EVALUATION OF DEMAND-LED MICROFINANCE AS A STRATEGY FOR SUSTAINABLE RURAL POVERTY ALLEVIATION IN NIGERIA: A CASE STUDY OF SELECTED LOCAL GOVERNMENT AREAS IN KADUNA STATE

EVALUATION OF DEMAND-LED MICROFINANCE AS A STRATEGY FOR SUSTAINABLE RURAL POVERTY ALLEVIATION IN NIGERIA: A CASE STUDY OF SELECTED LOCAL GOVERNMENT AREAS IN KADUNA STATE

Abstract:

The government have sponsored and supported supply-led microfinance schemes and institutions both to improve rural growth and equity and to neutralize urban-biased macroeconomics policies. Because of high risks, heavy transaction costs and loan losses, many of the rural microcredit schemes have drained state resources, reaching only a small part of the rural poor and making little or no progress towards poverty alleviation and financial self-sustainability. Following these, the 2005 microfinance policy jettisoned supplyled microfinance for demand-led microfinance anchored on old and new institutions. The change in policy was intended to provide sustained access to micro credit and to achieve financial self-sustainability for microfinance institutions as a strategy for sustained rural poverty alleviation. The 2005 microfinance policy emphasis is on the replacement of public funds with market funds in microfinance institutions in order to encourage the pursuit of financial self-sustainability within the context of private profitability. This raises the question of the cost implications of full market supply of micro credit to the rural poor as a strategy for rural poverty alleviation. Furthermore, how would market determined cost impact on affordability and sustained access to micro credit by the rural poor? Again, how would the pursuit of financial self-sustainability impact on sustainable rural poverty alleviation? This study used field survey, Outreach and Repeated Use Approach, and the Subsidy Dependence Index to evaluate the operations and services of microfinance banks and the implications for sustainable rural poverty alleviation. It also assessed the performance of microfinance banks in rural poverty alleviation and investigated the impact of the drive towards financial selfsustainability by microfinance banks on sustainable rural poverty alleviation in Nigeria. The findings of this study show that information asymmetry characterized the operations and services of microfinance institutions. This led to adverse selection of credit products by rural poor borrowers. Furthermore, the findings indicated that outreach of microfinance banks was not significant in terms of target clients/population, women participation and number of active borrowers. Repeated use of loans by borrowers from the selected five microfinance banks in the study area were not significant for good performance in terms of generating gains to the borrower over time requisite for sustainable rural poverty alleviation. The demand-led microfinance as presently constituted and practiced in Nigeria is not financially selfsustainable and is incapable of achieving sustainable rural poverty alleviation. Along with other instruments of economic policy, this study recommends an alternative microfinance model called SEGMENTED RURAL POOR MICROFINANCE MODEL that would ensure private profitability, sustainability and keep balance with the desired social impact of rural poverty alleviation.

EVALUATION OF DEMAND-LED MICROFINANCE AS A STRATEGY FOR SUSTAINABLE RURAL POVERTY ALLEVIATION IN NIGERIA: A CASE STUDY OF SELECTED LOCAL GOVERNMENT AREAS IN KADUNA STATE