THE IMPACT OF MICRO-FINANCE SCHEME ON PETTY TRADER

Introduction

1.1 Background To The Study

Commercial banks in most developing countries exclude the poor and hardcore poor by imposing strict rules and regulations on loan applications. The demand for the products and services offered by commercial banks are low among the poor, not because of “poor do not need financial services”, but the product and service are not designed to meet their requirements. Micro-credit was originally established to bridge the capital gap apparently unfilled by the rural cooperatives and commercial banks. It is a collection of banking practices built to provide small loans and accept small saving deposits. According to Otero (1999), micro-credit provides access to capital, which enables the poor self-employed to create productive capital, to protect the capital they have, to deal with risk and to .avoid the loss of capital. It attempts to build assets and create wealth among poor and hardcore poor people.

Microfinance is a phenomenon that reflects the provision of both credit and savings services to low income people. This provision of funds in form of credit and micro-loans empowers the poor to engage in productive economic activities which can help boost their income level and thus alleviate poverty in the economy.

In recent times, the growing awareness of the potentials of microfinance in poverty reduction, economic growth and development, coupled with the increasing number of microfinance institutions has effectively put the issue of microfinance a top agenda in most developing countries. The monetary authority (CBN) is spearheading this campaign in Nigeria and they act as the supervisory and regulatory body for this sub-sector. The financing of the industrialization process which is one of the major goal of Nigeria policy makers, cannot be overemphasized. For any program on poverty alleviation to be successful, the economy needs a viable industrial sector that cancushion the economic and production process in the country. In most developing countries of Asia, Africa, South America and the rest, poverty reduction is anchored on the development of small and medium scale enterprises.

This is due to the low technological capacity of these nations; majority of people in these nations engage in low productive activity. As a result, economic development in these· regions to a large extent depends on how well the small and medium enterprises flourish. The inaccessibility of the poor to financing options has hindered the progress and survival of most of these enterprises thereby worsening the poverty incidence in these economies. Enhancement of small­-scale production plays important role in development process of a developing economy. Apart from increasing the per capita output and expenditure, it enhances regional economic balances through industrial dispersal and promotes effective allocation of resources.

Robust economic growth can be achieved by putting in place well focus countries poverty. These programmes empower the people by increasing their access to factor of production especially capital. The latent capacity of the poor for entrepreneurship is significantly enhanced through the provision of microfinance services. The financial services enable the poor to engage in economic activities that make them’ self-reliant, it enhances their household income and helps them create wealth. Thus, the potential of microfinance far exceeds the micro level, scaling up to address macro problems associated with poverty reduction.

It has been acknowledged that microfinance captures elements of widespread perception, broadening, deepening and speeding up the interconnection to poverty reduction and economic development. Schreiner and Colombet (2001, p.339) clearly describe microfinance as “the attempt to improve access to small deposits and small loans for poor households neglected by banks.”

According to Olaitan (2001) and Akanji (2001), the tools of microfinance include increased provision of credit, increased provision of savings, repositories and other financial services to low income earners or poor households. Thus simply defined, microfinance is a development process through the provision of micro-credit and savings service to small-scale entrepreneur. The Olaitan and Akanji perspective on microfinance go in line with Schreiner’s description of the concept. Schreiner (2001) also proposed a definition of microfinance as “uncollateralized loans to the poor and small-scale entrepreneurs”. This implies that microfinance provides financial strength to the low income earners so as to enable them carry ‘on- economic activities that can earn them, improved living standard.

UNDP (2001) identified microfinance as a major tool effective in alleviating poverty. It empowers the financially disadvantaged ones. According to Morduch et al (2003) and Alegiemo and Attah (2005), microfinance is the financial empowerment of economically active poor through the provision of micro-credit as well as other productive assets; it enhances the latent capacity of the poor for entrepreneurship, enabling them engage in economic activities, be self-reliant and also enhancing the household income as well as creating wealth.

1.2 Statement Of Problem

The object behind the concept of microfinance is to generate financial service for those people which are away from financial services and to help poor people to pull out from the vicious circle of poverty. The idea behind the microfinance is very naive to generate appropriate change in financial systems all over the world. As the traditional financial system provided benefits and safety to the rich seqment of the society, the main object of microfinance is to lift the poor segment of the society from the circle of poverty and able them to contribute and participates in the economic activities and development.

The microfinance campaign started: when Professor Muhammad Yonus (Bangladeshi economist) first time granted a few dollars to an impecunious (basket maker) in the year of 1974. These little loans granting campaign to the poor persons enable them to run their small businesses that would have helped them to come out from the poverty circle. The Grammen Bank is one of the successful example which provides loans for the poor to, uplift from the poverty. In this reorganization Professor Muhammad Yonus was awarded the noble prize in the year of 2007.

It is well documented that microfinance is the most appropriate and better corridor to empower the poor people and rise their income generating ability (Pakistan institute of poverty reduction program 2001). The significance of microfinance is increasing with the passage of time not only in Pakistan but across the boarder as an instrument to eliminate poverty. This sector faces many problems and challenges in Pakistan as well as other underdeveloped countries because of additional scope of this sector.

The thought behind the microfinance services is to provide financial help to the poor persons and people at their doorstep at very easy terms and conditions (Wahid Ur Rehman 2007). At this juncture microfinance has drawn special attention not only at the academic level but also in the area of policy designing (Smailbone and Wyer 2000).

A review of microfinance literatures has shown disparity in perception by scholars on this subject. While some relay microfinance as an instrument that empowers the poor, others negate this opinion; conceptualizing microfinance has a social liability. The conservatives view microfinance as social liability, consuming scarce resources, without significantly effecting long-term outcomes. Critics argue that the small enterprises supported by micro-credit program have limited potential to grow and so have no sustained impact on the poor. They contend that these “microfinance programs rather make the poor economically dependent on the program itself (Bouman and Hospes, 1994).

Hence, even if the programs are able to reach the poor, they may not be cost-effective and hence worth supporting as a resource transfer mechanism. According to Zeller and Meyer (2002), the excitement about the use of microfinance to empower the low income people is not backed up with sound facts. Most microfinance providers are unwilling to evaluate the appropriateness and effectiveness of such scheme because they are perceived to be rigorous and expensive. These are part of the issues that this study will try to address.

1.3 Aim And Objectives Of The Study

The main aim of this study include finding out whether there is; any relationship between micro-finance schemes and petty trading. Other specific objectives include:

1. To underpin the various challenges militating against the performance of micro finance schemes in Nigeria.
2. To examine the impact of micro finance scheme in the lives of petty traders in Agege Local Government.

1.4 Statement Of Research Questions

The following research questions will guide this study:

1. Is there a correlation between micro-finance schemes and petty trading in Agege Local Government?
2. Has various challenges militating against the performance of micro finance schemes in Nigeria?
3. Has micro finance scheme impacted on the lives of petty traders in Agege Local Government?

1.5 Statement Of Research Hypotheses

Considering the nature of problems stated above, the following research hypothesis would be tested for rejection or acceptance.

1. Ho: There is a significant relationship between micro-finance schemes and petty trading in Agege Local Government.
   Hi: There is a significant relationship between micro-finance schemes and petty trading in Agege Local Government.
2. Ho: The various challenges micro finance scheme are facing does not hinder it performance.
   Hi: The various challenges micro finance scheme are facing hinders it performance.
3. Ho: Micro finance scheme has not impacted on the lives of the petty traders, in Agege Local Government.
   Hi: Micro finance scheme has impacted on the lives of the petty traders in Agege Local Government.

1.6 Significance Of The Study

The result of this study will be of great benefit to a large numbers of people and organizations. The application of the recommendation of this study will definitely increase the productivity of micro finance institution in all sectors of the Nigerian economy be it at federal level, state level or local government level. It impact will not be felt in the public service alone, it cut across all organizations be it manufacturing enterprises, engineering concerns, aviation etc.

The study will be of great benefit to micro finance institution has it will provide strategies of providing more loan to petty traders and how this petty traders can be evaluated to know if they are competent of handling the amount of money they are asking for and which business line this petty traders can invest in that will bring returns.

The study will also be informative to the general populace most especially the petty traders has it will bring the limelight the effort of the government (through micro finance scheme) to reduce poverty to barest minimum. It will also empower the petty traders on background information to know before approaching a micro finance bank for a loan or savings.

1.7 Scope Of The Study

This study is limited to Agege Local Government. The rationale behind the choice of the area is due to the fact that Agege local government is a densely populated area with most people being uneducated but are petty traders.

1.8 Limitation Of The Study

While enormous efforts have gone into this study, there are some hindrances that stand as limitation to the study. They are as follows: −

1. Time Constraints;This is seen as a limiting factor as other personal and academic functions demand much time coupled with short time available for the research .
2. Financial Constraints; Limited funds constituted a serious impediment toward the successful execution of this research work.
3. Another problem .encountered has to do with transportation as well as logistics in the process of data collection.

1.9 Organization Of Study

This research work is divided into five chapters.

1. Chapter one is introducing the subject matter of the study stating the .research problem, objectives, significance, hypothesis, scope and limitation of the study.
2. Chapter two involves a thorough examination of the subject matter via literature review. Journals and articles that are related and relevant to the research work.
3. Chapter three reveals the research methodology to be employed.
4. Chapter four is used to present relevant data gathered from various sources and the analysis of these relevant data.
5. Chapter five which is’ the last chapter that summarizes the research work, inference and recommendation -that are made and what action to be taken by macro finance banks to improve petty traders activities.