Micro-Credit And Poverty Eradication

Poverty, especially

            poverty in its extreme form, is a major challenge facing the world today. The United Nations estimates that 1.3 billion people live below the poverty line of $1 dollar per day. Although the United Nations has been criticized for arbitrarily coming up with $1 as a baseline for measuring poverty line, the world poverty picture today is at best grim and at worst largely underestimated. In a world where, according to Prof. Jeffery Sachs, renowned development economist and former special adviser to the Secretary General of the United Nations, obesity is the number one cause of teenage death in the US, approximately 790 million people in the developing world are still chronically undernourished (World Resources Institute Pilot Analysis of Global Ecosystems)

In Nigeria, the Nationa estimates that 54.4% of . National Poverty Line. For Nigeria, the most populous black nation with a population of at least N 140million, this is indeed a worrisome situation. It means that today, over 75 million Nigerians are unable to provide for the most basic needs of survival, including food, clothing, shelter, healthcare and education. This is in spite of the success the nation has recorded in reducing the level of poverty from 65.5% in 1999 to 54.4% in 2004.

Achieving the MDGs set out by world leaders at the United Nations Millennium Conference as well as other development goals for the advancement of the world, especially developing countries, will take focused and well articulated economic development policies and programmes that have the capacity to spur overall economic growth and development.

In Nigeria this is being articulated’ in Mr. President’s Seven point Agenda for Development and implemented alongside the ongoing economic reforms of the federal government. But economic reforms, especially economic reforms in countries also undergoing political reforms like Nigeria, can initially excercebate the suffering of the poor. This is why government must, in addition to economic reforms, have social protection policies aimed at mitigating the hardship faced by the poor, while they await the benefits of economic reforms.

Social protection consists of policies and programmes designed to reduce and mitigate poverty among the poor and vulnerable by improving their ability to protect themselves from economic shocks within the system. It includes policies and programmes designed to promote employment, social insurance programmes to cushion risk from unemployment, welfare service, child protection programmes, etc.

Social protection programmes are by no means cheap to undertake. It requires adequate funding taking into consideration the fact that most benefits of the programme will be in the long term. For example programmes like conditional cash transfers, school feeding programmes, and welfare stipends are investments in human capital development with future benefits. In developed countries like the United States of America, through a robust system of taxation in a buoyant economy, government is able to generate resources to fund its social protection programmes. In 2006, for example, the United States governments spent over $23 billion on its food stamp programme alone.

What therefore is the way to go for developing countries struggling with the basic developmental issues like infrastructural development and debt burden?

The important role of micro credit in a nation’s economic development process has caught the attention of the world. Micro credit is today recognized as a sure way of expanding opportunities of growth and integrating the poor into a nation’s economic development process. But traditional micro finance alone may not be able to reach every poor.The poor indeed are not a homogenous group to who micro credit holds every answer. Within the category of the poor are the poorest of the poor. Those living in the lower poverty bracket that may effectively be excluded from the very machineries that make micro credit successful. For example most MFls or cooperatives prefer to give micro credit to people who have alternative sources of income aside the one they seek a loan for; this assures that repayments can be made even if the business for which the loans were collected fails. In addition, borrowers must have made contributions and savings to the MFls to qualify to collect a loan.

Government intervention in micro finance should, contrary to what some believe, reach out to the poor rather than distort the micro finance market. It can become a form of social protection programme especially for poor countries who may not have the resources to undertake a regular social protection programmes. Engaging the machineries of micro finance institutions, government can help mobilize funds to be speCifically targeted at the extreme poor who are considered high risk clients even by traditional micro finance institutions. The ‘lr-:.:;”~ “hhe National Poverty Eradication Programme in this regard is therefore commendable and needs to be encouraged.

Using its Multi Partner Micro Finance Scheme, NAPEP has created an enhanced pool of funds for micro credit through partnership with State and local governments, commercial banks and other private sector companies. Because funds from government carry no interest rate, loans are able to reach the poor at a reduced rate, usually less than 9%. Working with MFls, Cooperatives and Community Based Organizations including religious bodies, NAPEP grass roots structures ensure that resources get to the targeted group.

Critical to the success of this, is effective monitoring. MFl’s are being used by NAPEP to help guide participants in the programme. As the government continues to guide poverty eradication strategies, it is hoped that the private sector; MFB/MFl’s, commercial banks, NGO’s seeing the success of the programme will be able to take it over and continue implementation.