MICROFINANCE IN POVERTY REDUCTION

Challenges in Measuring Success of Microfinance in Poverty Reduction



Challenges in Measuring Success of Microfinance in Poverty Reduction

Introduction

Microfinance's achievements in poverty reduction been celebrated worldwide. During the last decades, these schemes have proved to be a successful adaptation to imperfect credit markets. They have relaxed the constraints on the poor's access to productive capital and, consequently, contributed to break the vicious circle of poverty caused by low income and subsequent modest investments. However, in many cases, practitioners have not limited their activities to the financial arena (Yaron, 2004, p 49).

After a period of unpopularity of non-financial services among the main stakeholders in the industry, international and local NGOs, such as Freedom from Hunger, as well as, governmental social departments have contributed to reformulate the concept and take advantage of the MFIs' economies of scope. Different partnership arrangements involving a variety of actors have given rise to the development, and implementation of an increasing number of high-quality demand-led non-financial related services available to microfinance clients. The wide variety of existing credit-plus activities responds to the belief that microfinance does not always sufficiently improve the living standards of its clients (Aryeetey, 2005, p3).

Discussion

Microfinance been defined as efforts to improve access to loans and to savings services for poor people (Shreinner, 2001:1) and is currently gets promoted as a key development strategy for promoting poverty reduction/eradication and economic empowerment. It has the potential effectively address material poverty, the physical deprivation of goods and services and income to attain them by granting financial services to households who not served by the formal banking sector. Poverty is a global phenomenon with over 2.8bn of the world population living below the poverty live out of which 1.1billion live on less than US$1.00 per day (CBN). This prompted the international community to declare the Millennium Development Goals (MDG) aimed at reducing the incidence of poverty globally by half by 2015 (CBN 2009:21). One of the compelling challenges facing mankind today is the problem of poverty. Poverty is not only on the increase, but also wide spread in many developing countries (Osuala, et al, 2009:152).

The dimension of hunger and malnutrition, which are extreme cases of poverty are alarming and cannot leave anyone indifferent. According to World Bank report, an estimated 174 million under-five children in the developing world malnourished in 1996-1998, and 6.6million out of 12.2million deaths among children in that age group associated with malnutrition (Osuala, et al: 2009:152). Microfinance institutions could play a pivotal role in meeting the financial needs of both households and micro enterprises. Traditional banking sector has failed to provide fair credit services to the poor, and microfinance institutions and programmes being developed to fill this gap. If microfinance institutions gets correctly aimed at improving access to credits, then encouraging savings and the means to save to those who did not have such access before, could play a pivotal role in eradicating or reducing poverty and empowering a nation, including Nigeria, which, according to Ankomah and ...