Is Micro-financing a Viable Tool for Poverty Alleviation?: An Assessment of a Leading Microfinance Bank in Nigeria

Abstract

Is micro-financing a viable poverty alleviation tool for its clients? We reflected on this question and conducted a longitudinal study using the 2011 Poverty Probability Index (PPI) to measure the household poverty of LAPO Microfinance Bank clients. The bank’s non-financial services were also examined to determine their benefits for clients. Using a multistage sampling technique, 1000 clients across the six geopolitical zones in Nigeria were selected for the study. We found that clients’ poverty likelihood index (PPI) declined from 11.62% at baseline to 9.86% at post-assessment. Poverty differentials by some socio-demographic disaggregates were observed. Compared to urban and peri-urban clients, rural resident clients had higher poverty likelihood. Disaggregated by geo-political zones, poverty likelihood was higher in northern Nigeria compared both to other zones and the national poverty likelihood. Female clients (12.32%) had higher poverty likelihood than males (9.73%). However, among all these categories, poverty likelihood declined in the post-assessment phase. Premised on the outcome of economic disruption experienced during the lockdown, we observed that clients who assessed only one loan cycle had higher poverty likelihood than their counterparts. We advanced two interrelated positions. The first relates to an inverse relationship between the number of loans accessed and poverty likelihood while the second argues that businesses at the early stage are worst affected during economic disruptions but can leverage on microfinance infrastructure to keep afloat. While our study advances the understanding of microfinance infrastructure and poverty alleviation in Nigeria, we recommend a continuous flow of loans and provision of non-financial services to clients. We also recommend that operating environment be made favourable for providers to keep impacting lives through microfinance financial and non-financial services.