ABSTRACT

This study examines the contribution of microfinance banks to poverty alleviation in Akwa Ibom State. In this study it is analyzed that microfinance is an important element for an effective poverty reduction strategy. The contribution of microfinance bank on poverty alleviation is checked both in social and economic aspect. The social and economic factors considered in this study include, boosting of businesses, employment generation, credit delivery, improvement in skill acquisition and poverty alleviation also the factors that influence microfinance operation in this study which include high cost of operation, illiteracy, inadequate experience credit staff and others are also considered. The tool of analysis was simple percentage and correlation. From the analyses, it was discovered that microfinance bank has not made any significant contribution toward employment generation in Akwa Ibom State, it was also shown that there is no significant relationship between microfinance bank loan and poverty reduction in AKS. It also finds out that the volume of credit made by microfinance banks has a significant impact on informal sector financing. Base on finding on we conclude that the volume of credit made by microfinance banks has a significant impact on informal sector financing also microfinance bank does not generate employment. Similarly, the study recommends that microfinance bank should adopt a more development oriented approach in financing rural business. This can be achieved through advice and guidance they give to small-scale customers.       

CHAPTER ONE

INTRODUCTION

1.1   Background of the Study

Microfinance is a term used to describe the provision of both credit and saving services to low income people. This provision of fund in form of credit and micro loans empowers the poor to engage in productive economic activities which can help in boasting their income level and thus alleviate poverty in the economy. In support of the above statement, Akinboyo (2007) said microfinance banks has been recognized as an essential tool for promoting Small and Medium Scale Enterprises (SMEs) by providing microcredit to the poor to engage in new production business activities. Other services include savings, credit, insurance etc.

        In recent times, there have been growing awareness of the potentials of microfinance in poverty reduction, economic growth and development. This awareness of the potentials have however lead to increased number of MFBs in many developing economies. In Nigeria, the CBN (2008) has spearheaded the establishment of microfinance institution to cater for the financial needs of many micro, small and medium enterprises (MSME) in order to fastract the industrialization process of many state. As the major goal of Akwa Ibom State policy makers, the role of microfinance in industrialization process of the state cannot be overemphasized. For any program on poverty alleviation to be successful, the economy needs a viable industrial sector that can ginger the economic and production process in the state. In most developing states, poverty reduction is anchored on the development of small and medium scale enterprises.

        With millions of people, and productive farmland rich with mineral deposits, Akwa Ibom state should be a better place for small and medium industries. Also, the human and natural resource base is a significant feature that can also make small and medium scale enterprises grow better, thereby helping people to put food on their tables, with the help of funding from MFB. In the light of this the CBN as part of reform agender initiated microfinance Bank (MFBs) to provide credit to finance small and medium scale enterprises with the hope that these enterprises will grow and people will benefit in terms of employment, improve standard of living and income generation to individual, majority which are believed to live below poverty, line. In view of these and the enormous potentials of MFBs and a renewed interest in its establishment, this study is therefore conducted to examine the contribution of microfinance to poverty alleviation in Akwa Ibom State.

1.2   Statement of the Problem

        The emergence of microfinance banks from the community banks and other interested non-governmental organizations in 2005 was one of the giant stride and laudable efforts of the CBN’s financial sector reform (CBN, 2006). This is simply because a robust economic growth without putting in place a well focused programmes like microfinancing to reduce poverty through empowering the people would probably be very difficult if not unattainable. The birth of microfinance banks was therefore received with greate confidence by business community with the belief that it will increase their access to loans which were not readily given in commercial banks because of lack of collateral securities. The main purpose of these microfinance banks was thus to provide banking and credit facilities to the poor, the low income earners and the low and medium scale entrepreneurs, (CBN, 2006).

        The sole essence of microfinance Bank’s provision of banking and credit facilities to the poor is to help reduce poverty, but how much poverty has been reduced by microfinance banks had raised so many questions in the face of the seemingly continuous increase in unemployment, poor standard of living, lack of reasonable number of viable business ventures in the state etc. It is argued that rather than provide funding to the poor, microfinance banks are providing funding to sectors where they can reap high return (Olakojo and Olamipekun, 2011).

        Moreover, findings from several studies on microfinance and poverty reduction are mixed. In some, microfinance has brought positive impact to the life of clients, boost the ability of poor individuals to improve their consumption level, health and build assets. Other studies have shown that microfinance is said to play unsignificant role toward poverty reduction. In view of the above disparities and controversies, it is difficult to conclude whether microfinance bank has contributed toward the reduction of poverty in Akwa Ibom State or not, hence the reason for carrying out this study.

1.3   Objectives of the Study

The general objective of this study is to examine the contributions of microfinance banks to poverty reduction in Akwa Ibom State. Specific objectives include, to:

i)            Find out how microfinance banks help in poverty reduction in Akwa Ibom State.

ii)          Find out the contribution of microfinance banks toward employment generation in Akwa Ibom State.

iii)        Find out how much credit has microfinance bank given for informal sector financing in Akwa Ibom State.

iv)         Ascertain the relationship between microfinance bank loans and poverty reduction in Akwa Ibom State.

v)           Identify the challenges faced by microfinance banks in reducing poverty in Akwa Ibom State.

1.4   Research Question

        In this study the following research questions were formulated:

i)            How has microfinance banks help in poverty reduction in Akwa Ibom State?

ii)          What are the contributions of microfinance banks toward employment generation in Akwa Ibom State?

iii)        How much credit has microfinance banks given for informal sector financing in Akwa Ibom State?

iv)         What is the relationship between microfinance bank loans and poverty reduction in Akwa Ibom State?

v)           What are the challenges faced by microfinance banks in reducing poverty in Akwa Ibom State?

1.5   Research Hypotheses

In this study, three hypotheses were formulated to guide the researcher in the investigation. The null form of these hypotheses are stated below:

i)      Ho1:  Microfinance bank has not made any significant contribution

toward employment generation in Akwa Ibom State.

ii)     Ho2:  The volume of credit made by microfinance banks has no

significant impact on informal sector financing.

iii)    Ho3:  There is no significant relationship between microfinance bank

loan and poverty reduction in Akwa Ibom State.

1.6   Significance of the Study            

        The study would be of great importance to government and its agencies at all level by creating public awareness on the effectiveness of their microfinancing policies on poverty alleviation both at the urban and grass root level. The study would help the poor by informing them on the various microfinance benefits at their disposal.

By the finding of this study, they would be able to take advantage of these benefits by making profitable use of its services to boast their businesses and promote investment in rural and urban areas. The study would serve as a reference material to the business sector and other researcher and microfinance banks in Akwa Ibom State.

1.7   Scope of the Study

        The scope of the study was restricted to microfinance banks. Additionally, it will focus on the contribution of MFBs in the development of the poor people (poverty alleviation) in Akwa Ibom State.

1.8   Limitation of the Study

        This study was limited by financial constraint, resulting from the limited resources of the researcher, time constraints due to the fact that the brief time frame used in conducting the study and as well as the study is within Akwa Ibom State.

1.9   Assumption of the Study

v    In this study, it is belief that the study will help educate the people on the various microfinance benefit and also help to solve the problem relating to poverty reduction in the state if property implemented.

v    It is also assume that the study will provide a useful information to the poor with access credit facilities through microfinance.

v    Similarly it is assume that microfinance bank are bank that provide microcredit to the poor rather than providing large sum of money or engage in a capital project.

1.10 Organization of the Study

        The study is organized into five (5) chapters. Each chapter is divided into sub-heading for better understanding of the subject matter. Chapter one contains the introduction, statement of problem, objective of the study, research hypothesis, research question, significance of the study, scope and limitation, assumption, organization of study, definition of terms, and a brief profile of Akwa Ibom State (AKS).

        Chapter two focuses on review of related literature and the framework of MFBs. In this chapter, specific works of various authors having bearing on the subject matter of this study are also examined.

        Chapter three focuses on research methodology used in the study and it covers such areas as research design, research area, source of data, method of data collection, method of data analysis etc.

        Chapter four presents, analyses and interpretes the data collected and chapter five deals with summary, conclusions and recommendations.

1.11 Definition of Terms

        In order not to confuse the readers of this research and remove and doubt as to intended meaning of the words and terms used in this study, the researcher has defined certain words and terms as follows:-

i)            Microfinance: Akinboyo (2007) defined microfinance “as the provision of very small loan (microcredit) to poor to help them engage in new production business activities”.

ii)          Microfinance Bank: MFB has been defined by (BOFIA, 2007) “as financial institutions whose operations are specifically to cater for the rural areas in Nigeria with the focus of financing the poor”.

iii)        Bank: Banking decree 1969 section 41 (1) defined bank as any person who carries on banking business and include a commercial banks, an acceptance house, discount house and financial institution (BOFIA, 2007).

iv)         Poverty: This is defined as a state of being poor, (Hornby, 2000).

v)           Alleviation: This is defined as a way of reducing the problem, (Hornby, 2000).

vi)         Development:- According to Okereke (2005) development is the qualitative improvement in the living standard of members of a society.

vii)       Business:- According to madura (1998) look at it as “an enterprise that provide product and services that customer diesires”.

viii)     Entrepreneur: Okpara (2000) defined it “as an individual who has seal and ability to fine and evaluate opportunities. They are calculated risk taker, who enjoy the excitement of challenges not necessary gamblers.

1.12  Brief Profile of Akwa Ibom State                                                              

During general Murtala Muhammed administration, seven additional state were created in 1976. The South Eastern State was then re-name Cross River State. After the collapse of the 2nd republic in 1983, a memorandum demanding the creation of Akwa Ibom State was submitted to the General Bahari military administration by paramount Rulers from six local government areas of the “mainland” part of the former cross River State. In 1986 Federal military government called for memorandum from the public on how Nigeria could be governed, the people once again, seized the opportunity to resubmit their memorandum for the creation of Akwa Ibom State. On September 23, 1987 with the promulgation of Decree 24 of that year by the then military president, commander-in-chief of the Armed Force of the Federal Republic of Nigeria, General Ibrahim Badamisi Babangida, the southwestern region of cross river state was created as a new state called Akwa Ibom State (source: internet).

Thus, Akwa Ibom was created by combining the Uyo, Ikot Ekpene, Eket and Abak divisions of old calabar province. Consequently, General Babangida appointed Tunde Ogbeha as first Governor of the state. Tuned Ogbeha ruled the state from 23 September 1987 to 30 July 1988.

The creation of Akwa Ibom State marked the climax of a long and sustained struggle for a separate state by the people from this part of the former Cross River State described then as “mainland. The capital of Akwa Ibom State is Uyo, with the size of 8,421seqkm and with estimated population of about 2.4 million (Census, 2005).

Akwa Ibom is also reach with lots of resource such as largest palm forest in Nigeria, petroleum salt, iron, coal, goal, clay, limestone, laterial and gravel.

Moreover Akwa Ibom State have no language barrier among the ethnic group but officially English is spoken. Akwa Ibom has many point of interest like Ibeno famous for yatching and swimming, Oron Musseaum etc. websit is akwaibanstategov.com.

Moreover Akwa Ibom people are peace makers and they love strangers who reside or invest in the state. Akwa Ibom people are industrious people, hard working to help boast their income and contribute to economic growth of the nation. The standard living of Akwa Ibom people are mixed, some live above poverty time, some on the line and some below the line. They are believed in God the maker of heaven and earth and about 60% of Akwa Ibom people are still living below poverty line, 30% on the line and about 10% are above poverty line in the state (source internet).

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