Financial Analysis of Assessment of Impact of Micro-Financing Insitutions towards Poverty Reduction in Nigeria

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IntroductionOver the past decade, providers of micro finance have developed an array of models for delivering financial services to the poor that meet the dual criteria of sustainability and outreach. As programmes mature, debates within and outside the industry have moved beyond questions of scale and outreach to the question of whether micro finance can reduce poverty (Sebstad and Cohen1). While many people agree that micro finance can make a great deal of difference in poor people's lives, the jury is still out on the extent to which micro finance contributes to poverty reduction. In Nigeria, limited research has been done on this topic, while the few available have derived their conclusions and recommendations from a systematic synthesis, of the results of the field studies, and literature reviews conducted in other countries (see, e.g., Olaitan2; Eluhaiwe3; Ukeje4; Abosede5 and Idolor6 to cite only a few). In recent time, the question of the link between micro finance and poverty has aroused much passion among providers, promoters, and others involved in the micro finance field (Rutherford7). At one extreme, the sustainability first camp believes that these services reach the poor through open access. At the other extreme, the poverty first camp defends the importance of targeting the poorer strata of the population to ensure that they have access to micro finance services. Outside the industry, micro finance has the reputation of being a tool that can pull people out of poverty. Supported by convincing vignettes of poor people who have made it, micro finance has garnered wide appeal as a development success1.To increase public access to micro finance and hence alleviate poverty in Nigeria, 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 21 century. The major thrust of the plan was that all banks should increase their capital base to N25 billion within 18 months and also to consolidate their operations through mergers and acquisitions before December 31st 2005. Banks not able to meet the minimum capital base at me stipulated time frame were given the option, if they so wished, to reapply for license to operate as micro finance banks. This would enable them to folly help complement the emergent and already existing micro finance institutions operating in both the formal and informal sectors of the nation's economy (Imhanlahimi and Idolor8).While the passion surrounding this issue remains intense, the debates have grown to the point of acknowledging that the relationship between micro finance and poverty reduction is not straightforward. Just as the causes of poverty are complex, so is its reduction. As a result, many people have come to recognize that micro finance alone is not a magic wand to lift people out of poverty; as it is at best only one of many factors that can contribute to poverty alleviation. Today, many micro finance institutions in Nigeria subscribe to a mix of goals, including sustainability, outreach to poor households, and poverty reduction. However, a continuing challenge they face is how to deepen and maintain outreach to poor households on a sustainable basis; as well as significantly increase the impact of micro-financing on the lives and activities of the economically active; especially rural poor. These would require not only a careful analysis of me category of people which micro finance institutions do and do not reach along the poverty continuum, but also a detailed in-depth analysis of how access to credits and other financial services have impacted positively on the businesses, assets, households and lives of the economically active poor, whose needs and interests micro finance institutions purportedly claim to serve (Idolor and Imhanlahimi9, Sebstad and Cohen1).While many of the impact studies have provided empirical evidence supporting a significant impact of microfinance banks (or institutions) on poverty reduction in general, there seems to be a few dissenters who have opined that the impact is not significant. …