Microcredit and poverty reduction: a case of nigeria

Okafor I.G., Ezeaku Hillary Chijindu and Ugwuegbe Sabastine U

The issue of poverty reduction continues to attract attention from world governments and various organizations. In developing countries like Nigeria, there are programmes designed to help alleviate poverty especially in the rural areas. The establishment of specialized banks for this purpose remains one of the key frontiers for achieving this goal. This study therefore is aimed at evaluating the impact of microcredit on poverty reduction in Nigeria within the period 1999 to 2014. The study also captured the effects of microfinance banks size on the poverty alleviation agenda.  The error correction model (ECM) analytical technique was used to estimate our model equation. The findings showed that microcredit has negative and non-significant impact on poverty reduction in Nigeria. Interestingly, the size of microfinance banks in Nigeria has a positive impact on poverty reduction. In line with theoretical expectation, interest rate was found to have negative and significant effect on poverty reduction. We therefore conclude that microcredit have not played any significant role in alleviating poverty in Nigeria, which may be attributed to the inefficiency of the microfinance institutions due to widening interest rate gap. This gap indicates that loans are not channeled to areas where results are optimum. This has made the microfinance institutions to deviate from their core responsibility of making micro loans affordable to the target population but rather channel such loans and advances to juicy business interests and forfeit the core goal of empowering the teaming rural and low-income population. We recommend that the monetary authorities and regulatory institutions play effective role in ensuring that cost of micro-funds is affordable, and that microfinance banks do not just amass deposits but extend adequate microcredit to the target population at affordable interest rate.

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