the successful use of micro finance as a poverty reduction tool. 2010 Friends Science Publishers Key Words: Micro finance; Micro credit; Poverty Reduction; Impact

INTRODUCTION
The important role played by credit in leverage and poverty reduction was realized early in the history of this country. This realization has made governments at all levels try to reach the poor with one form of credit or the other, through the numerous credit and agricultural Policies. In spite of all these efforts however aimed at poverty reduction, poverty level index according to the National Bureau for Statistics (NBS) has remained high especially in the rural areas (Federal Bureau of Statistics, 1999). According to the Bureau, in 1960, about 15% of Nigerians was poor. But by 1996, poverty incidence in the country was 66% or 77 million Nigerians out of a population of 110 million were poor. Today, it is estimated that 54% of Nigerians are poor out of a population of 140 million or 75.60 million people are poor and this is in spite of the fact that Nigeria since independence in 1960 has embarked on several poverty alleviation measures and similarly said to have earned a lot of revenue from the sale of oil and gas from among other sources (Iheduru, 2002). Additionally, Nigeria was said to have over-investment in the credit sector as was identified by international financial institutions (The World Bank & The International Monetary Fund) and the consequent

restructuring of the economy embarked upon by Nigeria in the mid 1980s. Poverty is a phenomenon that has generated a lot of interest in recent times. The term poverty does not lead to a straight forward definition. It is a complex universal phenomenon of multiple dimensions (Giroh et al., 2008). World Bank (2004) defined poverty as a condition of insufficient resources or income, where in its most extreme form is the lack of basic human needs such as health services, education, drinking water etc. Insufficient resources may include land, tools, supportive network of friends and families. The distribution of extreme poverty by occupation category further revealed that agriculture and forestry contributed the highest percentage (64.7%) of national poverty in Nigeria. This millions of small scale farmers are entrapped in self-reinforcing cycle of poverty, low income leading to low savings, which in turn leads to low investment and consequent low consumption, low health status, low productivity and eventual persistence of poverty (World Bank, 1996). Poverty can be absolute or relative. Absolute poverty is lack of physical minimum requirements for a person or household for existence, while relative poverty refers to a situation, where the provision of goods

To cite this paper: Nudamatiya, A.B., D.Y. Giroh and J.F. Shehu, 2010. Analysis of micro finance impact on poverty reduction in Adamawa state, Nigeria. J. Agric. Soc. Sci., 6: 9195

NUDAMATIYA et al. / J. Agric. Soc. Sci., Vol. 6, No. 4, 2010 and services to an individual or household is lower than that of others the report added (Giroh et al., 2008). Zanna (2000) and Salvia (2007) reported that social indicators, which include illiteracy level, health, nutritional status, housing, water, sanitation and access to credit reveal the incidences, depth and severity of poverty in Nigeria. These indicators are compressed into Human Development Indicators (HDI). Nigeria is ranked among the 25 poorest countries and the poorest in OPEC country. The cause (s) of this state of poverty has remained a subject of debate not only among members of academia but also policy makers and administrators. The consensus now however is that such efforts or credit never reached the target population and that lack of access to and cost of finance still remains the greatest challenge to our poverty alleviation efforts (Central Bank of Nigeria CBN, 2004). According to Anyanwu (2004), Commercial Banks traditionally lend to medium and large enterprises, which are judged to be credit worthy. The banks avoid doing business with the poor and their micro-enterprises, because the associated cost and risks are considered to be relatively high. Micro finance institutions and micro entrepreneurship have therefore evolved in past two decades in Nigeria and else, where around the world to cater for this group of people. According to Iheduru (2002), micro finance programs and institutions have gained widespread acceptance in Africa and else, where around the world. Research demonstrates that large scale directed government credit programmes as mentioned above have proved far too costly to manage as they have always been dogged by poor coordination, inadequate funding, administrative overlap, corruption, general inefficiency and ineptitude. With the help of external funding from agencies, most countries in Africa including Nigeria have adopted microentrepreneurship as an alternative approach to development in order to avoid these negative tendencies. The intension is to by-pass corrupt public officials make credit directly to the very poor and thereby promote their self-sufficiency. Micro finance institutions have rapidly evolved in the last two decades and have created significant income and employment opportunities for the poor in developing countries (Iheduru, 2002). In Nigeria's particular case, however, micro finance programs founded on sound conceptual footings and channeled through rural banking have also failed, because of these shortcomings. This is in spite of the over-investment in this sector by government as was identified by international financial institutions (The World Bank & The International Monetary Fund) and the consequent restructuring of the economy embarked upon by Nigeria in the mid1980s (Iheduru, 2002). Other scholars and policy analysts have identified the inhibiting factors that make micro finance enterprises unsuccessful. Yaron (1994), identified "high risks", "heavy transaction cost" and mounting loan loses" as some of the many factors that drained state resources, yet the programmes have reached only a fraction of the target population consequently have failed to provide financial self sustainability. However, as Khandker (2003) observed, to exhibit a stronger impact on poverty reduction, micro finance should perhaps go beyond the provision of financial services. It should find ways to improve the skill of its poor borrowers to improve their productivity and income. It should also assist its borrowers in marketing and improving the quality of their products. Micro-finance or micro entrepreneurship is only one of the many instruments of poverty reduction and development; growth matter even more significantly than other instruments. Investment in human capital and means to empower the poor also matter. He therefore, opined that to achieve sustainable poverty reduction, the other means must be explored as well. Micro finance institutions have rapidly evolved in the last two decades and have created significant income and employment opportunities for the poor in developing countries (Iheduru, 2002). A survey conducted by Central Bank of Nigeria (2001) identified about 160 MFIs operating in 28 states of the 36 states of the federation (Anyanwu, 2004). The growing importance of MFIs in the country has made the federal government develop a policy, regulatory and supervisory framework for the MFIs so as to monitor their activities and has equally directed that they convert micro finance banks by the end of 2007. In spite of all these however, little or nothing is known about the existence, operation, impact or practice of MFIs in the state. Accordingly, the objectives of the survey included the following; to describe the socioeconomic characteristics of beneficiaries of micro finance institutions in the area, to determine the sources of funds available to existing micro finance institutions in the area, to determine the impact of micro credit on the income of beneficiaries of micro finance in the area, to identify problems to the practice of micro finance in the area and recommend measures.

MATERIALS AND METHODS

The study area: The study covered two (2) Local Government Areas of Adamawa State, namely, Yola South and Yola North purposefully sampled. The research collected primary data directly from the respondents, which included both operators of micro finance institutions and their clients. The method used was the use of questionnaires and supplemented with oral interview. The selected Micro finance institutions included Ummah Community Bank (UCB), Yola, Jimeta Community Bank (JCB), Jimeta, Nigerian Agricultural, Cooperatives and Rural Development Bank, (NACRDB) Yola and Hududullah Micro credit company (HMCC) Ltd, Jimeta. The intension of the study was to use only formal micro finance institutions, but since data was yet available on formal micro finance institutions in the state, the research used government owned micro finance oriented institution, the NACRDB, Community Banks and Hundudullah Micro Credit Company. In all, 88

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MICRO FINANCE AND POVERTY ALLEVIATION / J. Agric. Soc. Sci., Vol. 6, No. 4, 2010 clients of these MFIs were selected using simple random sampling technique from the list of their beneficiaries (sample frame) to form the sample size. The data collected covered the past five years i.e., from the year 2003 to 2007 using lending records of these micro finance institutions. The data were analyzed using simple descriptive statistic, Simple regression analysis and Simple correlation coefficient analysis. T test of hypothesis was also carried out to determine if the difference in income of beneficiaries before and after credit was statistically significant. Four functional forms of the production function analysis were fitted to the data and linear function gave the best fit and is stated as follows: Y = b0 + b1x1 + Ui (1) Where: Y = Change in income of beneficiaries (naira) bo = Constant term bl = Coefficient of regression to be estimate x = Available credit to beneficiaries Ui = Error term. Correlation coefficient analysis: A simple correlation coefficient analysis was also computed to see the association of income with credit as follows: rxy = xy_______ (x2) (y2) (2) Table I: Socio economic distribution of respondents (n = 88)
Variable Age Up to 25 26 35 36 45 45 55 Gender Male Female Education Adult/Islamic Primary Secondary Post Secondary Occupation Civil Servant Farming Petty Trading Fishing/Hunting Others Frequency 11 23 37 17 26 62 21 11 31 25 26 13 45 2 2 Percentage Cumulative percentage 12.50 26.13 42.05 19.32 29.55 70.45 23.86 12.50 35.23 28.41 29.55 14.78 51.14 2.27 2.27 12.50 38.63 80.68 100.00 29.55 100.00 23.86 36.36 71.59 100.00 29.55 44.33 95.47 97.74 100.00

Table II: Distribution of Respondents by Enterprises

Enterprises Crop Farming Poultry Production Fattening Petty Trading (commerce) Fishing/Hunting Marketing Total Source: Field Survey, 2007 Frequency 21 1 6 54 3 3 88 Percentage 23.86 1.14 6.82 61.36 3.41 3.41 100.00 Cumulative Percentage 23.86 25.00 31.82 91.18 96.59 100.00 100.00

Where x = Credit Available y = Change in income of beneficiaries. Test of hypothesis: Hypothesis was tested using t-test statistic given by the formula: t= X1 - X2 S12 + S22 n1 + n2

Where: X1 = Mean income before credit X2 = Mean income after credit S1 = standard error of mean before credit S2 = Standard error of mean after credit n1 = Sample size before credit n2 = Sample size after credit.

RESULTS AND DISCUSSION

Socioeconomic characteristics of respondents: Data in Table I showed that majority of the respondents (42.05%) aged between 36 and 45 years, while those of 26 to 35 years was represented by 26.13%. The age group of 25 to 45 years corresponded to the active/working population (80.68%). This may be as a result of the fact that the study area is located in the administrative capital of Adamawa State with beehive of business activities. Gender distribution showed that women were the major beneficiaries (70.45%). The implication of this is that it is good for poverty reduction among women who constitute majority of the poor people

with less access to productive resources and income generation. Anyanwu (2004) reported that Nigerian women are marginalized in terms of economic opportunities and should have a separate promotional agenda to reduce their poverty. This assertion was further confirmed by Hududullah micro credit company limited one of the micro finance oriented institution in the study that majority of their clients were mostly women. Educational level is another important yardstick to assess the poverty status (Salvia, 2007). Distribution of respondents by level of education and occupation also revealed that all are educated and had one form of formal or informal education (adult/Islamic). On the basis of occupation, the tables showed that majority of the respondents are either petty traders 51.14%, civil servants 29.55%. The distribution of the respondents by the type of enterprise or sector that is most favoured has been presented in Table II. The result showed that petty trading (61.36%) and crop farming (23.86%) are the enterprises that are most preferred. The disproportionate coverage of commerce/petty trading in the sample is also to be expected. Yola and Jimeta towns with over a hundred and twenty thousand people mostly civil servants will offer a very big market for trade and commerce. The beneficiaries will therefore want to take advantage of the quick and high returns that come from

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NUDAMATIYA et al. / J. Agric. Soc. Sci., Vol. 6, No. 4, 2010 Table III: Summary of regression Result
Functional form variable Constant X Linear Y 5534.01 0.338 Semi-log Y -57316.12 8059 Exponential LnY 8.968 1.188E-05 Double log LnY 6.289 0.330 Source: Field survey, 2007. *** Significant at 1 percent # Lead equation F.Value 95.78 26.41 101.17 42.55 T.value 9.78*** 5.13*** 10.06*** 6.52*** R2 .527 .235 .549 .339 S.E 0.035# 1568.39 0.000 0.051

Table IV: Summary of Correlation Result

Correlation Spearmans correlation Pearsons correlation Kendalls correlation Correlation coefficient 0.711 0.685 0.589 Significance level 0.01 0.01 0.01

investments in the sector, compared to other sectors with longer gestation period and lower returns. It may also be due to the small nature of the micro amount being extended to them with short repayment period. Impact of micro credit on poverty reduction: In impact studies, data is usually collected before and/or after an innovation you want to test, or with or without the innovation. The difference is used as a measure of the impact of the use of such innovation. In this study, before or after option (Pitt & Khandker, 1998) was used, because of lack of information on non-users. Regression analysis: This was used to determine the effect or impact that micro credit has on the income of beneficiaries, using the ordinary least square estimates. Four functional forms were tried in the analysis namely linear, semi-log, exponential and double log functions. The result is presented in Table III. After satisfying the economic, statistical and econometric criteria, the linear function gave the line of best fit with coefficient of 0.53, t-ratio of 9.78 and significant at 1% probability level. The result shows that 53% of change in the income of beneficiaries can be attributed to credit use with about 47% explained by the factors not captured in the model. Correlation analysis: Correlation coefficient (r) was also computed to show the association of income and credit (data in Table IV). The result showed an rxy value of 0.71, 0.685 and 0. 589, respectively for the three methods used and are all significant (p>0.01). This indicates positive association between income and credit i.e., increase in credit increases the income of beneficiaries. ttest result: The result of the test showed that while the value of t calculated was 7.804, the table t value is 2.16 at 1% level of significance. It therefore means that the test was significant at 1% level of significance. It also means that mean incomes of beneficiaries before and after credit were statistically different. The work therefore, rejects the null hypothesis and accepts the alternative. In all, the results of the regression analysis, the correlation coefficient analysis and t-test result tend to agree with (Khandker, 1998), where he estimated that about 21% of the GrameenBank borrowers managed to lift their families out of poverty within about

four years of participation. Also that extreme poverty declined from 33% to 10% among its participant. In the case of Bank Rakyat Indonesia (BRI), that incomes of borrowers increased by 76% and employment increased by 84% within 3 years of programme participation. They all tend to portray the positive impact, which credit has on income of beneficiaries and poverty reduction. The problem however is how the poor can have a sustainable access to credit.

CONCLUSION
Micro finance has a positive impact on poverty reduction in the state. Moreover, the use of micro finance as an effective poverty reduction tool is being impaired by a number of problems, which need to be dealt with if micro finance is to have or exert the desired impact. It is recommended that policy should address issues of inadequate access and high interest rates. It should also concern itself with capacity building in the beneficiaries of micro finance as well as the creation of markets for their products; it is also recommended that policy should focus on issues of growth and development, which are noted to be critical to the successful use of micro finance as a poverty reduction tool.

REFERENCES
Anyanwu, C.M., 2004. Micro-finance Institutions in Nigeria: Policy practice and potentials. Paper presented at the G24 Workshop on "Constraints to Growth in Sub-SaharanAfrica," Pretoria, South Africa, November 29-30, 2004 Central Bank of Nigeria, 2001. Survey of Micro-finance Institution in Nigeria, in Anyanwu (2004) Micro Finance Institutions in Nigeria Policy, Practice and Potentials. Paper presented at the G24 Workshop on "Constraints to Growth in Sub-Saharan Africa,"Pretoria, South Africa, November 29-30, 2004 Central Bank of Nigeria, 2004. Draft National Micro-finance and Regulatory Guidelines for Nigeria, Anyanwu (2004) MicroFinance Institutions in Nigeria: Policy, Practice and Potentials. Paper presented at the G24 Workshop on "Constraints to Growth in Sub-Saharan Africa," Pretoria, South Africa, November 29-30, 2004 Central Bank of Nigeria, 2005. Micro Finance Policy, Regulatory and Supervisory Framework for Nigeria

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Federal Bureau of Statistics, 1999. Poverty Profile for Nigeria 1980-1996, pp: 2425. A Report Giroh, D.Y., F.O. Igbinosun, P. Ogwuche and V.P. Wuranti, 2008. Assessment of Rubber Research Institute of Nigeria Benin City Roles in Poverty Alleviation in the Rubber belt of Nigeria. Int. J. Sustain. Dev., 1: 7277 Iheduru, G., 2002. Women Entrepreneurship and Development: The Gendering of Micro-finance in Nigeria. Presented at the 8th International Interdisciplinary Congress on Women. 21-26 July, 2002, Makere University, Kampala, Uganda Khandker, R.S., 1998. Fighting Poverty with Micro-credit: Experience in Bangladesh. In: Nissanke, M. (ed.), Donor' Support for Micro-credit as Social Enterprise. A critical reappraisal. United Nation Discussion paper No. 2002/127 Khandker, R.S., 2003. Micro-finance and Poverty: Evidence using panel data from Bangladesh: United Nations policy research working paper No. 2945 Pitt, M. and S.R. Kandker, 1998. The impact of Group-Based credit programmes on poor households in Bangladesh. Does the Gender of participants matter? Marr, A. (ed.), Studying Group Dynamics: An Analysis of micro-finance Impacts on Poverty Reduction and its Application in Peru. In Nissanke, M. (ed.), DonorsSupport for Micro Credit as Social Enterprise: A Critical Reappraisal. United Nation Discussion paper No 2002/127 Salvia, H.W., 2007. Analysis of Poverty and Inequality Among Small scale Farmers in Hong Local Government Adamawa State. Unpublished M.Sc. Thesis Department of Agricultural Economics and Extension, Federal University of Technology, Yola, Nigeria Yaron, J., 1994. What makes Rural Financial Institutions Successful. In: Iheduru, N.G. (ed.), Women, Uganda Entrepreneurship Development and Gendering of Micro-finance in Nigeria Presented at the 8th International Interdisciplinary Congress on Women 21-26 July, 2002, Makere University, Kampala World Bank, 1996. Poverty Amidst Plenty: Nigerias Poverty Assessment, Washington DC World Bank, 2004. Millennium Development Goals. The World Bank Group Washington DC Zanna, B.G., 2000. The Status of Poverty Alleviation in Nigeria, pp: 123. A paper presented at the Annual conference of NERA, University of Nigeria, Nsukka, Nigeria (Received 09 February 2010; Accepted 20 April 2010)

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