Journal of Rural Res. & Information (Vol.6; No.

1:2011)

Adesoji,Ojo and Oni

ASSESSMENT OF THE IMPACT OF MICRO CREDIT ON POVERTY ALLEVIATION ON 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 Ado Ekiti, 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 the state 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 the beneficiaries 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); labour employed (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 a strategy to reduce poverty especially among rural populace of the country. Introduction of micro 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 generating activities. 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 agroclimatic 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

56

Journal of Rural Res. & Information (Vol.6; No.1:2011)

Adesoji,Ojo and Oni

which is able to pool risk across agro-climatic areas can help them became productively self 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); 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 next to 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, employment and 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 insure themselves 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, a family 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 has been broken and some stability provided, many borrowers go on to make profitable investment and lift themselves out of poverty. Wahid (1993) reported that 21% of members 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 income smoothing, 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 labour and 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 across the 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 started micro 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 reduce poverty? What is the current economic status of beneficiaries? The study therefore aims at the following objectives. 57

Journal of Rural Res. & Information (Vol.6; No.1:2011)

Adesoji,Ojo and Oni

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. 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 about 10,898.70sq 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 the sixteen. 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 from micro 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. The results 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 tertiary institutions. 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 occupation with 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 N20,000 and 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 to 58

Journal of Rural Res. & Information (Vol.6; No.1:2011)

Adesoji,Ojo and Oni

start 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 Marital status Single 17 17.2 Married 61 61.6 Separated 5 5.1 Widowed 16 16.1 Sex Female 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 25.2 61 70 18 18.0 > 70 3 3.0 Education Attained Primary school 26 26.3 Modern school 9 9.1 Secondary school 16 16.2 Tertiary education 48 48.5 Primary occupation Trading 31 31.1 Farming 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. 59

Journal of Rural Res. & Information (Vol.6; No.1:2011) Frequency Years spent in programme 1 2 years 41 3 4 years 45 5 years 13 Amount collected in 000 20 40 50 41 60 25 61 -100 100 - 120 Sufficiency of loan Yes No Use of the money To improve business Increase business Start new business Purchase household materials Source: Field survey, 2009. 50.5 25.25 17 7 44 55 8 38 11 2 17.17 7.07 44.4 55.6 48.5 38.4 11.1 2.0

Adesoji,Ojo and Oni Percentage 41.4 45.4 13.1

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 enterprise before 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 enterprise as 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 terms of 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 N60,000 before 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 the credit 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, 31.3 percent 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 reduce poverty among the citizen. Table 3: Distribution of beneficiaries by size of enterprise, employment, income and status before and after the credit. 60

Journal of Rural Res. & Information (Vol.6; No.1:2011) Before Frequency 59 35 5

Adesoji,Ojo and Oni After Frequency 26 44 29 0 49 40 2 9 37 44 11 2 5 6 7 10 31 1 28 14 2

Size of enterprise Percentage Low 59.6 Medium 35.4 High 5.1 Number employed Non employed 40 40.4 1 employed 27 27.3 2 4 employed 31 31.3 5 employed 1 1.0 5 7 employed 0 0 Income (N) 1000 20,000 54 54.3 21,000 40,000 37 37.0 41,000 60,000 11 11 61,000 80,000 0 0 81,000 120,000 0 0 Status of beneficiaries after the loan Chieftaincy 0 0 More wives/ Children Change in childrens school Purchase motor cycle Purchase bicycle Purchase car Bought a land Bought a house

Percentage 26.3 44.4 29.3 0 49.5 40.4 2.0 9.1 37.0 44.0 11 2.0 5.0 6.1 7.1 10.1 31.3 1.0 28.3 14.1 2.0

Using paired sample t test analysis, results in Table 4 show that a significant difference exists 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 paired sampled 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 positive which 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 and significant 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 enterprise show 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. 61

Journal of Rural Res. & Information (Vol.6; No.1:2011) Parameters Size of enterprise before and after credit Number employed before and after credit Income before and after the credit * Significant at 0.01 level. Source: Field survey, 2009. t 8.532* 7.449* 5.254* df 98 98 98

Adesoji,Ojo and Oni P value .000 .000 .000

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 study concludes that for effective poverty reduction in Ekiti State, micro credit could be a good option. 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 be encouraged 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; Non Governmental 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.

62