A STUDY OF MICRO CREDIT STRATEGIES EMPLOYED
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1 A STUDY OF MICRO CREDIT STRATEGIES EMPLOYED IN THE DEVELOPMENT OF INDUSTRIAL CLUSTERS IN SOUTH EAST NIGERIA BY AMAGWU, IBEAWUCHI FRANCIS PG/M.Sc/07/47136 INSTITUTE FOR DEVELOPMENT STUDIES UNIVERSITY OF NIGERIA ENUGU CAMPUS FEBRUARY, 2010
Transcript of A STUDY OF MICRO CREDIT STRATEGIES EMPLOYED
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A STUDY OF MICRO CREDIT STRATEGIES EMPLOYED
IN THE DEVELOPMENT OF INDUSTRIAL CLUSTERS IN
SOUTH EAST NIGERIA
BY
AMAGWU, IBEAWUCHI FRANCIS
PG/M.Sc/07/47136
INSTITUTE FOR DEVELOPMENT STUDIES
UNIVERSITY OF NIGERIA
ENUGU CAMPUS
FEBRUARY, 2010
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TITLE PAGE
A STUDY OF MICRO CREDIT STRATEGIES EMPLOYED
IN THE DEVELOPMENT OF INDUSTRIAL CLUSTERS IN
SOUTH EAST NIGERIA
BY
AMAGWU, IBEAWUCHI FRANCIS
PG/M.Sc/07/47136
A PROJECT SUBMITTED IN PARTIAL FULFILLMENT OF THE
REQUIREMENTS FOR THE AWARD OF MASTER OF SCIENCE
(M.Sc) DEGREE IN DEVELOPMENT STUDIES
INSTITUTE FOR DEVELOPMENT STUDIES
UNIVERSITY OF NIGERIA
ENUGU CAMPUS
SUPERVISOR: PROF. IKECHUKWU E. NWOSU, Ph.D
FEBRUARY, 2010
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APPROVAL PAGE
This research work written by Amagwu, Ibeawuchi Francis with Reg. No.
PG/M.Sc/07/47136, presented to the Institute for Development Studies has been
approved in partial fulfilment for award of Master of Science (M.Sc) in the
Development Studies
-------------------------------------- -----------------------------
Prof. Ikechukwu E. Nwosu, Ph.D Date
Supervisor
-------------------------------------- -----------------------------
Prof. Okecukwu, Ibeanu, Ph.D Date
Director of Institute
-------------------------------------- -----------------------------
Prof. Ikechukwu, Ndolo, Ph.D Date
External Examiner
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CERTIFICATION
This is to certify that this project written by Amagwu, Ibeawuchi Francis with Reg.
No. PG/M.Sc/07/47136, presented to the Institute for Development Studies is original
and has not been admitted for award of any Degree or Diploma either in this or any
other tertiary institution.
-------------------------------------------- ---------------------
AMAGWU, IBEAWUCHI FRANCIS DATE
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DEDICATION
This work is dedicated to Almighty God.
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ACKNOWLEDGEMENTS
It is my profound gesture to use this medium in bringing to book all who have
contributed to the success of this research work. On this note, my Project Supervisor,
Prof. Ikechukwu E. Nwosu, Ph.D, is highly acknowledged. I wish also to recognize
my Lovely wife, Dr. (Mrs.) Chinedum, and my lovely kids, Onyedikachi and
Chimhurumnaya, all of Amagwu‘s family, brothers and sisters and other millions of
friends and well wishers.
It is my desired wish also to acknowledge Dr. Stanley ILBA Uzoh, whose assistance
in the areas of provision of Literature, and guidance, account to a great extent, the
success of this research work; to Staff and Managements of: the selected Micro-
Finance Banks operating within the Industrial Clusters of Aba, Nnewi and Onitsha;
Government Agencies (Min. of Com. and Ind., CBN, SMEDAN, SMEs); selected
Micro, Small and Medium Entrepreneurs within the visited Industrial Clusters, for the
provision of materials and unlimited corporation towards the success of this project.
Finally, it is pertinent to note that it stands impossible to bring to book all that has in
one way or the other aided the smooth progress of this work. To this effect, my
greetings extend far even to those un-mentioned.
Amagwu, Ibeawuchi Francis
PG/M.Sc/07/47136
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ABSTRACT
Isolation and barriers have never worked to develop prosperity, and these have
been the key obstacle preventing Small and Medium Enterprises (SMEs) boost
their competitiveness. Firms that have come together as a group and which are
located in close proximity have prove to be capable of rapid economic growth,
sustainable leadership in export markets, significant employment generation and
preservation of high-value added jobs. Equally, studies from both developed and
developing countries show that SMEs cluster development provides for
reconciling the economic development, poverty reduction and social equity. It
should be brought to mind that for these enterprises to provide the dynamic boost
to the economy that Nigeria so badly needs government policies must support the
right business environment for them to thrive via identifying and implementing
effective initiatives for improvement within their operating space. No doubt there
is grinding poverty in the midst of abundant resources in the country and no
responsible government can be comfortable with this. Nigeria has the highest
rate of collapse of Small and Medium Enterprises (SMEs) within the first five
years of operation, due largely to low financial capacity of the entrepreneurs who
are thus unable to manage well the gestation period of growing enterprise. There
are, today, about 700 micro finance banks listed in Nigeria, with only about 70 of
them or 10 percent, functioning. Poverty in Nigeria, no doubt, has become an
embarrassment to a country with such huge natural and human resources.
Despite all the interventions by government to reduce poverty, the impact of the
different interventions has been insignificant. This study determines the various
Micro-Credit strategies employed in the development of industrial clusters in the
South-East Nigeria. This research survey made use of both primary and
secondary data, with a determined sample size of 200. Findings from this survey
has it that: The strategies employed in the development of the Industrial Clusters
in South-East Nigeria which include: Service Level Agreement (SLA); Cluster
dominance; Membership of Market Association/Cooperative Society and Pricing
(i.e Profit Sharing) have made significant impact; there is willingness by the
stakeholders to provide Micro-Credit supports for the sustenance of MSMEs in
the South-East; there is significant relationship between the Micro-Credit
supports and performance of the Industrial Clusters. As the world is currently
looking at Micro-Business Enterprises, particularly those within Clusters as the
engine of growth for industries, if these business enterprises are not adequately
supported and encouraged in terms of Micro-Credit supports, education, effective
monitoring and evaluation, the dream, goals and objectives of their establishment
will be defeated. Considering the efficacy of Micro-Credit supports and the
significant impact such supports make in the development of Industrial Clusters
which can be attributed to the effective/efficient strategies (Service Level
Agreement; Cluster dominance; Membership of Market Association/Cooperative
Society; Pricing, i.e Profit Sharing) employed by the Micro-Finance Institutions
operating within the Industrial Clusters, the Micro-Finance Institutions operating
outside the Industrial Clusters are thereby advised and encouraged to appreciates
and adopt the above strategies so as to help them actualized their organizational
goals and objectives which will in turn contribute to national development and the
realization of the Millennium Development Goals (MDGs).
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TABLE OF CONTENTS
Title Page - - - - - - - - - i
Approval Page - - - - - - - - ii
Certification - - - - - - - - - iii
Dedication - - - - - - - - - iv
Acknowledgements - - - - - - - - v
Abstract - - - - - - - - - vi
Table of Contents - - - - - - - - vii
List of Tables - - - - - - - - - xi
List of Figures - - - - - - - - xii
CHAPTER ONE – INTRODUCTION
1.1 Background of the Study - - - - - - 1
1.2 Statement of the Problem - - - - - - 4
1.3 Objectives of the Study - - - - - - 6
1.4 Research Questions - - - - - - - 7
1.5 Formulation of the Research Hypotheses - - - - 8
1.6 Significance of the Study - - - - - - 8
1.7 Scope of the Study - - - - - - - 9
1.8 Limitations of the Study - - - - - - 9
1.9 Area of the Study - - - - - - - 10
References - - - - - - - - 11
CHAPTER TWO – REVIEW OF RELATED LITERATURE
2.1 Micro-Finance: Concept and Need - - - - - 12
2.2 Microfinance in Nigeria: Evolution and Challenges - - - 16
2.3 Micro-Finance and Micro-Business Interface; Viable Formula for
Sustainable Economic Growth and Development - - - 18
2.4 Overview of Microfinance Activities in Nigeria - - - 19
2.5 Justification for the Establishment of Micro-Finance Banks - - 20
2.6 The Micro-Finance Policy - - - - - - 23
2.6.1 Policy Objective - - - - - - - 23
2.6.2 Policy Targets - - - - - - - - 23
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2.6.3 Policy Strategies - - - - - - - 23
2.7 The Goals of Micro-Finance Banks - - - - - 24
2.8 Policy Measures and Instruments in the Establishment of the
Framework for Micro-Finance Banks - - - - - 25
2.9 Organic Growth Path for MFBs - - - - - 25
2.10 Ownership of Micro-Finance Banks - - - - - 27
2.11 Participation of Existing Financial Institutions - - - -
in Micro-Finance Activities - - - - - - 27
2.11.1 Universal Banks - - - - - - - 27
2.11.2 Community Banks - - - - - - - 27
2.11.3 Non-Governmental Organization-Micro-Finance Institutions (NGO-MFIs) 28
2.11.4 Transformation of the Existing NGO-MFIs - - - - 28
2.12 Justification for the Capital Requirements - - - - 28
2.13 Framework for the supervision of Micro-Finance banks - - 29
2.13.1 Licensing and Supervision of Micro-Finance Banks - - - 29
2.13.2 Establishment of a National Micro-Finance Consultative Committee 29
2.13.3 Credit Reference Bureau - - - - - - 29
2.13.4 Rating Agency - - - - - - - - 30
2.13.5 Deposit Insurance Scheme - - - - - - 30
2.13.6 Management Certification Process - - - - - 30
2.13.7 Apex Associations of Micro-Finance Institutions - - - 30
2.13.8 Linkage Programme - - - - - - - 30
2.13.9 Establishment of a Micro-Finance Development Fund- - - 30
2.13.10 Prudential Requirements - - - - - - - 31
2.13.11 Disclosure of Sources of Funds - - - - - 31
2.13.12 Corporate Governance for Micro-Finance Banks - - - 31
2.14. Regulatory incentives - - - - - - - 31
2.15. The Roles and Responsibilities of Stakeholders - - - 32
2.15.1 Government - - - - - - - - 32
2.15.2 Central Bank of Nigeria (CBN) - - - - - 32
2.15.3 Micro-Finance Institutions (MFIs) - - - - - 33
2.15.4 Public Sector Poverty Alleviation Agencies - - - - 33
2.15.5 Donor Agencies - - - - - - - 33
2.16 Distinguishing features between a Micro-Finance Banks - - -
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and Universal Banks - - - - - - - 34
2.17 Micro-Credit: A Conceptual Overview - - - - 35
2.18 Impact of Micro-Credit on the Poor - - - - - 38
2.19 Micro-Credit Repayment in Nigeria - - - - - 41
2.20 Women and Micro-Credit Financing in Nigeria - - - 42
2.21 Women, Micro-Credit, and Poverty - - - - - 45
2.22 Women and MFIs in Nigeria - - - - - - 46
2.23 Micro-Credit and Constraints and Barriers - - - - 47
2.24 Industrial Clusters: an Overview - - - - - 49
2.25 Industrial Clusters and Poverty: A Key Link - - - - 50
2.26 Cluster Features and Poverty - - - - - - 50
2.27 Industrial Clusters and Poverty Alleviation - - - - 51
2.28 Cluster Processes and Poverty - - - - - 53
2.29 Clustering Dynamics and Poverty - - - - - 55
2.30 Industrial Clusters and Poverty: The Empirical Evidence - - 56
2.31 Cluster Development Programme - - - - - 65
References - - - - - - - - 67
CHAPTER THREE - RESEARCH METHODOLOGY
3.1 Research Method - - - - - - - 73
3.2 Research Design - - - - - - - 73
3.3 Sources of Data - - - - - - - 73
3.3.1 Primary Data - - - - - - - - 73
3.3.2 Secondary Data - - - - - - - 74
3.4 Population of the Study - - - - - - 74
3.5 Determination of Sample Size - - - - - 74
3.6 Validity and Reliability of the Research Instrument - - - 75
3.7 Methods of Data Analysis - - - - - - 75
References - - - - - - - - 76
CHAPTER FOUR – DATA ANALYSIS, INTERPRETATION AND
PRESENTATION
4.1 Questionnaire Analysis Based on Objectives of the Study - - 77
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CHAPTER FIVE - SUMMARY OF FINDINGS, CONCLUSION AND
RECOMMENDATIONS
5.1 Summary of Findings - - - - - - - 92
5.2 Conclusion - - - - - - - - 93
5.3 Recommendations - - - - - - - 94
Bibliography - - - - - - - - 95
Appendix I - - - - - - - - 102
Appendix II - - - - - - - - 104
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LIST OF TABLES
Table 4.1: Total Number of Respondents 77
Table 4.2: Knowledge of Micro-Finance Banks and their Functions 78
Table 4.3: Their Functions make Impact on the Nation‘s Economy 78
Table 4.4: Significant Impact that the Micro-Finance Banks Existence would
make on the Nation‘s Economy 79
Table 4.5: Awareness of Industrial Clusters in Nigeria, Particularly in the
South-East 79
Table 4.6: Existence of Micro-Credit Strategies for Industrial
Clusters Development 80
Table 4.7: The Micro-Credit Strategies Employed in the Development of
Industrial Clusters 81
Table 4.8: If the Micro-Credit Strategies Employed in the Development
of the Industrial Clusters in the South-East have made
Significant Impact 81
Table 4.9: The Specific Impact made by the Micro-Credit Strategies
Employed in the Development of Industrial Clusters 82
Table 4.10: Likely Constraints to Adequate Provision of Micro-Credit for
Industrial Clusters Development 83
Table 4.11: Various Stakeholders to Industrial Clusters development 84
Table 4.12: Relationship and Willingness by Stakeholders to provide
Micro-Credit Supports 84
Table 4.13: Any Significant Relationship between the Micro-Credit Support
and the Performance of the Industrial Clusters 85
Table 4.14: Problems Besieging the Poverty Eradication Problems Aimed
at Achieving the MDGs 86
Table 4.15: Parameters used to Provide Micro-Credit Supports to Industrial
Clusters 87
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LIST OF FIGURES
Fig. 4.1: A Pie-Chart, Representing the awareness status of the
respondents of the Micro-Credit Strategies employed by
the Micro-Finance Banks in developing the
Industrial Clusters. - - - - - - 80
Fig. 4.2: A Bar-Chart representing the relationship and willingness
of the stakeholders to provide Micro-Credit supports
to the Industrial Clusters - - - - - 85
Fig. 4.3: A Histogram representing the relationship between
the Micro-Credit supports and the performance of
the Industrial Clusters - - - - - - 86
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CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Man, they say, cannot live in isolation because no man is an island. This implies that
we as men leave interdependently for the realization of our goals and objectives. The
same applies to industries, they will need to relate with each other for the
actualization of their desired industrial goals and objectives, hence, the popular
industrial and labour maxim-―Industrial Relations for Industrial Growth and
Development‖. Isolation and barriers have never worked to develop prosperity, and
according to Amobi (2006), have been the key obstacle preventing Small and Medium
Enterprises (SMEs) boost their competitiveness. According to UNIDO (2006), ―firms
that have come together as a group and which are located in close proximity have
prove to be capable of rapid economic growth, sustainable leadership in export
markets, significant employment generation and preservation of high-value added
jobs‖. Equally, studies from both developed and developing countries show that
SMEs cluster development provides for reconciling the economic development,
poverty reduction and social equity.
It is in the light of the fore-going that the Federal Government of Nigeria has decided
to underline it objectives to embark on poverty reduction via sustainable growth with
employment under the second phase of the National Economic Empowerment and
Development Strategy, code-named: NEEDS II for the 2007-2011 period. It should
be brought to mind that for these enterprises to provide the dynamic boost to the
economy that Nigeria so badly needs government policies must support the right
business environment for them to thrive via identifying and implementing effective
initiatives for improvement within their operating space.
Over the years the government had embarked on series of policy and institutional
reforms, aimed at enhancing the flow of finance from the banking system to Small
and Medium Industries (SMIs) as well as those involved in the petty-business (micro)
activities at the informal level.
15
The much talk of the need for government, financial institutions, corporate
organizations and government agencies to support in the building and developing of
the small enterprises sub sector is not without its merit and desirability. Although, it
is not an indication that small business operators should fold their arms and wait for
the almighty handout from these agencies, either in the form of loans, and or grants,
yet, getting such support could go a long way in transforming the small business
landscape in a number of ways and also helping to strengthen the economy of the
nation.
According to Alabi (2007), ―the challenges of the sector is similar in both Nigeria and
in the United Kingdom, but what makes the difference for those in the latter region is
the way the government intervenes‖. He further asserted that the first difference is
that the government provides enabling environment, in the form of basic
infrastructure, right regulatory framework, as well as credit tracking system. This
way, SMEs operators do not have to battle fundamental challenges, but are however,
left to concentrate attention in taking right investment decisions that help them to
stabilize.
The Millennium Development Goals (MDGs) Programme has a target of reducing
poverty by at least, 50% in the year 2015. In addition to adequate health care
delivery, basic education, etc, micro credit was recognized as a veritable avenue to
poverty reduction. According to Amagwu (2006), the focus of the micro credit is on
the poor in the society and the rural populace who are believed to be the most
vulnerable. He is of the optimism that making micro finance available to these groups
of people would not only guarantee that they are in a sustainable employment but also
contributing to the economic well being of the nation. Among this group of people
are the artisans, petty-traders, subsistence farmers, fishermen/traders, local textile
producers, intra-city transporters, shoes-cobblers etc. These people within the south
East of Nigeria are found within the industrial clusters of Nnewi, Onitsha, Aba and
other rural but emerging locations in the South East. Interestingly, these clusters have
the advantage of nearness to such industrial raw materials which makes it possible to
produce associated finished goods cheaply.
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It is believed that providing a micro finance frame-work, targeted at these clusters
creates a more sustainable model to cushion the fears of conventional banking
institutions who would rather not lend to such individuals. This would then culminate
to high confidence level by the emerging micro finance institutions that are now
expected to grant micro credits to such target markets.
In a study carried out in 2007 and reported same year in Daily Sun of Thursday, 15th
November 2007, it was found out that establishing a micro finance in the country is
very viable and most profitable. The viability and profitability according to the
outcome of the study showed very positive and highly impressive results. The study
also showed that apart from the fact that the micro finance establishment in the
country will contribute to the nation‘s GDP, it will among other things; offer
employment opportunities to some Nigerians, generate huge profits for the owners,
add value to inputs, pay taxes and interest on proposed investment and dividends as
well as retain substantial amount for business growth. It will equally go a long way in
ameliorating the poverty level of the poor people of Nigeria and at same time
inculcate the banking habits and benefits of banking services to the people of the
country.
Micro finance bank was a fall-out of the recently concluded consolidation exercise of
banks in the country, which created twenty five mega banks in the country. This
exercise has therefore, created identifiable gap in meeting the banking needs of the
micro, small and medium scale entrepreneurs, who will not have the courage or be
able to access financial assistance from these ―mega banks‖.
Recent statistics emanating from the Central Bank of Nigeria (CBN) revealed that the
formal financial system in Nigeria provides services to about 35% of the
economically active population while the remaining 65% are excluded from access to
financial services. To address this huge gap, the CBN, in December, 2005, released a
micro finance policy which would recognize the supervisory preview of the CBN not
only to enhance monetary stability but expand the financial infrastructure of the
country to meet the financial requirements of the micro, small and medium enterprise.
The micro finance bank policy by the CBN is believed to create a vibrant micro
finance sub sector that would adequately integrate into the main stream of the national
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financial system and provides the stimulus for growth and development under the
policy.
Existing community banks were mandated to upgrade to micro finance banks. It had
to raise the minimum share capital or shareholders funds of one unit banks from
N5million to N20million with effect from September, 2006.
This minimum capital of N20million, according to Godwin (2007) was to be
deposited with the banks formal application before it can be issued a unit bank
operating license. New investors into this area are encouraged to do so. Individuals,
co-operative societies, corporate organizations, groups investors can go into this area
of investment.
From a 2007 survey, over 80% of the populace is poor, operating cottage, small scale
businesses. The people in every local government of Nigeria are predominately petty-
traders, hawkers, fishermen/women, agriculturists, telephone operators, motor
vehicle/motor cycle mechanics etc. These groups of people will be the major target of
the banks. In Nigeria today, there are several numbers of: Okada operators,
agricultural/peasant farmers, fishermen and women, hawkers, of different product,
small scale men and women, petty traders, food sellers, pure water sellers, bread
sellers, small scale transport operators/commercial drivers, etc mechanics. All these
are good prospects for successful operation of the micro finance banks.
Based on the same survey above (2007), the few micro finance banks in the country
cannot meet up with the banking needs of the numerous low income groups and the
poor people in the area. There is need therefore, to establish more micro finance
banks to cater and empower these micro, small and medium scale entrepreneurs in the
rural areas.
1.2 STATEMENT OF THE PROBLEM
Hardly there exists any scientific or social scientific study that is not necessitated by a
perceived problem (Uzoh, 2002). As such, the quest and desire to study the micro-
credit strategies employed in the development of industrial clusters in South-East
Nigeria.
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No doubt there is grinding poverty in the midst of abundant resources in the country
and no responsible government can be comfortable with this. Reducing poverty to the
minimum level by 2015 is also one of the Millennium Development Goals (MDGs) of
the United Nations (UN), with Nigeria a member. Analysts, stakeholders agree, have
a major role to play in giving succor to the poor and helping to alleviate the scourge
of poverty from the society.
In a recent research in 2008, Nigeria is recorded to have the highest rate of collapse of
Small and Medium Enterprises (SMEs) within the first five years of operation, due
largely to low financial capacity of the entrepreneurs who are thus unable to manage
well the gestation period of growing enterprise. It was equally found out that there
are, today, about 700 micro finance banks listed in Nigeria, with only about 70 of
them or 10 percent, functioning.
All over the world, SMEs are considered as the engine of growth for industries. But
there are few that, if not adequately founded and regulated, these newly licensed
micro finance institutions may also go the way of the community and rural banks that
came before them. Poverty in Nigeria, no doubt, has become an embarrassment to a
country with such huge natural and human resources. Despite all the interventions by
government to reduce poverty, the impact of the different interventions has been
insignificant.
This Day Newspaper of Wednesday, September 10th
, 2008, reports that the poverty
profile of Nigeria indicates that the incidence of poverty increased from 28.1 percent
in 1980 to 46.3 percent in 1985, declined to 42.7 percent in 1992 and increased to
65.6 percent in 1996. By 2007, it declined again to 54.4 percent. The paper
concludes that the estimated population of Nigerians living below the poverty line in
2007 was more than 80 million people.
Speaking on the challenges and prospects of micro financing in Nigeria: Regulators
perspective, the CBN Deputy Government; Mr. Tunde Lemo challenged the operators
on the mode of operations, stressing that micro finance banks are different from
conventional banks. He stated that after registering 800 microfinance banks in two
years, from the results and reports so far obtained, the CBN is worried and tend to ask
whether so many of them are actually doing micro financing.
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With most of the micro finance banks located in urban centers, analysts wondered
what impact they have made on the poor, most of who live in the rural areas.
Observers believe that if the poor in Bangladesh could be so empowered, Nigeria with
all her wealth has no excuse to fail her poor people.
Going by the array of problems besieging the Poverty Eradication Programme, aimed
at achieving the Millennium Development Goals (MDGs), ranging from: lack of
inadequate micro credit available to the micro business operators; lack of enabling
environment in the form of basic infrastructures; lack of right regulatory framework;
lack of credit tracking system; lack of monitoring and evaluative measures to
determine the performance of the micro business operators; absence of solid and
workable benchmark to ascertain the functionality of the formulated micro finance
policies; absence of research and development units designed to oversee the
operations, growth and development of both the microfinance banks and micro
business organizations; lack of effective/efficient strategies aimed at developing both
the microfinance banks and micro business organizations etc., one wonders whether
there is even an iota of hope for the micro business organizations‘ (manufacturing and
service) survival in Nigeria.
It is therefore, in the light of the above problems that the researcher embarked on this
study of micro credit strategies employed in the development of industrial clusters in
Nigeria, with a particular interest in South-East Nigeria.
1.3 OBJECTIVES OF THE STUDY
As there is hardly any venture or undertaking (academically, professionally or
otherwise) that has no reason(s) or intention(s), the objectives of this study therefore,
are as follow:
1. To determine the various micro-credit strategies employed in the
development of industrial clusters in the South-East Nigeria;
2. To ascertain the impact of these strategies on the industrial clusters in the
South East;
3. To determine the problems besieging the Poverty Eradication
Programmes, aimed at achieving the Millennium Development Goals
(MDGs);
20
4. To find out the parameters used in providing micro-credit support to the
industrial clusters in the South-East Nigeria;
5. To find out the various stakeholders in the micro-credit scheme.
6. To ascertain the level of relationship and willingness of these stakeholders
in the provision of micro-credit support for the sustenance of MSMEs in
the South East Nigeria;
7. To find out whether there exist any relationship between the micro credit
strategies and the performance of the industrial clusters;
8. To examine the control and evaluative measures employed by the micro-
credit providers in ensuring the actualization of the MSMEs goals and
objectives;
9. Finally, to recommend best practices which are result-oriented to the
promotion and sustenance of excellent performance by these industrial
clusters in the South-East Nigeria.
1.4 RESEARCH QUESTIONS
The following are the research questions:
1. What are the various strategies employed in development of industrial
clusters in the South-East Nigeria?
2. What impact have the employed strategies made in the development of
industrial clusters in the South-East?
3. What are the various problems besieging the poverty eradication
programmes, aimed at achieving the Millennium Development Goals
(MDGs)?
4. What is the parameter used in providing micro-credit supports to the
industrial clusters in the South-East?
5. Who are the various stakeholders in the micro-credit scheme, aimed at
poverty eradication in the South-East?
6. What is the level of relationship and willingness of these stakeholders in
the provision of micro-credit supports for the sustenance of MSMEs in the
South-East Nigeria?
7. Does any relationship exist between the micro- credit strategies and the
performance of the industrial clusters?
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1.5 FORMULATION OF THE RESEARCH HYPOTHESES
The need for hypotheses in any research report cannot be over-emphasized, this is
because hypotheses serve as a beacon that lights the path for the realization of such
research objectives. The following are therefore, the research hypotheses, put in Null
and Alternative form:
Hypothesis One
Ho: The strategies employed in the development of the industrial clusters in South-
East Nigeria have made no significant impact.
Hi: The strategies employed in the development of the industrial clusters in South-
East Nigeria have made significant impact.
Hypothesis Two
Ho: There is no willingness by the stakeholders to provide micro-credit support for
the sustenance of the MSMEs in the South-East Nigeria.
Hi: There is willingness by the stakeholders to provide micro-credit support for
the sustenance of the MSMEs in the South-East Nigeria.
Hypothesis Three
Ho: There is no relationship between the micro-credit supports and the
performance of the industrial clusters.
Hi: There is a relationship between the micro-credit supports and the performance
of the industrial clusters.
1.6 SIGNIFICANCE OF THE STUDY
The significance of this study cannot be overemphasized. It is so significant in the
sense that:
It will help to expose the various micro-credit strategies employed in the development
of industrial clusters in Nigeria, with particular interest in the South-Eastern part of
the country. In addition to the above, it will help in examining the strengths and or
weaknesses and relevance of these micro-credit strategies to the development of the
industrial clusters in Nigeria, particularly, in the South-East.
Since the micro-credit supports for the development of industrial clusters in Nigeria,
with particular interest in the South-East cannot be effectively/efficiently carried out
22
without some human elements being involved (stakeholders), the study will therefore
help to ascertain the various stakeholders, and their level of commitment, in terms of
relationship and willingness in ensuring that the goals and objectives of the micro-
credit supports for the development of industrial clusters in Nigeria, particularly in the
South-East are actualized.
The study will bring to the knowledge of the major stakeholders in the development
of industrial clusters and MSMEs in Nigeria, i.e the government, the microfinance
banks, the micro-business operators themselves, the national and international
donor/aid agencies etc. the efficacy of establishment and development of industrial
clusters in the country, the kind of impact (negative or positive) the industrial clusters
development would make on the economy, which eventually will enable them
formulate favorable and positive policies and implement fully the developed strategies
that would help the micro-credit scheme, aimed at eradicating poverty achieve its
goals and objectives.
Finally, this study will help to add to the already existing dearth of literature,
especially in the developing world, which Nigeria is part of, and this will surely serve
as a reference material for those scholars who may want to embark on further studies
on this subject matter or those related to it.
1.7 SCOPE OF THE STUDY
This study focuses mainly on the micro-credit strategies employed in the development
of the industrial clusters in Nigeria, with particular interest in South-East Nigeria.
1.10 LIMITATIONS OF THE STUDY
A study of this magnitude cannot be successfully carried out and completed without
its attendant constraints. In the course of this study, the following were encountered:
Financial constraints; this is because of the cost involvement in covering the various
cities, as they are not located within the same area.
Time constraints; it is the desire of the researcher to cover the enter country, but due
to limited time available to him. Moreover, since the study is basically for an
academic purpose, there exist only little time to meet up with the submission of bound
copies of this research report.
23
Dearth of literature; due to scarcity of relevant literature on this subject matter,
particularly in this part of the developing world, the research report could not receive
the much desired richness of content.
Lack of co-operation; due to the classification of some relevant information and data,
some respondents, both during the interview section and questionnaire administration
and filling period were not willing to disclose vital information that would have
helped this research report to come out with highly appreciable and useful results.
1.11 AREA OF THE STUDY
These industrial clusters can be found in Onitsha and Nnewi Cities of Anambra State,
and Aba City of Abia State.
The choice of these cities is necessitated by the fact that the researcher is based in the
South-Eastern part of the country, familiar with the cities, hence, the optimism for the
effective coverage of these cities, which at the end of the study, it is hoped that highly
beneficial results to all stakeholders will emerge.
24
REFERENCES
Alabi, S. (2007), Quoted by Ezenwa, Cami in a Feature: ―How Small Loans to
Women could make big Change‖, Financial Standard, Monday, November, 2007.
Amagwu, F. I. (2006), ―Implications of Micro Credits to Industrial Clusters in the
Nigerian Economy‖ (A Case Study of South Eastern Nigeria), A proposal
Presented at a Forum in Enugu, on ―Industrial Clusters Development and the
Nigerian Economy‖.
Amobi, I. C. (2006), ―Unleashing of Industrial Clusters for Growth and Prosperity in
South East Nigeria‖. A Paper Presented at a Seminar Organized by the Enugu
Form and African Institute of Applied Economics in Enugu.
Babalola, R. (2008), ―Banking for the Poor‖ in Thisday Newspaper, Vol. 13, No.
4890, Wednesday, September 10.
CBN Manual of Operation for Community Banks, July 21, 2003.
Godwin U. (2007), ―Setting up Micro Finance Banks‖ in Daily Sun, Thursday,
November 15.
Lemo, T. (2008), ―Banking for the Poor‖ in Thisday Newspaper, Vol. 13, No. 4890,
Wednesday, September 10.
Omotayo, D. (2008), ―Banking for the Poor‖ in Thisday Newspaper, Vol. 13, No.
4890, Wednesday, September 10.
Survey, (2007), Reported in Thisday Newspaper, Vol. 13, No. 4890, Wednesday,
September 10, 2008.
UNIDO (2006), SME Cluster and Network Development: Principles and Practices;
Enugu. UNIDO.
25
CHAPTER TWO
REVIEW OF RELATED LITERATURE
This chapter reviews relevant and related works (published and unpublished) by
different authors and authorities in both academic and professional circle.
2.1 MICROFINANCE: CONCEPT AND NEED
Micro-financing, is the provision of financial services to poor and low income
households without access to formal financial institutions (Conroy, 2003).
Microfinance is described also as banking for the poor. Microfinance programmes
provide loans, savings and other financial services to low-income and poor people for
use in small businesses. Originally based on traditional forms of community financing
(a cross between finance and development assistance) microfinance is found all over
the world in places such as Africa, Latin America and Asia. The microfinance
movement began in earnest in the early 1980s (Anyanwu, 2004). Khan (1997)
suggests a variety of activities like qard-hasan, financing housing, meeting basic
needs, and promoting and financing small entrepreneurs as activities of Micro-
Finance Institutions. All these aspects, however, can be covered in a comprehensive
integrated program with focus on micro-financing. For example, Bangladesh and
Bolivia have over the last 20 years, captured the interest of multilateral donor
agencies and private sector bankers (Enugu Forum, 2006). Microfinance institutions
are essentially needed to serve the poor city dwellers overcrowding in slums or
squatter settlements in appalling conditions. They lack access to basic services such as
education for children and health care. Their survival tool kit lacks skills that are
essential to enter the employment mainstream of the economy. Many of them are
women, poorly trained and playing dual roles of provider and caregiver. These poor
people are more exposed to the threats of contamination, bad sanitation, and disease
than the rest of the population (Otero, 1999).
Hulme (2000) argues that MFIs are not a cure for poverty. However, MFIs could
create and provide a broad range of micro financial services that would support poor
people in their efforts to improve their own prospects and the prospects of their
families. He believes that effective microfinance makes these agencies designed to
help the poor more likely to achieve the goals that poor people seek to achieve.
26
Characteristics of Microfinance Institutions in Nigeria
Before the emergence of formal microfinance institutions, informal microfinance
activities flourished all over the country. Informal microfinance is provided by
traditional groups that work together for the mutual benefits of their members. These
groups provide savings and credit services to their members. The informal
microfinance arrangements operate under different names: Esusu, among the Yorubas
of Western Nigeria, Utuu, for the Igbos in the East and Adashi, in the North for the
Hausas (CBN, 2000). The key features of these informal schemes are savings and
credit components, informality of operations and higher interest rates in relation to the
formal banking sector. The informal associations that operate traditional microfinance
in various forms are found in all the rural communities in Nigeria (Otu, et al, 2003).
They also operate in the urban centers. However, the size of activities covered under
the scheme has not been determined. The non-traditional, formalized microfinance
institutions (MFIs) are operating side by side with the informal services. The financial
services provided by the MFIs in Nigeria include savings, credit and insurance
facilities.
Microfinance suppliers
(i) Commercial banks and Microfinance
The response of the banking system in Nigeria is changing to pay attention to
microfinance seekers. The Bankers Committee has recently decided that 10 per cent
of the funds accruing to the Small and Medium Industries Equity Investment
(SMIEIS) should be channeled to micro enterprises through registered microfinance
institutions. Under the SMIEIS arrangement, banks in Nigeria agreed to set aside 10
per cent of their pre-tax profit annually for equity investment in small and medium
industries. At the end of June 2004, over N24 billion had been set aside under the
scheme, while less than N10 billion had been invested. Apart from providing a large
volume of resources, the fund is fairly medium to long term in nature and this has the
potential of positively changing the structure of the microfinance industry in Nigeria.
(CBN, 2004)
(ii) Development Finance Institutions
Between 1964 and 1977, various development finance institutions (DFIs) were
established at both at the national and state levels in the country. The national DFIs
27
included the Nigerian Industrial Development Bank (NIDB), Nigerian Bank for
Commerce and Industry (NBCI), Nigerian Agricultural and Cooperative Bank
(NACB) and Federal Mortgage Bank of Nigeria (FMBN). Each institution was given
the responsibility of promoting the development of a specific sector or sub-sector
(CBN, 2000). The NIDB was established in 1964, from the restructuring of an
existing Investment Corporation of Nigeria (ICON), and given the mandate of
developing new industrial enterprises and expanding existing ones through the
provision of medium and long term loans and equity participation. A decade later in
1973, the NBCI was established to provide funding to small and medium scale
enterprises. The NACB was also established in 1973 to promote the development of
the agricultural sector in which most of the operators are micro enterprises. Also, the
FMBN, which took over the assets and liabilities of the Nigerian Building Society
(NBS), was established in 1977, with the mandate to provide funding for residential
and other housing needs of individuals and corporate organizations. Two other DFIs,
the Urban Development Bank and Education Bank, were established in 1992 and
1993, respectively, to cater for these two important sectors. These DFIs made varying
contributions according to their sectors of responsibility. They funded various projects
and enterprises, many of which are in operation today. However, with the drastic
reduction in government subventions to them in the 1990s, their operations reduced
drastically and by late 1990, they all ceased operating, as all of them depended mainly
on government funding. The poor performance of the DFIs notwithstanding, the need
to channel financial resources to the productive sectors, have remained a major
challenge to the government and the monetary authorities. Attempts have therefore
been made to restructure the DFIs, giving them commercial orientation and making
sustainability the guiding principle. In December, 2007, the new government policy
gave licenses to 107 microfinance banks and converted 600 out of 761 community
banks to microfinance banks which made the total number of microfinance banks 707
in the country (Soludo, 2008).
(a) Rates of interest
According to Anyanwu (2004) the interest rates in the microfinance institutions are
much higher than the prevailing rates in the banks. This ranges between 32-48%.
During this period the banks are charging between 19.5% and 21.6 %. (Anyanwu,
2004). Money lenders at informal sector charge interest rates of 100% or more. Some
28
of the clients when interviewed by MFI evaluators bitterly complained about the
interest rates being too high. Two reflections could be made. First, given the fact that
people borrowing at this rate indicate that they are industrious and productive. It is
only that they are not given access to financial institutions, because they do not have
collateral to meet the requirements of formal financial institutions and then they
remain poor and liabilities to the economy instead of being assets. Second, the
objective of microfinance to combat poverty might be defeated since the clients have
to repay back double of what they have received at all cost.
(b) Inequitable in the Distribution of Wealth and Income
The conventional Micro financing in Nigeria aggravates the inequitable distribution of
income and wealth in Nigeria. This is due to the fact that while interest rate on
borrowing from microfinance institutions ranges from 30% to 100%, interest rates on
both voluntary and mandatory savings for the clients are between 4.5% and 6% per
annum. Again, lending at this rate is taking the rewards of poor and redistributes it to
the rich. The poor borrowers must pay the amount through group pressure even if it
resort them to another borrowing or selling their properties. Moreover, the current
micro financing in Nigeria gives loan to commerce based activity to the detriment of
agriculture based which is the source of income and sustenance for the majority of
poor Nigerians. In a study conducted by CBN on the major ten MFIs in Nigeria it was
found that the loan disbursement goes to the trade and commerce because of its fast
yield and high return. The average loan on this sector was 78.4%. The corresponding
figure on agriculture which most poor rely on for their lively hood was only 14.1%. It
was only 3.5% on manufacturing and absolutely no funding is given towards housing
and consumption. (Folake, 2005)
(c) Outreaching the poor
According to Central Bank of Nigeria‗s estimate, the unreachable client of
microfinance reaches 40 million (CBN, 2004). Microfinance specific institutions in
Nigeria have not been able to adequately address the gap in terms of credit, savings
and other financial services required by the micro entrepreneurs. The existence of
huge unserved market - over 80 million people (65% of Nigeria‘s active
population).In 2005, the share of micro credit as a percentage of total credit was 0.9%,
while it contributed a meager 0.2 percent of the GDP (Bamisile, 2006). The dominant
29
microfinance institutions are concentrated in the south and eastern part of the country
to the detriment of poor majority in the predominantly Muslim north. Out of the 36
states in Nigeria, 19 states are in the northern part and most of them apply Islamic
Shari‗ah. The inequitable redistribution exists in the sense that the microfinance
institutions represent the rich category of the people while the clients represent poor
category and still the former charge the latter higher interest rate on loan as high as
100% in some cases and pays only 5% on savings made by the clients, an unfair
justification for that matter.
The incidence of poverty in the three Northern regions is high compared to the three
southern regions. It was 71% in North West, 72% in North East and 67% in North
Central. The corresponding figure in the South is 43% in South West, 23% in South
East and 35% in South. These numbers are what led Soludo to rightly conclude that
very high level of poverty is essentially a Northern Phenomenon (Soludo, 2007).
According to the CBN Governor, after introducing new policy on microfinance he
stated that: the new focus on small and medium-scale enterprises was borne out of the
realization that the country could not go far in employment generation and poverty
alleviation without these enterprises having their pride of place (Soludo, 2008). He
added that the microfinance policy, which evolved as a result of the perceived need
for funding of businesses, which have no access to banks funds, will benefit only 35
per cent of the nation‘s population, particularly micro and small scale entrepreneurs,
due to uneven spread of the MFBs across the states (Soludo,2008).
2.2 MICROFINANCE IN NIGERIA: EVOLUTION AND CHALLENGES
After 1970s the number of microfinance institutions around the world proliferated at a
fast pace. In view of the dismal performance of the conventional finance sectors,
policy makers, practitioners and international organizations advocated micro
financing as the tool for poverty reduction.
Today there are more than 7000 micro lending organizations providing loans to more
than 25 million poor individuals across the world, the vast majority of who are
women. The United Nations Capital Development Fund declared 2005 as the year of
micro credit. The success of Grameen bank model in Bangladesh-which offered loans
to poor people through group collateral-was emulated in many countries worldwide.
30
The Nigerian microfinance industry has come a long way; it boasts of all the four
well-known models in the industry (Anyanwu, 2004).
A CBN study identified, as of 2001, 160 registered MFIs in Nigeria with aggregate
savings worth N99.4 million and outstanding credit of N649.6 million, indicating
huge business transactions in the sector (Anyanwu, 2004). Institutional structures for
the provision of micro credit vary and may be any of the following: government or
public sector-oriented, NGO supported, traditional or a mixture of two or more of
these. With a population of about 150 million and GDP/capita of $641 in 2006, two-
thirds of Nigeria‘s people are poor. Nigeria has the third highest number of poor
people in the world. Most of these poor people are dependent on micro and small-
scale farm and off-farm enterprises for their livelihood. As such, their entrepreneurial
contributions are strategic to the Nigerian economic development and their growth
has great potential to contribute to income generation and poverty alleviation (CBN
Survey, 2005).
One of the challenges microfinance currently faces in Nigeria is for the MFIs to reach
a greater number of the poor. The CBN survey indicated that their client base was
about 600,000 in 2001, and there were indications that they may not be above 1.5
million in 2003. The existing microfinance in Nigeria serves less than 1 million
people out of 40 million potential people that need the service (CBN, 2005). Also,
the aggregate micro credit facilities in Nigeria, account for about 0.2 percent of GDP
and less than one percent of total credit to the economy. The effect of not
appropriately addressing this situation would further accentuate poverty and slow
down growth and development. Another challenge is that most of micro finance
funding goes to the commercial sector to the detriment of the more vital economic
activities, especially agricultural and manufacturing which sectors provide the
foundation for sustainable growth and development. Currently, only about 14.1 and
3.5 per cent of total MFI funding went to these sectors, respectively, while the bulk,
funded commerce.
Islamic microfinance has the potential of providing funds to the majority of poor
Nigerians who mostly engage in agricultural and manufacturing activities through its
various schemes. However, recently, efforts are being made in the field of MF with
interest-free Islamic products being offered by the Islamic MF institutions (IMFIs) in
31
Muslim countries even as their number or size is not large. They offer different
product and serve as an alternative to the supposedly successful conventional model.
Some Muslim countries have gone far in adopting such institutions while others are
yet to start due to some constraints or unexplored potentials. Nigeria falls among the
latter. There is consciousness and desire among the Muslims in Nigeria to have
microfinance that is in compliance with Shariah. The social role of Islamic financial
sector can be best exemplified by providing finance to the poor so as to increase their
income and wealth. Specialized poverty focused MFIs can provide much-needed
finance to micro entrepreneurs resulting in the increase of their income levels and
wealth.
2.3 MICROFINANCE POLICY, REGULATORY AND SUPERVISORY
FRAMEWORK FOR NIGERIA
Robust economic growth cannot be achieved without putting in place well focused
programmes to reduce poverty through empowering the people by increasing their
access to factors of production, especially credit. The latent capacity of the poor for
entrepreneurship would be significantly enhanced through the provision of
microfinance services to enable them engage in economic activities and be more self-
reliant; increase employment opportunities, enhance household income, and create
wealth.
Microfinance is about providing financial services to the poor who are traditionally
not served by the conventional financial institutions. Three features distinguish
microfinance from other formal financial products. These are:
(i) the smallness of loans advanced and or savings collected;
(ii) the absence of asset-based collateral, and
(iii) simplicity of operations.
In Nigeria, the formal financial system provides services to about 35% of the
economically active population while the remaining 65% are excluded from access to
financial services. This 65% are often served by the informal financial sector, through
Non-Governmental Organization (NGO)-microfinance institutions, moneylenders,
friends, relatives, and credit unions. The non-regulation of the activities of some of
these institutions has serious implications for the Central Bank of Nigeria‘s (CBN‘s)
32
ability to exercise one aspect of its mandate of promoting monetary stability and a
sound financial system.
A microfinance policy which recognizes the existing informal institutions and brings
them within the supervisory purview of the CBN would not only enhance monetary
stability, but also expand the financial infrastructure of the country to meet the
financial requirements of the Micro, Small and Medium Enterprises (MSMEs). Such a
policy would create a vibrant microfinance sub-sector that would be adequately
integrated into the mainstream of the national financial system and provide the
stimulus for growth and development. It would also harmonize operating standards
and provide a strategic platform for the evolution of microfinance institutions,
promote appropriate regulation, supervision and adoption of best practices. In these
circumstances, an appropriate policy has become necessary to develop a long-term,
sustainable microfinance sub-sector.
2.4 OVERVIEW OF MICROFINANCE ACTIVITIES IN NIGERIA
The practice of microfinance in Nigeria is culturally rooted and dates back several
centuries. The traditional microfinance institutions provide access to credit for the
rural and urban, low-income earners. They are mainly of the informal Self-Help
Groups (SHGs) or Rotating Savings and Credit Associations (ROSCAs) types. Other
providers of microfinance services include savings collectors and co-operative
societies. The informal financial institutions generally have limited outreach due
primarily to paucity of loanable funds.
In order to enhance the flow of financial services to Nigerian rural areas, Government
has, in the past, initiated a series of publicly-financed micro/rural credit programmes
and policies targetted at the poor. Notable among such programmes were the Rural
Banking Programme, sectoral allocation of credits, a concessionary interest rate, and
the Agricultural Credit Guarantee Scheme (ACGS). Other institutional arrangements
were the establishment of the Nigerian Agricultural and Co-operative Bank Limited
(NACB), the National Directorate of Employment (NDE), the Nigerian Agricultural
Insurance Corporation (NAIC), the Peoples Bank of Nigeria (PBN), the Community
Banks (CBs), and the Family Economic Advancement Programme (FEAP). In 2000,
Government merged the NACB with the PBN and FEAP to form the Nigerian
Agricultural Cooperative and Rural Development Bank Limited (NACRDB) to
33
enhance the provision of finance to the agricultural sector. It also created the National
Poverty Eradication Programme (NAPEP) with the mandate of providing financial
services to alleviate poverty. Microfinance services, particularly, those sponsored by
government, have adopted the traditional supply-led, subsidized credit approach
mainly directed to the agricultural sector and non-farm activities, such as trading,
tailoring, weaving, blacksmithing, agro-processing and transportation. Although the
services have resulted in an increased level of credit disbursement and gains in
agricultural production and other activities, the effects were short-lived, due to the
unsustainable nature of the programmes.
Since the 1980s, Non-Governmental Organizations (NGOs) have emerged in Nigeria
to champion the cause of the micro and rural entrepreneurs, with a shift from the
supply-led approach to a demand driven strategy. The number of NGOs involved in
microfinance activities has increased significantly in recent times due largely to the
inability of the formal financial sector to provide the services needed by the low
income groups and the poor, and the declining support from development partners
amongst others. The NGOs are charity, capital lending and credit-only membership
based institutions. They are generally registered under the Trusteeship Act as the sole
package or part of their charity and social programmes of poverty alleviation. The
NGOs obtain their funds from grants, fees, interest on loans and contributions from
their members. However, they have limited outreach due, largely, to unsustainable
sources of funds.
2.5 JUSTIFICATION FOR THE ESTABLISHMENT OF MICRO-
FINANCE BANKS
From the appraisal of existing microfinance-oriented institutions in Nigeria, the
following facts have become evident:
a. Weak Institutional Capacity: The prolonged sub-optimal performance of
many existing community banks, microfinance and development finance institutions
is due to incompetent management, weak internal controls and lack of deposit
insurance schemes. Other factors are poor corporate governance, lack of well defined
operations and restrictive regulatory/supervisory requirements.
34
b. Weak Capital Base: The weak capital base of existing institutions, particularly
the present community banks, cannot adequately provide a cushion for the risk of
lending to micro entrepreneurs without collateral. This is supported by the fact that
only 75 out of over 600 community banks whose financial statements of accounts
were approved by the CBN in 2005 had up to N20 million shareholders‘ funds
unimpaired by losses. Similarly, the NACRDB, with a proposed authorized share
capital of N50.0 billion, has N10.0 billion paid up capital and only N1.3 billion
shareholders‘ funds unimpaired by losses, as at December, 2004.
c. The Existence of a Huge Un-Served Market: The size of the unserved market
by existing financial institutions is large. The average banking density in Nigeria is
one financial institution outlet to 32,700 inhabitants. In the rural areas, it is 1:57,000,
that is less than 2% of rural households have access to financial services.
Furthermore, the 8 (eight) leading Micro Finance Institutions (MFIs) in Nigeria were
reported to have mobilized a total savings of N222.6 million in 2004 and advanced
N2.624 billion credit, with an average loan size of N8,206.90. This translates to about
320,000 membership-based customers that enjoyed one form of credit or the other
from the eight NGO-MFIs. Their aggregate loans and deposits, when compared with
those of community banks, represented percentages of 23.02 and 1.04, respectively.
This, reveals the existence of a huge gap in the provision of financial services to a
large number of active but poor and low income groups. The existing formal MFIs
serve less than one million out of the over 40 million people that need the services.
Also, the aggregate micro credit facilities in Nigeria account for about 0.2 percent of
GDP and less than one percent of total credit to the economy. The effect of not
appropriately addressing this situation would further accentuate poverty and slow
down growth and development.
d. Economic Empowerment of the Poor, Employment Generation and Poverty
Reduction: The baseline economic survey of Small and Medium Industries (SMIs) in
Nigeria conducted in 2004, indicated that the 6,498 industries covered currently
employ a little over one million workers. Considering the fact that about 18.5 million
(28% of the available work force) Nigerians are unemployed, the employment
objective/role of the SMIs is far from being reached. One of the hallmarks of the
National Economic Empowerment and Development Strategy (NEEDS) is the
35
empowerment of the poor and the private sector, through the provision of needed
financial services, to enable them engage or expand their present scope of economic
activities and generate employment. Delivering needed services as contained in the
Strategy would be remarkably enhanced through additional channels which the
microfinance bank framework would provide. It would also assist the SMIs in raising
their productive capacity and level of employment generation.
e. The Need for Increased Savings Opportunity: The total assets of the 615
community banks which rendered their reports, out of the 753 operating community
banks as at end-December 2004, stood at N34.2 billion. Similarly, their total loans
and advances amounted to N11.4 billion while their aggregate deposit liabilities stood
at N21.4 billion for the same period. Also, as at end-December 2004, the total
currency in circulation stood at N545.8billion, out of which N458.6billion or 84.12
per cent was outside the banking system. Poor people can and do save, contrary to
general misconceptions. However, owing to the inadequacy of appropriate savings
opportunities and products, savings have continued to grow at a very low rate,
particularly in the rural areas of Nigeria. Most poor people keep their resources in
kind or simply under their pillows. Such methods of keeping savings are risky, low in
terms of returns, and undermine the aggregate volume of resources that could be
mobilized and channeled to deficit areas of the economy. The microfinance policy
would provide the needed window of opportunity and promote the development of
appropriate (safe, less costly, convenient and easily accessible) savings products that
would be attractive to rural clients and improve the savings level in the economy.
f. The Interest of Local and International Communities in Micro-financing:
Many international investors have expressed interest in investing in the microfinance
sector. Thus, the establishment of a microfinance framework for Nigeria would
provide an opportunity for them to finance the economic activities of low income
groups and the poor.
g. Utilization of SMEEIS Fund: As at December, 2004, only N8.5 billion
(29.5%) of the N28.8 billion Small and Medium Enterprises Equity Investment
Scheme (SMEEIS) fund had been utilized. Moreover, 10% of the fund meant for
micro credit had not been utilized due to lack of an appropriate framework and
36
confidence in the existing institutions that would have served the purpose. This policy
provides an appropriate vehicle that would enhance the utilization of the fund.
2.6 THE MICROFINANCE POLICY
2.6.1 Policy Objectives
The specific objectives of this microfinance policy are the following: i. Make
financial services accessible to a large segment of the potentially productive Nigerian
population which otherwise would have little or no access to financial services; ii.
Promote synergy and mainstreaming of the informal sub-sector into the national
financial system; iii. Enhance service delivery by microfinance institutions to micro,
small and medium entrepreneurs; iv. Contribute to rural transformation; and v.
Promote linkage programmes between universal/development banks, specialized
institutions and microfinance banks.
2.6.2 Policy Targets
Based on the objectives listed above, the targets of the policy are as follows:
i. To cover the majority of the poor but economically active population by 2020
thereby creating millions of jobs and reducing poverty;
ii. To increase the share of micro credit as percentage of total credit to the
economy from 0.9 percent in 2005 to at least, 20 percent in 2020; and the
share of micro credit as percentage of GDP from 0.2 percent in 2005 to at least
5 percent in 2020;
iii. To promote the participation of at least two-thirds of state and local
governments in micro credit financing by 2015;
iv. To eliminate gender disparity by improving women‘s access to financial
services by 5% annually; and
v. To increase the number of linkages among universal banks, development
banks, specialized finance institutions and microfinance banks by 10%
annually.
2.6.3 Policy Strategies
A number of strategies have been derived from the objectives and targets as follows:
i. License and regulate the establishment of microfinance Banks (MFBs) ii. Promote
the establishment of NGO-based microfinance institutions iii. Promote the
participation of Government in the microfinance industry by encouraging States and
37
Local Governments to devote at least one percent of their annual budgets to micro
credit initiatives administered through MFBs. iv. Promote the establishment of
institutions that support the development and growth of microfinance service
providers and clients; i. Strengthen the regulatory and supervisory framework for
MFBs; ii. Promote sound microfinance practice by advocating professionalism,
transparency and good governance in microfinance institutions; iii. Mobilize domestic
savings and promote the banking culture among low-income groups; iv. Strengthen
the capital base of the existing microfinance institutions; v. Broaden the scope of
activities of microfinance institutions; vi. Strengthen the skills of regulators,
operators, and beneficiaries of microfinance initiatives; vii. Clearly define
stakeholders‘ roles in the development of the microfinance sub-sector; and viii.
Collaborate with donors, coordinate and monitor donor assistance in microfinance in
line with the provisions of this policy.
2.7 THE GOALS OF MICROFINANCE BANKS
The establishment of microfinance banks has become imperative to serve the
following purposes:
(i) Provide diversified, affordable and dependable financial services to the active
poor, in a timely and competitive manner, that would enable them to undertake
and develop long-term, sustainable entrepreneurial activities;
(ii) Mobilize savings for intermediation;
(iii) Create employment opportunities and increase the productivity of the active
poor in the country, thereby increasing their individual household income and
uplifting their standard of living;
(iv) Enhance organized, systematic and focused participation of the poor in the
socio-economic development and resource allocation process;
(v) Provide veritable avenues for the administration of the micro credit
programmes of government and high net worth individuals on a non-recourse
case basis. In particular, this policy ensures that state governments shall
dedicate an amount of not less than 1% of their annual budgets for the on-
lending activities of microfinance banks in favour of their residents; and
(vi) Render payment services, such as salaries, gratuities, and pensions for various
tiers of government.
38
2.8 POLICY MEASURES AND INSTRUMENTS IN THE
ESTABLISHMENT OF THE FRAMEWORK FOR MICROFINANCE
BANKS
Private sector-driven microfinance banks shall be established. The banks shall be
required to be well-capitalized, technically sound, and oriented towards lending,
based on the cash flow and character of clients. There shall be two categories of
Micro Finance Banks (MFBs), namely:
i. Micro Finance Banks (MFBs) licensed to operate as a unit bank, and
ii. Micro Finance Banks (MFBs) licensed to operate in a state.
The recognition of these two categories of banks does not preclude them from
aspiring to having a national coverage, subject to their meeting the prudential
requirements. This is to ensure an orderly spread and coverage of the market and to
avoid, in particular, concentration in areas already having large numbers of financial
institutions. An existing NGO which intends to operate an MFB can either incorporate
a subsidiary MFB, while still carrying out its NGO operations, or fully convert into a
MFB:
(i). MFBs Licensed to Operate as a unit bank (a.k.a. Community Banks) MFBs
licensed to operate as unit banks shall be community- based banks. Such
banks can operate branches and/or cash centres subject to meeting he
prescribed prudential requirements and availability of free funds for opening
branches/cash centres. The minimum paid-up capital for this category of banks
shall be N20.0 million for each branch;
(ii) MFBs Licensed to Operate in a State MFBs licensed to operate in a State shall
be authorized to operate in all parts of the State (or the Federal Capital
Territory) in which they are registered, subject to meeting the prescribed
prudential requirements and availability of free funds for opening branches.
The minimum paid-up capital for this category of banks shall be N1.0 billion.
2.9 ORGANIC GROWTH PATH FOR MFBs
This policy recognizes that the current financial landscape of Nigeria is skewed
against Micro, Small and Medium Enterprises (MSMEs) in terms of access to
financial services. To address the imbalance, this policy framework shall promote an
39
even spread of microfinance banks, their branches and activities, to serve the un-
served but economically active clients in the rural and peri- urban areas.
The level of spread and saturation of the financial market shall be taken into
consideration before approval is granted to an MFB to establish branches across the
Local Government Areas and/or States, in fulfilment of the objectives of this policy.
Specifically, an MFB shall be expected to have a reasonable spread in a Local
Government Area or State before moving to another location, subject to meeting all
necessary regulatory and supervisory requirements stipulated in the guidelines. This is
to avoid concentration in already served areas and to ensure extension of services to
the economically active poor, and to micro, small and medium enterprises.
In order to achieve the objectives of an organic growth path, a microfinance bank
licensed to operate as a unit bank shall be allowed to open new branches in the same
State, subject to meeting the prescribed prudential requirements and availability of
minimum free funds of N20.0 million for each new branch. In fulfillment of this
requirement, an MFB licensed to operate as a unit bank can attain the status of a State
MFB by spreading organically from one location to another until it covers at least
two-thirds of the LGAs of that State. When an MFB has satisfactorily covered a state
and wishes to start operations in another state, it shall obtain approval and be required
to again grow organically by having at least N20 million free funds unimpaired by
losses for each branch to be opened in the new state.
An MFB licensed to operate in a State shall be allowed to open a branch in another
State, subject to opening branches in at least two-thirds of the local governments of
the State it is currently licensed to operate in the provision of N20.0 million free funds
and, if in the view of the regulatory authorities, it has satisfied all the requirements
stipulated in the guidelines.
The regulations to be issued from time to time shall be such that would encourage the
organic growth path of the MFBs at all times.
However, an MFB may wish to start operations as a State Bank from the beginning
and therefore not wish to grow organically from branch to branch. Such an MFB may
be licensed and authorized to operate in all areas of the state from the beginning
40
subject to the provision of a total capital base of N 1 billion. In other words, the
preferred growth path for MFBs is the branch by branch expansion to become State
Banks. But anyone wishing to start as a big state institution from the beginning can do
so subject to availability of N1 billion and proven managerial competence.
2.10 OWNERSHIP OF MICROFINANCE BANKS
Microfinance banks can be established by individuals, groups of individuals,
community development associations, private corporate entities, or foreign investors.
Significant ownership diversification shall be encouraged to enhance good corporate
governance of licensed MFBs. Universal banks that intend to set up any of the two
categories of MFB as subsidiaries shall be required to deposit the appropriate
minimum paid-up capital and meet the prescribed prudential requirements and if, in
the view of the regulatory authorities, have also satisfied all the requirements
stipulated in the guidelines. No individual, group of individuals, their proxies or
corporate entities, and/or their subsidiaries, shall establish more than one MFB under
a different or disguised name.
2.11 PARTICIPATION OF EXISTING FINANCIAL INSTITUTIONS IN
MICROFINANCE ACTIVITIES
2.11.1 Universal Banks
Universal banks currently engaging in microfinance services, either as an activity or
product and do not wish to set up a subsidiary, shall be required to set up a
department/ unit for such services and shall be subjected to the provisions of the MFB
regulatory and supervisory guidelines.
2.11.2 Community Banks
All licensed community banks, prior to the approval of this policy, shall transform to
microfinance banks licenced to operate as a unit bank on meeting the prescribed new
capital and other conversion requirements within a period of 24 months from the date
of approval of this policy. Any community bank which fails to meet the new capital
requirement within the stipulated period shall cease to operate as a community bank.
A community bank can apply to convert to a microfinance bank licenced to operate in
a State if it meets the specified capital and other conversion requirements.
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2.11.3 Non-Governmental Organization - Micro Finance Institutions (NGO-
MFIs)
This policy recognizes the existence of credit-only, membership-based microfinance
institutions which shall not be required to come under the supervisory purview of the
Central Bank of Nigeria. Such institutions shall engage in the provision of micro
credits to their targeted population and not to mobilize deposits from the general
public. The registered NGO-MFIs shall be required to forward periodic returns on
their activities to the CBN. NGO-MFIs that wish to obtain the operating licence of a
microfinance bank shall be required to meet the specified provisions as stipulated in
the regulatory and supervisory guidelines.
2.11.4 Transformation of the Existing NGO-MFIs
Existing NGO-MFIs which intend to operate an MFB can either incorporate a
subsidiary MFB while still carrying out its NGO operations or fully convert into an
MFB. NGO-MFIs that wish to convert fully into a microfinance bank must obtain an
operating licence and shall be required to meet the specified provisions as stipulated
in the regulatory and supervisory guidelines.
2.12 JUSTIFICATION FOR THE CAPITAL REQUIREMENTS
The present capital base of N5 million for community banks has become too low for
effective financial intermediation. Indeed, to set up a community bank, at least N5
million is required for the basic infrastructure, leaving zero or a negative balance for
banking operations. From a survey of community banks, an operating fund of N50
million is about the minimum capital (own capital and deposits) a community bank
needs to provide effective banking services to its clients. However, it is recognized
that since many community banks are based in rural areas, their promoters may not be
able to effectively raise N50 million as shareholders‘ funds. Hence, the stipulation of
N20 million as shareholders‘ funds for the unit microfinance banks. The banks are
expected to engage in aggressive mobilization of savings from micro-depositors to
shore up their operating funds. A State coverage microfinance bank that would
operate multiple branches would be expected to take off with funds sufficient to
operate a full branch in at least two-thirds of the Local Government Areas in that
State. Hence, a minimum paid-up capital of N1.0 billion shall be required to obtain
the licence to operate a State coverage MFB. Expansion to another State shall be
42
subject to the provision of N1.0 billion minimum shareholders‘ funds unimpaired by
losses, and after opening branches in at least two-thirds of the Local Government
Areas of the State it is currently licensed to operate in, and if in the view of the
regulatory authorities, it has satisfied all the requirements stipulated in the guidelines.
The experience of other countries sheds light on the level of capitalization required
for microfinance banks. In most countries, the level of capitalization depends on the
geographical coverage of the banks, and for some countries, even for a particular
scope of coverage (district or province), the population and volume of business of the
area further determine the level of capitalization. The capitalization requirements in
other countries were also considered in arriving at the capitalization levels for the two
categories of MFBs in this policy.
2.13 FRAMEWORK FOR THE SUPERVISION OF MICROFINANCE
BANKS
2.13.1 Licensing and Supervision of Microfinance Banks
The licensing of microfinance banks shall be the responsibility of the Central Bank of
Nigeria. A licensed institution shall be required to add ―microfinance bank‖; after its
name. All such names shall be registered with the Corporate Affairs Commission
(CAC), in compliance with the Companies and Allied Matters Act (CAMA) 1990.
2.13.2 Establishment of a National Microfinance Consultative Committee A
National Microfinance Consultative Committee (NMFCC) shall be constituted by the
Central Bank of Nigeria (CBN) to give direction for the implementation and
monitoring of this policy. Membership of the Committee shall be determined from
time to time by the CBN. The Microfinance Support Unit of the CBN shall serve as
the Secretariat to the Committee.
2.13.3 Credit Reference Bureau
Due to the peculiar characteristics of microfinance practice, a credit reference bureau,
which shall provide information on microfinance clients and aid decision making, is
desirable. In this regard, the present Credit Risk Management System in the CBN
shall be expanded to serve the needs of the microfinance sector.
43
2.13.4 Rating Agency
The CBN shall encourage the establishment of private rating agencies for the sub-
sector to rate microfinance institutions, especially those NGO-MFIs which intend to
transform to microfinance banks.
2.13.5 Deposit Insurance Scheme
Since MFBs are deposit-taking institutions and in order to reinforce public confidence
in them, MFBs shall qualify for the deposit insurance scheme of the Nigeria Deposit
Insurance Corporation (NDIC).
2.13.6 Management Certification Process
In order to bridge the technical skills gap, especially among operators of microfinance
banks, the policy recognizes the need to set up an appropriate capacity building
programme for MFBs. To this end, the CBN shall put in place a microfinance bank
management certification process to enhance the acquisition of appropriate
microfinance operational skills of the management team of MFBs. A transition period
of twenty four (24) months shall be allowed for the take-off of the programme, with
effect from the date of launching the policy.
2.13.7 Apex Associations of Microfinance Institutions
The establishment of an apex association of microfinance institutions to promote
uniform standards, transparency, good corporate practices and full disclosures in he
conduct of MFI businesses shall be encouraged.
2.13.8 Linkage Programme
The policy recognizes the importance of the provision of wholesale funds for
microfinance banks to expand their outreach. Pursuant to this, the CBN shall work out
the modalities for fostering linkages between universal/ development banks,
specialized finance institutions and the microfinance banks to enable the latter source
for wholesale funds and refinancing facilities for on-lending to their clients.
2.13.9 Establishment of a Microfinance Development Fund
In order to promote the development of the sub-sector and provide for the wholesale
funding requirements of microfinance banks, a Micro Finance Sector Development
Fund shall be set up. The Fund shall provide necessary support for the development of
44
the sub-sector in terms of refinancing facility, capacity building, and other
promotional activities. The Fund would be sourced from governments and through
soft facilities from the international development financing institutions, as well as
multilateral and bilateral development Institutions.
2.13.10 Prudential Requirements The CBN recognizes the peculiarities of
microfinance practice and shall accordingly put in place appropriate regulatory and
prudential requirements to guide the operations and activities of the microfinance
banks.
2.13.11 Disclosure of Sources of Funds
Licensed MFBs shall be required to disclose their sources of funds, in compliance
with the Money Laundering Prohibition Act 2004.
2.13.12 Corporate Governance for Microfinance Banks
The board of directors of MFBs shall be primarily responsible for the corporate
governance of the microfinance banks. To ensure good governance of the banks, the
board of directors shall be responsible for establishing strategic objectives, policies
and procedures that would guide and direct the activities of the banks and the means
to attain same, as well as the mechanism for monitoring Management‘s performance.
Thus, while management of the day-to-day affairs of the banks shall be the
responsibility of the Management team, the board of directors shall, however, be
responsible for monitoring and overseeing Management‘s actions. Consequently, the
licensed microfinance banks shall be expected to operate under a diversified and
professional board of directors.
2.14 REGULATORY INCENTIVES
The new window of opportunity for the emerging microfinance banks in bringing
financial services to people who never had access to such services before, would
require the support of government and those of regulatory authorities. The CBN shall
collaborate with the appropriate fiscal authorities in providing a favourable tax
treatment of MFBs‘ financial transactions, such as exemption from value added tax
(VAT) on lending, or tax on interest income or revenue.
45
Similarly, the principle of exemption from profit tax shall be applied to any MFB that
does not distribute its net surplus but ploughs it back and reinvests the surplus to
finance more economically beneficial micro, small and medium entrepreneurship.
Furthermore, a Rediscounting and Refinancing Facility (RRF) shall be made available
to MFBs for purposes of providing liquidity assistance to support and promote
microfinance programmes. This would enable MFBs that have met the CBN
prudential requirements to, on a sustainable basis, provide and render micro credits
and other services to their clients.
2.15 THE ROLES AND RESPONSIBILITIES OF STAKEHOLDERS
The roles and responsibilities of stakeholders shall include the following:
2.15.1 Government
Government shall be responsible for: (i) Ensuring a stable macro-economic
environment, providing basic infrastructures (electricity, water, roads,
telecommunications, etc), political and social stability; (ii) Fostering adequate land
titling and other property rights sufficient to serve the collateral needs of borrowers
and financial institutions; (iii) Instituting and enforcing donor and foreign aid
guidelines on microfinance to streamline their activities in line with this policy; and
(iv) Setting aside an amount of not less than 1% of the annual budgets of state
governments for on-lending activities of microfinance banks in favour of their
residents.
2.15.2 Central Bank of Nigeria (CBN)
The roles of the CBN shall include the following:
(i) Establishing a National Microfinance Consultative Committee;
(ii) Evolving a clear micro-finance policy that spells out eligibility and licensing
criteria, provides operational/prudential standards and guidelines to all
stakeholders;
(iii) Evolving a microfinance sub-sector and institutional policies aimed at
providing regulatory harmony, promoting healthy competition and
mainstreaming microfinancing with formal intermediation;
(iv) Adopting an appropriate regulatory and supervisory framework;
46
(v) Minimizing regulatory arbitrage through periodic reviews of the policy and
guidelines;
(vi) Promoting linkage programmes between universal/development banks,
specialized finance institutions and the microfinance banks;
(vii) Continuously advocating market-determined interest rates for government-
owned institutions and promote the channelling of government microfinance
funds through MFBs; and (viii) mplementing appropriate training
programmes for regulators, promoters and practitioners in the sub-sector, in
collaboration with stakeholders.
2.15.3 Micro-Finance Institutions (MFIs)
Microfinance service providers shall:
i. Provide efficient and effective financial services, such as credit, deposits,
commodity/inventory collateralization, leasing, and innovative
transfer/payment services;
ii. Undertake appropriate recruitment and retention of qualified professionals
through transparent and competitive processes;
iii. Adopt continuous training and capacity building programmes to improve the
skills of staff; and
iv. Strictly observe their fiduciary responsibility, remain transparent and
accountable in protecting savers‘ deposits.
2.15.4 Public Sector Poverty Alleviation Agencies
The MFB policy recognizes the roles of public sector MFIs and poverty alleviation
agencies such as the National Poverty Eradication Programme (NAPEP) in the
development of the sub-sector. They shall be encouraged to perform the following
functions: i. Provision of resources targetted at difficult-to-reach clients and the
poorest of the poor; ii. Capacity building; iii. Development of MFIs‘ activities nation-
wide; iv. Nurturing of new MFIs to a sustainable level; and v.
Collaborating/partnering with other relevant stakeholders.
2.15.5 Donor Agencies
Donor agencies offer free or subsidized funds, donations or technical assistance for
the development of the microfinance industry in Nigeria. They include bilateral and
multilateral institutions, NGOs and missionaries with a pro-poor orientation. The
47
services provided by donor agencies include grants, donations, technical assistance,
etc. The donor agencies, in conducting their microfinance activities, shall comply with
the relevant provisions of this policy. The target clients for donors‘ support may
include: MFIs, NGOs, regulators and other relevant agencies. However, for the
purpose of leveraging the evolving micro financing initiative, donors are expected to
direct most of their assistance to licensed MFBs to ensure an orderly resource
injection, transparency and synergy.
2.16 DISTINGUISHING FEATURES BETWEEN A MICROFINANCE
BANKS AND UNIVERSAL BANKS
Criteria: Microfinance Banks are Licensed to Operate as a unit bank in a LGA (a.k.a.
Community Banks). Microfinance Banks are Licensed to Operate in a State Universal
Banks with Minimum paid-up capital/shareholders‘ funds of N20.0 million (increased
from N5.0 million) against N25.0 billion Minimum paid-up capital/shareholders‘
funds of Universal Banks.
Scope of Activities covered by Licence:
a. To operate within a Local Government Area.
b. Not to engage in sophisticated banking services, such as forex business
c. To operate within a State.
d. Not to engage in sophisticated banking services, such as forex business but
can receive tenured loans and equity from abroad
e. To operate nationally and in international markets
f. To operate forex transactions and domiciliary Accounts for customers
g. Limitation on credit to an individual or company Credit subject to a single
obligor.
h. Limit of 1% for an individual/corporate entity and 5% for a group Credit
subject to single obligor.
i. Limit of 1% for an individual/corporate entity and 5% for a group Single
obligor.
j. Limit applies
k. Limitations on deposits from an individual or a company.
l. Access to public sector deposits.
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m. Permitted for only micro-credit programmes on a non-recourse basis and
for payment purposes
n. Permitted for only micro-credit programmes on a non-recourse basis and
for payment purposes.
o. Permitted for writing accounts.
p. Cheque issuing customized to the correspondence bank.
q. Permitted for Geographical coverage in rural and urban areas.
r. Must operate in both rural and urban areas within a State in a proportion
prescribed by the CBN; all parts of Nigeria and foreign branches and
subsidiaries.
The Central Bank of Nigeria (CBN) shall define the rural/urban areas for the purpose
of this Policy.
2.17 MICRO CREDIT: A CONCEPTUAL OVERVIEW
Micro Credit is defined as provision of thrift, credit and other financial services and
products of very small amount to the poor in rural, semi-urban and urban areas for
enabling them to raise their income levels and improve living standards (Udonquak,
2006). Micro Credit Institutions are those which provide these facilities.
The reform of the interest rate regime has constituted an integral part of the financial
sector reforms initiated in our country in 1991. In consonance with this reform
process, interest rates applicable to loans given by banks to micro credit organizations
or by the micro credit organizations to Self-Help Groups/member-beneficiaries has
been left to their discretion. The interest rate ceiling applicable to direct small loans
given by banks to individual borrowers, however, continues to remain in force.
Banks have been given freedom to formulate their own lending norms keeping in
view ground realities. They have been asked to devise appropriate loan and savings
products and the related terms and conditions including size of the loan, unit cost, unit
size, maturity period, grace period, margins, etc. Such credit covers not only
consumption and production loans for various farm and non-farm activities of the
poor but also include their other credit needs such as housing and shelter
improvements.
49
A Self-Help Group (SHG) is a registered or unregistered group of micro entrepreneurs
having homogenous social and economic background voluntarily, coming together to
save small amounts regularly, to mutually agree to contribute to a common fund and
to meet their emergency needs on mutual help basis. The group members use
collective wisdom and peer pressure to ensure proper end-use of credit and timely
repayment thereof. In fact, peer pressure has been recognized as an effective
substitute for collaterals.
An economically poor individual gain strength as part of a group. Besides, financing
through SHGs reduces transaction costs for both lenders and borrowers. While lenders
have to handle only a single SHG account instead of a large number of small-sized
individual accounts, borrowers as part of a SHG cut down expenses on travel (to &
from the branch and other places) for completing paper work and on the loss of
workdays in canvassing for loans.
A Non-Governmental Organisation (NGO) is a voluntary organization established to
undertake social intermediation like organizing SHGs of micro entrepreneurs and
entrusting them to banks for credit linkage or financial intermediation like borrowing
bulk funds from banks for on-lending to SHGs. With a view to facilitating smoother
and more meaningful banking with the poor, A pilot project for purveying micro
credit by linking Self-Help Groups (SHGs) with banks was launched by NABARD in
1991- 92 with a view to facilitating smoother and more meaningful banking with the
poor. RBI had then advised commercial banks to actively participate in this linkage
programme. The scheme has since been extended to RRBs and co-operative banks.
The number of SHGs linked to banks aggregated 4,61,478 as on March 31, 2002. This
translates into an estimated 7.87 million very poor families brought within the fold of
formal banking services as on March 31, 2002. More than 90 per cent of the groups
linked with banks are exclusive women groups. Cumulative disbursement of bank
loans to these SHGs stood at Rs. 1026.34 crores as on March 31, 2002 with an
average loan of Rs. 22,240=00 per SHG and Rs. 1,316=00 per family. As regards
model-wise linkage, while Model I, viz. directly to SHGs without
intervention/facilitation of any NGO now accounts for 16%, Model II, viz. directly to
SHGs with facilitation by NGOs and other formal agencies amounts to 75% and
Model III, viz. through NGO as facilitator and financing agency represents 09% of the
50
total linkage. While 488 districts in all the states/UTs have been covered under this
programme, 444 banks including 44 commercial banks (including 17 in the private
sector), 191 RRBs and 209 co-operative banks along with 2,155 NGOs are now
associated with the SHG-bank linkage programme. While the SHG-bank linkage
programme has surely emerged as the dominant micro finance dispensation model in
India, other models too have evolved as significant micro finance purveying channels.
The other successful models that have emerged are: (a) An Intermediate Model that
works on banking principles with focus on both savings and credit activities and
where banking services are provided to the clients either directly or through SHGs;
(b) There is also a Wholesale banking Model where the clients comprise NGOs, MFIs
and SHG Federations. This Model involves a unique package of providing both loans
and capacity building support to its partners; and (c) Further, there is an Individual
Banking-based Model that has its clients as individuals or joint liability groups. While
programme management and client appraisal in this Model may be a challenge, it is
best suited to lending to enterprises. Keeping these validated models for delivery of
credit to the poor and the unorganized sector in view, RBI is moving towards a
systems perspective for providing effective policy support not only because a number
of different institutions, viz. banks, MFIs, NGOs & SHGs are involved, but also
because these institutions have very different institutional goals. With this in view, a
series of initiatives is being planned in the coming months for putting in place a more
vibrant micro finance dispensation environment in the country where complementary
and competitive models of micro finance delivery would be encouraged to co-exist.
Govt. of India vide their notification dated August 29, 2000 have included ‗Micro
Credit/Rural Credit‘ in the list of permitted non-banking financial company (NBFC)
activities for being considered for Foreign Direct Investment (FDI)/Overseas
Corporate Bodies (OCB)/Non-Resident Indians (NRI) investment to encourage
foreign participation in micro credit projects. This covers credit facility at micro level
for providing finance to small producers and small micro enterprises in rural and
urban areas.
There is an urgent need for micro credit providers to shift from a minimalist approach
– that is offering only financial intermediation – to an integrated approach to poverty
alleviation taking a more holistic view of the client including provision of enterprise
51
development services like marketing infrastructure, introduction of technology and
design development. In this context, the setting up of the Micro Finance Development
Fund marks an important step. Pursuant to the announcement of Finance Minister in
his budget speech for the year 2000-01: ―100 crore Fund has been created in
NABARD to support broadly the following activities:
a. giving training and exposure to self-help group (SHG) members, partner
NGOs, banks and govt. agencies;
b. providing start-up funds to micro finance institutions and meeting their initial
operational deficits;
c. meeting the cost of formation and nurturing of SHGs;
d. designing new delivery mechanisms; and
e. promoting research, action research, management information systems and
dissemination of best practices in micro finance‖.
This Fund is thus, expected to address institutional and delivery issues like
institutional growth and transformation, governance, accessing new sources of
funding, building institutional capacity and increasing volumes.
2.18 IMPACT OF MICRO CREDIT ON THE POOR
Micro credit as a tool in the fight against poverty holds a lot of promise for small
businesses. It affords beneficiaries easy access to credit with low interest and without
collaterals (Udonquak, 2006). Since small business operators usually lack capital and
often complain about high interstate as demanded by banks and other financial
institutions, this has restricted their access to credit lines thereby continuously keeping
hundreds of people below the poverty line. Again, there has been no financial
institution designed to assist small business until lately. In Nigeria for instance, one
million people are served by the existing micro-finance institution apparently due to
inadequate funds.
According to experts, 60 million Nigerians spend many years awaiting to receive
loans as low as N10,000 in many cases. In all the aggregate micro credit facilities
account for 0.2% of the GDP and less than 1 percent of total credit in the economy.
Therefore providing financial assistance to "economically active yet poor'' and low
income earners holds great potentials in the drive to lift thousands of people out of the
poverty trap. For instance in Akwa Ibom State, with a population of 3.4 million and
52
per capita income ofN1,500, it is ranked as 7th poorest state in the country. A recent
poverty survey index showed that it varies from 27 per cent to about 90 per cent in
some of the local government areas. To solve this problem, the state government in
2001 introduced six micro-credit schemes and injected a total of N260 million into the
various schemes. The schemes which are designed to enable small business operators
expand their businesses and increase income for sustainable economic development
and to enhance their capacity of the poor to engage in productive ventures include
Cooperative Societies Micro Credit, Akpan Andem Market Micro Credit Scheme and
Akwa Ibom State Traders Association (AKITA) Micro-Credit Scheme. Others include
Christian Fellowship Micro Credit Scheme, Agricultural Micro-Credit Scheme and
Small and Medium Industries Micro-Credit Scheme.
According to Monday Udofia, Special Adviser to state governor on Cooperative
Development, the six schemes were deliberately designed to cover all segments of the
society. He says the state government went a step further in its drive to alleviate
poverty by including church fellowships as a target group. "Can you imagine the
government looking at the church, that was specifically targeted at Church Fellowship
as members'' adding that'' among the schemes, it has proved to be the most successful
due to its high recovery rate''. So far, over N530 million has been disbursed under the
various micro credit scheme between 2001 and this year.
If the success of the scheme could be assessed on the high recovery rate, then the
Agricultural Micro-Credit Scheme in which N9 million was disbursed to beneficiaries
until the latest grant should come next after the Christian Fellowship Micro-Credit
which has recorded 100 per cent recovery. Similarly, the SME Micro-Credit Scheme
which received a disbursement of N7.5 million has achieved 49 per cent recovery
while Cooperative Micro-Credit with a total of N10.5 million credit line has only 35
per cent recovery as at December last year. Interestingly, it is the Cooperative Micro
Credit Scheme that has recorded considerable impact in the society having turned out
at 300 viable cooperative societies with high turnover.
According to Udofia, opening micro credit lines to women and youth groups with as
low asN50, 000 has resulted in tremendous benefit in the economy. "Right now,
consecutively, we have close to 300 viable cooperative societies with some small
farms having close to 100 pigs''. He says apart from the cooperative micro credit
53
scheme has recorded favourable impact, the agricultural micro credit scheme is
another that "has made our people to look inwards and turn to farming''. "I don't think
we are complaining about food in Akwa Ibom, with all these investments, our people
to look inwards to empower themselves'', he said.
One sour point however has been the willingness of micro credit beneficiaries to
repay their loans. This has slowed down the scheme which should have been seen as a
revolving one. Udofia believes there is need for the people to change their attitude
towards micro-credit scheme not to see it as "free gift'' which should not be repaid
adding that such mentality makes it difficult for the government to create a pool of
funds needs to boost economic activity. This was the same view expressed by
officials of the Growing Business Foundation (GBF), an NGO based in Eket, Akwa
Ibom State also involved in micro credit financing.
According to Asuquo Inemesit Eyoh , head of administration, GBF, Eket, people see
micro -credit as oil spill funds and have been reluctant to repay. He says the last time
disbursement was made to beneficiaries was in 2004 due to their inability to repay.
GBF has been in the state since 2001 when it began a pilot micro financing scheme.
Backed by Mobil Producing Nigeria which has its operational base in the area, the
involvement of GBF in micro financing for four local government areas of the state
regarded as the core oil producing communities has been a welcome development.
It has helped to reduce much of the restiveness by youths in the oil bearing
communities of Ibeno, Esit Eket, Eket and Onna and made access to finance easy to
women groups in the area. Currently, GBF working in collaboration with Support and
Training and Entrepreneurship Program (STEP) another NGO involve in providing
training services to small businesses to ensure best practices and profitability in the
third phase of its micro financing programme. Under the third phase of the scheme, it
disbursed N38 million to small businesses including bakery, farming, fish farming
and poultry in the four designated local government areas of the state.
Recently, it got a grant of N81 million from Mobil Producing Nigeria for the
expansion of the empower programme for which a total of over 1,000 small business
operators benefited. According to Eyoh during the first phase of the scheme,
beneficiaries were entitled to between N50,000 and N250,000 adding that it has since
54
been increased to N1 million and above. For instance, during the last disbursement,
Etebi Women Development Association gotN1.5 million for its bakery project,
Greenland‘s MPCS got N5 million for fish farming while Destiny Decorations and
Rental Services got N500,000. Two groups, Pitasana Poultry Farms and Booldoz
Resources got N400,000 each. Though, many believe that it might take a pretty long
time to "make poverty history'', the growing awareness on the role of micro credit
scheme in this wise has brought renewed hope that at least a good number of people
could be assisted to engage in income generating activities to improve their living
standards. But there is one big snag that must be overcome. According to Udofia,
there is need for continuous reorientation of the people to enable them change their
attitude towards going into business ventures. "People should accept to take risk; It is
only by taking risk that small businesses can grow to medium and large scale
enterprises', he added.
Source:http://www.businessdayonline.com
2.19 MICROCREDIT REPAYMENT IN NIGERIA
International organizations are coming to the realization that Non-Governmental
Organizations (NGOs) are veritable and effective channels to ensure programme
implementation effectiveness, particularly, in poverty projects in view of their on the
ground presence and first hand knowledge of the needs and interest of the poor
(Okumadewa, 1998). Thus, microfinance intermediaries comprise mostly of NGOs.
According to Dichter (1999), the World Bank sustainable Banking with the poor
project (SBP) in mid-1996 estimated that there were more than 1,000 microfinance
institutions over 100 countries, each having a minimum of 1,000 members and with 3
years of experience. In a survey of 206 of such institutions, 73per cent were NGOs,
13.6per cent credit unions, 7.8 per cent banks and the rest savings unions. Most
microfinance NGOs in Nigeria took off as credit-first financial institutions. They
obtained resources from donor agencies, which, they loan to their Members at the
grassroots. For instance, external donor funds accounted for about 77 per cent of their
funding between 1992 and 1996 (Ogundipe, 1999). This is supported by the report of
Adetunmbi (1999) that over 80 per cent of the aggregate loan funds available in the
semi-formal micro-credit institution in Nigeria is from donor and governmental
sources while about 20 per cent is self-imposed tariffs. This development has serious
implications for sustainability of the system.
55
Loans are either given to groups or individual members of the Microfinance
Institutions (MFIs). The Community Development Foundation (CDF), for instance,
gave 90 per cent of all loans approved for on lending by groups to their individual
members while the remaining 10per cent was for direct loan to individual
entrepreneurs. Ogundipe (1999) gave the distribution of NGOs members by activity
as 25 per cent - farmers, 23 per cent - food processors, 25 per cent - produce
marketers, 17 per cent - storage operators while the rest engage in diverse form of
activities. Chirwa (1997) specified a probity model to assess the determinants of the
probability of credit repayment among smallholders in Malawi. The model allows for
analysis of borrowers as being defaulters or non-defaulters. Various specifications of
the X-vector were explored by step-wise elimination. However, only five factors
(sales of crops, size of group, degree of diversification, income transfer and the
quality of information) were consistently significant determinants of agricultural
credit repayment.
The explanatory power of the model is plausible with the log likelihood statistically
significant at 1- percent. Four independent variables – gender, amount of loan, club
experience and household size were not statistically significant in various
specifications. Oni (1999) studied the proportion of loan repayment by smallholder
farmers in Osun State. His explanatory variables were: amount of loan collected,
expenditure on farm, interest rate, extent of farmers contact with bank, disbursement
lag, cultivated land area and years of experience in farming. The result of linear and
log form equations showed that the regression coefficients associated with amount of
loan (+), disbursement lag (-) and extent of farmers‘ contact with banks (+) had
expected signs and were statistically significant at 5 per cent. This study was
undertaken to critically examine the factors that influence micro-credit repayment
among members of microfinance institutions in Southwestern Nigeria.
2.20 WOMEN AND MICRO CREDIT FINANCING IN NIGERIA
In many respects, Nigeria represents a paradox in development. Take for instance,
Nigeria is the seventh world largest exporter of oil, yet ranks 158 out of the 188
countries of the would in terms of quality of life (UNDP, 2007). Available statistics
indicate that poverty has become endemic in Nigeria and is on the increase. For
instance, poverty increased from 18 million people in 1980, to 35 million people in
56
1985; 39 million people in 1992; 67 people in 1996; and 74 million people in 1999.
At present, about two-third of the Nigeria‘s population (about 150 million) are poor.
The latest Human Development Programme indicates that 70.8 per cent and 92.4 per
cent of Nigerian population live below US$1 (N117) and US$2 (N234) a day
respectively (UNDP, 2007). All these support the ranking of Nigeria among the
world‘s least developed nations of the world (UNDP, 2007). Out of these numbers of
poor Nigerian, women represent greater proportion due largely to their ascribed and
acquired role, which is accentuated by socio-cultural orthodoxy with a concomitant
vulnerability to deprivation, intimidation, and extreme suffering. Consequent upon
this, majority of these women are forced into the informal economy, which exacerbate
poverty and vulnerability. Given the multidimensional role of women in the Nigerian
culture, and by implication in the development process though not often
acknowledged, the continued neglect of the women in Nigeria means postponing
economic recovery in the country. Perhaps in realization of this truism, stakeholders
in the development of the less developed economies have recognized that the poor are
potential economic agent rather than the hitherto misconstrued axiom that they are
economic liabilities. The Institute for Liberty and Democracy‘s (ILD) study of the
informal economy in the third World shows that ―the poor are, infact, not so poor‖
(ILD, 200). This realization has indeed dislodged the myth that the poor cannot and
do not save, are not credit worthy, (Businessday, 2008), therefore cannot extricate
themselves from poverty through active involvement in economic activity.
The heightened acceptance of the poor (the bottom-of-the-pyramid) as potential active
economic agent that could change their fortune for good if given the right support
informs the increasing recognition of the potency of micro financing as a tool for
improving the quality of life of the poor (Shultz and Pecotich, 1997; Nkamnebe,
2005). Micro credit is used in its broad sense as the provision of credit, savings and
other financial services to micro-entrepreneurs and low-income borrowers (Haruna
2007; Robinson 2001; Ehigiamusoe 2007; Dunford, 2000). Accordingly, through
multi-party collaboration of non-governmental organizations (NGOs), government,
development institutions, donor countries and agencies, and sundry agents, MFIs are
increasingly being created to serve as purveyor for conveying credit to the poor for
creating and supporting micro enterprises for self empowerment and as a deliberate
policy pull to market inclusiveness. At present, over 7000 such institutions exist all
57
over the world, serving more than 25 million world poor, majority of who are women.
A Central Bank of Nigeria‘s (CBN) study identified 160 registered MFIs in 2001, and
by 2008, the number has increased to over 700; the implied supposition being that the
more the MFIs the more the poor especially women have access to credit therefore are
empowered and insulated against poverty and exclusion. This may be a theoretical
possibility as a number of factors, implicit and explicit might be working against this
supposition. With increasing publications on the Nigeria‘s micro financing and micro
credit (for example see: Mohammed and Hassan, 2008; Akanji, 2008, Anyanwu,
2004; Umoh, 2006; Omorodion, 2007; Anyanwu, 1994; Bamisile, 2006 Oke,
Adeyemo, and Agbonlahor, 2007) there is need to contribute to literature and public
policy by examining factors militating against Nigerian women‘s access to micro
credit.
Nigeria is populated nearly 150 million people, and remains the largest black
population in the Africa. Nigeria is the most populated country in Africa, and
accounts for half of West Africa‘s population, and over 25 percent of Sub-Sahara
Africa (SSA), making it the largest market in the region. It occupies a land area of
923,768 sq kilometre with diverse climate, culture, and natural resources and 250
ethnic groups making it a highly diversified culture. Nigeria is the 7th world exporter
of crude oil. Paradoxically, this does not reflect on the development outcome of the
country as Nigeria ranks 158th in the Worlds Human Development Index (HDI)
(UNDP, 2007).
This means that the country ranks very low in all the indices of development and her
chances of halving poverty and achieving other Millennium Development Goal
targets by 2015 remains illusive. The informal sector is well developed, far ahead of
the formal sector of the economy. For instance, about 65 percent of active population,
most of them women have been excluded from the formal financial institutions
(Bamisile, 2006). Obtaining the actual size and employment structure in the Nigeria‘s
informal sector is difficult, but estimates suggest that the sector accounts for between
45 – 60 percent of the urban labour force; up from about 25 percent in the mid 1960s,
life expectancy at birth is put at 52 years. Even though public policy on the informal
sector had been repressive, by 1990s, it became more ―pragmatic and promotional‖.
In particular, government recognized the need to encourage women and indeed small
58
enterprises through the provision of credit, which informed policy reform with respect
to bringing the micro finance institutions (MFIs) under the control of the CBN, and
this policy became operational in 2005. In addition to this recent policy initiative,
other programmes in the past have been developed specifically to assist women and
other micro entrepreneurs and SMEs, some of which include: the Peoples‘ Bank of
Nigeria (PBN) initiative, the Family Economic Advancement Programme (FEAP) and
currently the National Poverty Eradication Programme (NAPEP) among many others.
Donor community and other international agencies have equally realized the need to
nurture viable micro-enterprise and SMEs sector through concessional credit and
selected interventions. For instance, in 2006, the International Finance Corporation
(IFC) provided a US$15 million gendered credit through a commercial bank under its
Gender Entrepreneurship Markets (GEM) programme (www.ifc.org). In fact, the
SMEs account for about 95 percent of manufacturing activity and 70 percent of
industrial jobs in the formal sector. But these efforts did not succeed as three largest
programme (FEAP, NACB, PBN) recorded high losses of USN 100 million in from
of bad debt (Bamisile, 2006). Despite this policy direction, insecurity, corruption, and
poor infrastructure prevent them from really serving as motors of growth (Kauffmann,
2005).
2.21 WOMEN, MICRO CREDIT, AND POVERTY
A conceptualization and contextualization Evidence from the literature supports the
supposition that women are part of the missing links in the development quagmire
confronting the least developed economies where Nigeria belongs. This assertion is
buttressed by the fact ―that they (women) account for over half the food produced in
these (developing) countries, consist of one – fourth of the industrial labour force,
additionally fetching most of the household‘s water and fuel wood, and are
responsible for children and household chores‖ (Anyanwu, 1994). Also, women have
been identified as ―vital part of the Indian economy, (and) constitute one third of the
labour resource, and primary member contributing in the survival of the family‖
(Manimekalai, 2004). To strengthen government initiative to provide better access to
credit, the framework to regulate the activities of micro financial institutions (MFIs)
was made operational in 2005. Evidently, MFIs serves as micro credit window to the
women than men as the women have traditionally been disenfranchised by the formal
financial system due largely to the undue disadvantages brought on them by existing
59
socio-cultural and economic institutions in Nigeria (Oke, Adeyemo, and Agbonlahor,
2007; UNCDE, 1997; Adebayo, 1997; Olomola, 2001, Adeyeye, 2003, Anyanwu
2004; ADB, 2005); this somewhat shows the professed link between MFIs and
women empowerment. Accordingly, strengthening gendered MFIs would contribute
in tackling the existing exclusion of women from the emerging free market.
2.22 WOMEN AND MFIS IN NIGERIA
It has become common that the emergence of MFIs was largely aggravated by the
exclusion of the informal sector by the formal financial system/institutions in Nigeria
and indeed other developing countries. For instance, out of the about 150 million
Nigerians, about 65 percent of the active population who are mostly women are not
served by the formal financial institutions. In Ghana, only about 5 – 6 percent of the
22 population have access to formal banking (Basu et al, 2004). Thus, the MFIs are
primarily established to fill the gap created by the formal financial sector. In a survey,
Anyanwu (2004) summarizes the objectives of the MFIs to include:
a. to improve the socio-economic conditions of women, especially those in the
rural areas through the provision of loan assistance, skills acquisition,
reproductive health care service, adult literacy and girl child education;
b. to build community capacities for wealth creation among enterprising poor
people and to promote sustainable livelihood by strengthening rural responsive
banking methodology; and
c. To eradicate poverty through the provision of microfinance and skill
acquisition development for income generation.
This role has become necessary in Nigeria in order to foster the empowerment of
women that are heavily disenfranchised by the formal banking system due largely to
the perceived and real high risk and cost associated with serving the poor.
Collaborating this view, Anyanwu (1994) opines, ―a particular example in Nigeria is
that women suffer the disability of non-access to bank credit, yet such credit removes
financial constraints and poverty, accelerates the adoption of new technologies and
national personal income, apart from raising productivity and employment‖. With
about 7,700 MFIs supposedly serving the global and Nigerian poor respectively, the
numbers of MFIs are still far from what is required to meet the credit needs of the
total number of the poor and vulnerable group in the world.
60
In Nigeria for instance, the ―micro finance specific institutions have not been able to
adequately address the gap in terms of credit, savings and other financial services
required by the micro-entrepreneurs‖ (Bamisile, 2006). Out of nearly 100 million
poor Nigerians that are potential customers of MFIs, CBN survey shows that only
600,000 and about 1.3 million were respectively served in 2001 and 2003. Thus, the
demand for microfinance services in Nigeria are still high and on the increase
(Anyanwu, 2004). This increase arises from a number of sources, which include:
continuous lay-off of labour from the public and private sector as a result of the
structural adjustment programmes, growing number of unemployed graduates
(Anyanwu, 2004). It can also be argued that the increasing adoption of capital
intensive technology by Nigerian big firms has resulted to lay-offs. Again, the
traditional Nigerian setting places family responsibilities on the man, but with the
worsening economic situations, women are now assuming additional burden of
fending for themselves and other family members. These development leaves
majority of affected Nigerians to the informal sector, which logically would required
robust MFIs system to cater for.
2.23 MICRO-CREDIT AND CONSTRAINTS AND BARRIERS
The literature is replete with plethora of barriers that are faced by micro entrepreneurs
from developing countries in their effort to fight poverty particularly through
enterprise development. This section documents some of these constraints with some
emphasis on micro credit access. The constraints and barriers discussed are arranged
thematically as follows:
1. Finance/Lack of Access to Market Information
• Lack of awareness of the benefits of credit facilities emanating from limited
education (Anyanwu, 2004).
• Income levels, inadequate collateral security, difficult loan process
procedures, high interest rate, value of initial capital, minimum balance
requirements (Umoh, 2006).
2. Social Cultural Practices
• Few women in business as they depend on their husbands as breadwinner
(Anyanwu, 2004).
• Spouses control over income of their wives (Omorodion, 2007).
61
• The gender hierarchy within the household means that women tend to have
less control over how income and food are allotted within the household (Chen
et al, 2004) Gender – differentiated entitlements mean that women tend to
have less ownership of, control over or access to resources than men (Chen et
al, 2004).
3. Supportive Regulatory Framework
• Repressive informal sector policies in Nigeria in the 1980s. ―In formal sector
enterprises (dominated by women) such as hawking and other forms of street
business were incessantly harassed and compelled to relocate to remote and
inaccessible outskirts of the cities, and kiosks illegal structures, and shanty
towns in the cities were raided and ruthlessly demolished. The informal sector
was blamed for all sorts of evil social influences such as littering the streets,
obstructing traffic, creating various forms of pollution and nuisance, crime,
prostitution foreign exchange malpractice, and the like, (Nwaka, 2005).
• Limited number of easily accessible MFIs as people needs to travel long
distance between their homes and the locations of the MFIs (Omorodion,
2007).
• The use of force and threat of prosecution by the government and MFIs
(Omorodion, 2007).
• Gender divisions in roles, responsibilities and power mean that women and
men are not equally positioned to respond to opportunities or overcome
constraints associated with economic reforms (Chen et al, 2004).
• Gendered bias in financial, goods and labour markets acts as a barrier to
women‘s ability to take up opportunities afforded by economic reforms (Chen
et al 2004).
• The price, tax/spending and employment effects of economic reforms work
their way through institutions such as markets, enterprises and households in a
gendered way (Chen et al 2004).
• Economic reforms can lead to poverty outcome becomes of the gendered
structure of the economy (Chen et al, 2004).
• Unequal access and competitiveness to harness the opportunities that arise
through the opening up of new markets. This can affect all the micro
62
entrepreneurs generally, but in particular will exclude the women in the
following ways:
• Lack of access to or compositeness in global markets, which affects women
more than men. These barriers are evident in the following ways:
Exclusion and lack of access to land, credit, training, technology,
infrastructure and information.
Lack of organizing into co-operatives or associations.
Lack of voice and representation Lack in the case of women, of mobility
and time arising from cultural restructure and domestic responsibilities
(Chen et al 2004).
2.24 INDUSTRIAL CLUSTERS: AN OVERVIEW
Despite the progress made on academic and policy research on industrial clusters,
poverty concerns tend to be ignored in much of the cluster literature. Instead, the
focus is on the potential economic gains of clustering, in particular the ways in which
clustering enhances competitiveness and promotes growth. There is an implicit
assumption that such growth translates into rising levels of employment and incomes,
with improving conditions and standards for labour engaged in clustered SMEs. Yet,
for the most part, such issues are rarely explored. In particular, relationships between
clustered firms and workers are insufficiently analyzed.
Industrial clusters can make a potentially important contribution to this agenda. Not
only do they enhance the ability of small firms to compete in global markets; they can
also promote sustainable employment and incomes and thus, better the situation for
the working poor. This assumption is grounded in the notion that SMEs account for a
significant proportion of manufacturing employment in developing countries, and that
they are predominant in labour intensive sectors with a propensity of employment of
the working poor. Clusters, as a distinct form of industrial organization, allow SMEs
to overcome constraints on their size, and offer possibilities of collective action in the
face of common problems. Such benefits are brought into sharper perspective by the
process of globalization which, while offering new opportunities for developing
country enterprises and workers, inter Alia, raises the vulnerability of small firms, and
those who work in them, to external shocks. Clusters are also relevant in that they
offer potentially important benefits of developing social capital and social protection
63
through local trust-based relations. Such forms of social assets can be of significant
advantage to firms and to labour. At the same time, it is important to recognize the
heterogeneity between clustered firms, and amongst labour within clusters, and to
recognize that the gains from clustering can be unevenly distributed.
2.25 INDUSTRIAL CLUSTERS AND POVERTY: A KEY LINK
Despite the widely held view that clusters can play an important role in fostering
incipient industrial development, especially in poor regions (Schmitz and Nadvi,
1999), little is known of the impact that clusters have on reducing poverty. This
section addresses this gap by considering the ways in which clusters could potentially
affect a poverty reduction agenda. The very presence of a cluster changes the context
in which the poor live, by enhancing the ability of individual cluster actors, be they
workers or producers, to potentially improve their wellbeing. Clusters allow local
small producers to make more effective use of underutilized resources, such as small
scale savings or family labour, generating incomes that they could not avail by
operating in isolation. This is because the process of clustering engenders various
benefits. This includes agglomeration gains to clustered firms, such as externalities in
the markets for labour, inputs, know-how and information, economies of scale and
scope as individual firms take on specialized tasks through a division of labour. In
resource poor regions, or at early stages of industrial development, this can be
especially significant, promoting specialization by way of ―small steps‖ (Schmitz and
Nadvi, 1999). Finally, clustering is a dynamic process, leading to ―winners‖ and
―losers‖ amongst firms and workers. Thus, in assessing the links between clusters and
poverty we concentrate on three aspects of clusters. First, cluster features—the
cluster‘s location, the types of firms within it, and the types of employment
generated—and their relationship to poverty. Second, cluster processes—
agglomeration gains, joint action, cluster institutions and social capital—and poverty.
Third, cluster dynamics—cluster growth, upgrading, and differentiation—and poverty.
2.26 CLUSTER FEATURES AND POVERTY
Clusters are far from homogenous. Here are four distinctions offered in the literature.
Gulati (1997), in the context of Indian examples, distinguishes between ―modern‖
urban and ―artisanal‖ rural clusters. The former serve large metropolitan and export
markets, while the latter cater to more local demands. _ Sandee (2002), drawing on
64
evidence from Indonesia, describes a spectrum with ―dormant‖ clusters at one end—
manufacturing simple items for poor rural consumers and providing ―distress‖
employment for those with limited income generating options, and ―dynamic‖ clusters
at the other end—where firms are closely networked and can enter wider, even global,
markets. _ Schmitz and Nadvi (1999) distinguish between ―incipient‖ clusters—those
at an early stage of industrial development, usually located in poor areas, producing
for local markets with simple technologies and labour skills, and ―mature‖ clusters—
relatively more advanced in terms of technology and skills, often producing for global
markets and thus vulnerable to global competitive pressures. _ Altenburg and Meyer-
Stamer (1999) distinguish between ―survival‖ clusters, ―advanced mass production‖
clusters and ―clusters of transnational corporations‖. Their notion of ―survival‖
clusters is similar to Schmitz and Nadvi‘s ―incipient‖ clusters. Such clusters are in
―poor areas, where open or disguised unemployment is high, either in small towns of
rural areas or on the outskirts of big cities‖ (Altenburg and Meyer-Stamer 1999).
2.27 INDUSTRIAL CLUSTERS AND POVERTY ALLEVIATION
Mass production clusters are more advanced, where firms produce for local markets
but increasingly face global competitive pressures. Finally, ―clusters of transnational
corporations‖ are technically advanced foreign firms that locate in particular areas to
draw on regional agglomeration economies but with limited links to local firms and
institutions. We need to first consider which types of clusters are particularly
significant in employment and income generation that could have a greater impact on
the working poor. Clearly, there can be a potential trade-off in terms of policy. While
incipient, or survival, clusters are the obvious choice in terms of direct poverty
impacts, more mature clusters can also have an impact on poverty —by generating
employment and incomes for relatively low waged workers and their households and
for the indirect effects on the wider economy.
Moreover, incipient clusters may not survive in the face of growing market
competition, whereas supporting mature clusters may result in more sustainable
development for local communities. Keeping these distinctions in mind, the critical
point, in terms of cluster features and their relationship with poverty are the location
of clusters, the type of sector that a cluster is engaged in, the nature of firms within
clusters, and the types of employment the cluster generates. All the three affect the
65
well-being of cluster-based workers and producers, and are directly relevant to
poverty. We deal with these separately. Location—Poverty incidence can vary sharply
in the developing world. Historically, rural poverty has accounted for a significant
component of total poverty. While this underlines the importance of farm incomes,
off-farm employment can be critical to the survival of poor rural households. Rural
clusters, especially in agro-processing and agro-service activities that rely heavily on
casual, landless and family labour, can be potentially providers of critical income for
the rural poor (Das, 2003; Saith, 2001). Rural to urban migration is another strategy
taken by the rural poor to improve their livelihoods and capabilities. However, off-
farm migration can often reduce the presence of key skills in the local rural economy,
and make particular categories of the rural population (such as women, children and
the elderly) more vulnerable. Rural to urban migration also fuels the fast-growing
urban informal sector. Thus, it is evident in many countries that urban poverty is of
growing, if not greater, significance than rural poverty. Those who fall within the
urban informal economy often have levels of income and consumption that place
them below the poverty line. Many ―survivalist‖ clusters are found in informal
settings, relying on cheap, casual, labour and limited local resources. The informal
sector can also provide an environment for more dynamic clusters—many of the
leading examples of mature export clusters from developing countries began in the
informal sector. Thus, rural-based clusters that generate off-farm employment for the
rural poor, as well as clusters located in peri-urban settings and in the urban informal
economy can have a significant impact on poverty by generating employment for the
very poor.
Sectors and firms—the types of industries and firms within clusters can also influence
the impact on poverty. An underlying belief, and one borne out by evidence, is that
clusters have a predominance of small and medium enterprises. Furthermore, SMEs
tend to have a more labour intensive production profile. Thus, most SME clusters in
the developing world are to be found in labour intensive activities—from the
manufacture of shoes, garments, metal products, to wooden furniture, and food
processing. Employment—Finally, many of the labour intensive sectors, where
evidence of clustering exists, often attract a substantial pool of unskilled workers.
These can also include relatively. Marginal workers, including women, migrants,
child workers and those from economically poorer communities. The nature of skills
66
can act as a proxy to identify the poorest. Generating unskilled labour is likely to have
a stronger pro-poor effect than skilled labour. Although, a caveat to note is that
increasing skilled labour (and incomes to skilled labour) may generate greater
multiplier effects that have a wider poverty impact, through, for example,
employment growth for unskilled labour. Part of an exercise in discerning the poverty
impact of clusters would be to distinguish between clusters where unskilled labour
predominates from clusters with a predominantly skilled labour profile.
2.28 CLUSTER PROCESSES AND POVERTY
Clustering sets into motion a range of potential benefits that can directly affect the
poor, both as waged workers, home workers, own-account workers as well as small
entrepreneurs. This can be through externality gains, joint action, and local social
capital.
1. External Economies: Agglomeration benefits may not only raise efficiency,
they may also make it possible for smaller firms to access markets through a
division of labour. Economies of scale and scope can allow individual small
firms to survive by specializing in specific tasks within the production process
and by accessing specialist skills and services and inputs from within the
cluster. Similarly, external economies that arise from agglomeration can result
in a significant lowering of costs in accessing inputs, labour and information.
Again, this can help small firms to survive and grow in ways that would be
infeasible if they operated in isolation. Knowledge spill-overs found in
clusters may also make it feasible for small firms to acquire new know-how,
new products and new production techniques that could not be obtained
through markets. Clustering can thus enhance the individual capacities of
small firms to access markets, and acquire skills, knowledge, credit and
information.
2. Joint Action: Clustering can also promote collective capacity. In addition to
the direct economic benefits that passively accrue to small firms by virtue of
their location within the cluster, there are significant gains from active local
collaboration that clustering can set into motion. Local cooperation, both
between individual firms and through cluster institutions can strengthen the
ability of clustered actors to compete in markets, by sharing costs and by
engaging in joint tasks such shared marketing and distribution. Moreover, such
67
forms of joint action can help clustered firms confront external threats and
challenges and face vulnerabilities. These external challenges are pronounced
as local clusters engage in global markets. Globalization, namely the
increasingly rapid flows of capital, goods, peoples, and ideas across borders,
can help bring local actors into global markets and enhance their income
earning opportunities. Globalization can also potentially increase the
vulnerability of local actors to sudden changes in global demand, in trading
rules and in financial stability. Thus, with globalization there is also greater
instability and vulnerability. Clusters can help SMEs reduce their exposure to
exogenous shocks and risks. Local institutions such as business associations
and collective service centres can help clustered firms acquire the skills, the
technical abilities to reduce their vulnerability to the exigencies of
globalization, thereby enhancing the well-being of workers and producers.
3. Social Capital: Local initiatives and local collaboration are themselves often
strengthened by local social capital. Clusters tend to have a strong presence of
social capital, which can take the form of shared norms and/or common
identities. This can, potentially, help reduce vulnerability, help flows of
knowledge within the cluster, provide the basis to strengthen local institutions,
and help firms upgrade. We need to consider how social capital works to do
this, and in particular how it may mitigate against poverty. Social capital can
also serve to raise local competition as much as it helps local cooperation.
Divisions within communities can reduce local cooperation and serve to
worsen poverty impacts. Also we need to note the differentiated ways in
which social capital works for different types of firms (large versus small) and
workers (men versus women, or high versus low castes). Finally, it is
important to recall that social capital is not static. Its forms, and how it works,
can change over time. In particular, it is affected by economic changes (and
growth) within the cluster. Clusters can set into motion processes that improve
the ability of small firms to improve market access through externality gains
and through joint action. This can raise incomes for those who work in
clusters, raise their assets and capabilities and have a significant impact on
lowering levels of poverty and social deprivation. Joint action, often cemented
through social capital, can improve local networks and support mechanisms
that help reduce future risks and vulnerability to shocks.
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2.29 CLUSTERING DYNAMICS AND POVERTY
Clusters are dynamic. They evolve as a consequence of local and external linkages. A
key process of change within clusters comes about through local upgrading. This
results in enhanced human capital and improved technological capacities for firms
and enhanced capabilities for workers and small producers. In what ways does such
upgrading improve the abilities of clustered actors to address poverty concerns? This
leads to a more dynamic framework for understanding the growth trajectories of
clusters and poverty reduction. There has been substantial recent discussion on
upgrading in clusters (UNIDO, 2002; Humphrey and Schmitz, 2003)—which raises
the competitiveness of firms, improves their ability to appropriate a larger share of
value added, and advances their position within global value chains through distinct
forms of upgrading—product, process and function. Why is cluster upgrading
significant for poverty? Raising human capital improves productivity and leads to
rising incomes and wages as well as sustained employment growth. Moreover, it is
only through a systematic pattern of upgrading, often aided through national
innovation and learning systems, that clusters are able to compete in global markets
on the basis of the high road to growth. This requires a stronger explanation of why
the high road to growth (as opposed to increasing competition on wage costs) might
have a more positive impact on poverty reduction in the medium to long-term. But
upgrading not only relies on local and external linkages, it also has consequences for
such linkages. That is to say, the process of upgrading is often determined by the
nature of governance of ties within the cluster, as well as ties between cluster actors
and external players within the value chains in which clusters are inserted. Global lead
firms can exercise significant power in determining the actions of local firms, and
thus the autonomy of clustered firms to engage in tasks that enhance their technical
and resource capacities. Moreover, external ties can over time erode local linkages
and weaken cluster governance. This implies that clusters have to be seen in the
context of dynamic trajectories-where certain types of producers and workers gain
and others lose. For example, as firms upgrade, does the demand for new skills affect
all workers uniformly, or do some categories of workers (say women) become
marginalized by not being provided the requisite training and skills?
69
2.30 INDUSTRIAL CLUSTERS AND POVERTY: THE EMPIRICAL
EVIDENCE
Global Buyers: This resulted in an ILO monitoring programme of the cluster and a
social development strategy, based on education and income generation, for child
workers and their households. Thus, local joint action resulted in direct gains for the
cluster, employment and cluster exports rose, while immediate poverty concerns for
many of the more vulnerable members of the cluster‘s labour force began to be
addressed (Nadvi, 2003). Joint action is neither an obvious outcome of clusters, nor is
it easy to achieve. The evidence that emerges from cluster studies suggests that joint
action is less common in incipient clusters than it is in more mature clusters. Even in
mature clusters, joint action is far from uniform. The fast growing jeans cluster of
Torreon, where exports to the United States has expanded with North American Free
Trade Agreement (NAFTA), has seen local firms building closer ties with their
external buyers than with other local producers (Bair and Gereffi, 2001). Cluster
institutions are weak. In many other cases, we see similar patterns where, in the face
of global pressures, ties with external actors begin to supersede local linkages Brazil‘s
Sinos Valley is another example, (Schmitz, 1999). Nevertheless, in a number of cases,
local cooperation can assist local small enterprises access markets, overcome
constraints and confront vulnerabilities that they face in local and global markets.
Often where cooperation does occur, it is strengthened by local social capital,
common ties of community and identity that can foster cooperation and generate trust.
Social Capital: Social capital is often cited as a key feature of small firm clusters. It is
considered an essential component of the success of the Italian industrial districts
(Putnam, 1993). Social capital can assist local trust ties. It can also contribute to the
provisioning of local social protection, providing an informal basis to cover risk and
insurance as well as support for weaker members of the local community. There is a
danger, however, that social capital is viewed in either an idealized fashion, or that it
is seen as acting uniformly. Fostering trust, even with strong community ties can be
difficult especially when enterprises are in direct competition with each other, where
barriers to entry are low and where conditions of poverty are high. Moreover,
differentiation within communities can mean that local social ties effectively
marginalize particular groups, on the basis of caste, ethnicity, religion, migration, and
gender. What evidence is there on the links between social capital, one of the process
70
outcomes of clustering, and poverty? The presence of strong social networks is a
feature in many incipient clusters. Weijland (1999) argues that Indonesia‘s rural
clusters have strong social networks that generate ―a substantial stock of social
capital‖. This serves to lower transaction costs through ―traditions that seemed to
safeguard social control and stability‖ and that promote trust within communities.
Sandee (2002) mentions the importance of family networks in rural Indonesian
clusters. Actual evidence of such social capital in practice is, however, limited.
Furthermore, as Weijland notes, social networks usually uphold dominant local
norms. Thus, in much of rural Indonesia, social networks are encapsulated within
local patron-client relationship based on ―socio-political hierarchy, land ownership
and traditional family bonds‖ that allows key players within rural clusters, such as
wealthy landowners and village elders (always men), to exercise a degree of power
over other members of the community, and their families. Overt symbols of social
networking are less clearly seen in the African clusters that McCormick discusses, or
for that matter in many of the incipient clusters in Latin America. Although, the use of
family labour is significant, such as in Gamarra, suggesting potentially strong family
bonds, and migration into clusters also pointing to potential community ties, there are
few signs that social networks emerge that foster ties between small enterprises. In
fact, Altenburg and Meyer-Stamer (1999) argue that, for many of the survivalist
clusters, it is ―low trust and poor contract enforcement mechanisms [that] compromise
the potential to reap benefits of clustering‖. The evidence on social networks is
stronger in parts of South Asia. Kennedy (1999) argues that a key element in
promoting local cooperation amongst tanneries in the Palar Valley is their strong
Muslim community identity. She mentions a strong ―Muslim ethic‖ and the presence
of important religious and charitable institutions. This strong sense of community
identity, enhanced by Muslims being a minority community within the wider region,
provides a basis for local self-regulation and ―social control‖ that ―ensure compliance
to rules and norms‖. This religious identity has been central, states Kennedy, to
promoting local cooperation amongst tanneries in forming and managing collective
treatment plants. Strong religious hierarchies and norms provide the basis for an
effective regulatory framework. But this only extends to tannery owners. Most
tannery workers are low caste Hindus, and here religious identities serve to strengthen
the divide between labour and capital. In the Agra footwear cluster, Knorringa also
71
saw strong community ties, based on caste identities. As in Palar, there is strong
differentiation by caste (and religious) groups within the cluster. Footwear workers
tend to be poorer, low caste Jatavs (Hindus), while traders are usually high caste
Hindus, Sikhs and Muslims. This differentiation, cemented by social and religious
differences, further fuels obvious tensions between enterprise owners and workers.
In the Tiruppur knitwear garment cluster, Chari (2000) argues that the agricultural
caste of Goundars became dominant in the industry largely through kin and caste
networks as poor rural labourers, including landless peasants, moved to Tiruppur in
search of jobs. Singh (2003), however, states that as the cluster grew, the dominance
of the Gounder community declined. New migrants from further a field, and the
entrance of Punjabi manufacturers and traders who shifted to Tiruppur during the time
of political unrest in Punjab, resulted in other, competing, forms of local social
identities. A similar story, of changing social identities is cited by Nadvi (1999) in the
context of the Sialkot surgical instrument cluster, where baradari (quasi caste) ties
changed over time. Nevertheless, a strong sense of local social identity, based on
location and family ties, prevails. From the review of cluster processes we turn now to
the evidence on cluster dynamics and poverty. That is, as clusters develop what
consequences emerge for poverty concerns. In particular, given that clusters are
themselves heterogeneous, who gains and who loses, at the level of producers and
workers, as clusters evolve?
A number of cluster studies focus on cluster growth and upgrading and, in particular,
the role of internal and external linkages in bringing this about. This has resulted in an
emphasis on the ways in which local clusters are inserted into global value chains.
Ties within the global chain can often determine the autonomy of local actors in terms
of their power and ability to adopt particular growth trajectories. That is not to say
that local networks and local linkages do not matter. Local institutions, local
technological capacity, and local government policies can play a significant function.
Nevertheless, cluster studies have begun to pay greater attention to the interface
between what is termed local and global governance (Humphrey and Schmitz, 2003;
Nadvi and Halder, 2002; Bathelt et. al, 2002).
72
Furthermore, discerning Growth trajectories also point to the differentiated gains
within clusters. As clusters develop, particular categories of local entrepreneurs and
local workers gain while others lose out. Here we assess the evidence of upgrading
from various cluster studies, the differentiated outcomes that emanate from it for
producers and workers, and its implications for poverty. As with the evidence on joint
action, there is a clear distinction in patterns of upgrading between incipient and
mature clusters. It is in the more mature clusters that we observe substantial
development as clustered firms upgrade their products, processes and function and in
some cases enhance their ability to compete in global markets. Often this results in an
increasing emphasis by clustered firms on ties with external buyers. The Torreon blue
jeans cluster in Mexico is one example. As the cluster expanded, a number of jeans
manufacturers moved from simple, assembly only, functions to ―full package‖
production. This involved undertaking new tasks such as fabric sourcing, trims and
labels, fabric cutting, finishing and distribution. In the process, the cluster‘s producers
have upgraded significantly, enhancing skills and capabilities, obtaining a three fold
increase in unit prices for garment assembly between 1993 and 2000, and rapidly
increasing employment in the cluster (Bair and Gereffi, 2001). Vertical ties with
United States lead firms have become stronger for local producers. But upgrading at
the cluster level did not imply upgrading by all firms. Large firms were at the
forefront of this process. They had both the capital to undertake full package
production and the links with United States buyers to access the know-how, and the
buyer pressures, to upgrade. As a result, there is growing concentration within the
cluster. Of the 360 garment producers within Torreon, the 10 largest firms account for
over 40 per cent of total cluster production. Many of these large firms are, as Bair and
Gereffi (2001) note, closely related through family ties. More significantly, the larger
firms increasingly rely on large numbers of smaller subcontractors, although ties with
subcontractors are organized through hierarchical vertical production networks. The
pressures that large firms face from their United States buyers, to lower prices, raise
quality and speed delivery, are transferred to local subcontractors, squeezing the
latter‘s profits and wages. According to Bair and Gereffi (2001), ―the development of
full package networks in Torreon is primarily benefiting a wealthy domestic elite
whose control over the local industry is being further strengthened by its exclusive
access to the United States customers‖. This pattern of differentiation between large
and small firms as clusters develop is observed in a number of other cases, from the
73
Sinos Valley shoe cluster, the Sialkot surgical instruments cluster, the Guadalajara
shoe cluster to even the Gamarra garment cluster.
Firm size can be a critical dimension to success, and this can have poverty
consequences. Visser‘s study shows clustered firms outperform Lima‘s dispersed
garment producers. However, clustered firms tend to be larger than dispersed
producers. Thus, most dispersed firms were smaller, poorer, micro-enterprises. They
were more reliant on unpaid family labour, were often more recent migrants to the
city, and aspired to locate in the Gamarra cluster in order to access the cluster‘s
advantages. Hence, the Gamarra cluster‘s producers were an ―elite‖ amongst the poor,
with the high rents in Gamarra acting as a barrier to entry to the cluster for poorer
entrepreneurs and newer migrants. In many cases, the relative expansion of large
firms within clusters often takes place alongside more hierarchical ties that such large
firms have with local subcontractors, or second and third-tier suppliers.
Subcontractors are more vulnerable to demand shifts, and less able to directly access
markets. This, for example, is seen in the Tiruppur cluster where subcontractors have
no direct market access, work in poorer conditions and have limited Skills and capital.
Here, job workers, who are effectively micro-enterprises or own account worker that
specialize in particular tasks, are ―because of the seasonal nature of demand for job
workers, [the] most vulnerable group [within the cluster] and experience huge income
variations‖ (Singh, 2003). Thus, cluster growth can lead to sharply differentiated
gains at the firm level, with smaller producers often being squeezed or having less
autonomy in their ties with larger producers within the cluster. Furthermore, growth
trajectories within clusters, especially for those that produce for global markets, often
involve a shift in the weights attached to local and external linkages. This was seen in
Torreon. It was also observed in Sialkot.
In Sinos Valley, Schmitz (1999) reports a similar pattern that as the cluster expands
and upgrades, ties with external buyers become increasingly more important, and that
such external linkages are unevenly distributed within the cluster. Moreover,
increasingly closer ties with external buyers, especially among the cluster‘s leading
large producers, effectively undermined efforts at cluster wide joint action. Growing
dependency on external buyers through global value chain ties also implies, as
Schmitz notes, that as firms seek to further upgrade they may run into conflicts with
74
buyers over competing core competencies. In a similar context, Tewari (1999) notes
from the Ludhiana knitwear cluster that, for some producers, being able to turn down
high volume but low priced orders from some leading global buyers in preference for
orders for smaller volumes of higher quality from smaller international buyers was a
better strategy to learn and systematically upgrade. Both Knorringa and Tewari, from
their respective studies of the Agra shoe and Ludhiana knitwear clusters, argue that
producing for demanding domestic buyers can be valuable to the growth and learning
trajectories of clustered enterprises.
Evidence of upgrading within incipient clusters is less apparent, in part because such
clusters appear to advance more slowly, and because in many cases such clusters are
constrained from taking discontinuous leaps in their growth trajectories. Nevertheless,
in both types of clusters, we observe that growth leads to uneven gains. Particular
groups of firms and of workers can lose out with substantial poverty consequences.
While the cluster literature has paid attention to the issue of differentiated gains at the
firm level, it has been far less informative on the effects that cluster dynamics can
have on labour.
The nature of employment and the labour contract can be critical to poverty concerns.
Many clusters generate employment for the poor in labour intensive sectors where
skill requirements are low. This is especially so in clusters in the urban informal
sector or located within the rural economy. Often clustered firms have a high
preponderance of family labour, of women workers, of migrants and of child workers.
As Weijland (1999) notes, Indonesia‘s rural clusters ―offered a cheap, flexible and
non-regulated labour force, and women constituted the most flexible work force in
poverty-stricken areas‖. The Sialkot sports goods cluster, where many subcontractors
and second tier suppliers operated in informal conditions in local villages, provided
jobs, incomes and skills to large numbers of poor women and children (Nadvi, 2003).
This view that clusters can be important generators of income for marginal groups
within the labour force is also observed in formal urban industrial environments.
Thus, Torreon‘s jeans export cluster grew through a heavy reliance on young,
relatively unskilled, low waged and highly flexible women workers (Bair and Gereffi,
2001). To what extent do cluster dynamics have differentiated impacts on different
categories of labour? Take the case of Torreon, a cluster where upgrading has been
75
substantial, generating a demand for new jobs and new skills. Bair and Gereffi (2001)
report that women accounted for a substantial component of the labour force,
especially in the labour intensive, but relatively lower paid, assembly and sewing
tasks.
However, as firms acquired new functions, such as the cutting of fabrics and the
laundering of finished garments, the new, more skilled and better paid jobs were
allocated predominantly, if not uniformly, to men. There was, they state, ―a reluctance
of companies to invest in enhancing the skills of female employees‖ as women were
seen as transient within the labour force, prone to leaving work as they married and
raised families.
In Tiruppur, we see further evidence that cluster dynamics not only imply that
women, who constitute some 65 per cent of the cluster‘s labour force, are squeezed
into lower paid tasks of sewing and packing, but that the nature of the labour contract
also changes. Tirippur has had a history of labour unrest and of union activism. Yet,
Tirippur‘s development in recent years is marked by a growth of contract labour, an
increasing emphasis on piece-rated payments, a decline in trade unionism. Singh
(2003) reports that only 10 per cent of the labour force is represented in trade unions)
and the erosion of collective bargaining rights. In the Agra footwear cluster,
Knorringa (1999) also found that despite cluster growth, employment as a whole
shrank and particular segments of the cluster‘s labour force were especially squeezed.
Thus, while employment in the export and premium domestic market segments of the
Agra cluster rose, in the more traditional parts of the local industry it fell sharply.
―Thousands of home-based women workers lost piece rate work on upper making‖
(Knorringa, 1999), while poorer Jatav artisans, engaged in direct sales, were also
severely affected. The arrival of newer rural migrants, the closure of many firms with
the subsequent expansion of the artisanal labour force, and the limited employment
options available to lowcaste Jatavs (whose work with leather was seen as ―polluting‖
by higher caste Hindus) led to growing evidence of poverty within Agra‘s shoe-
making Jatav community. Not all the evidence on labour points to growing
differentiation. Tewari (1999) reports that one of the upgrading strategies adopted by
Ludhiana‘s knitwear cluster was to train workers in multiskilling tasks. This strategy
76
emerged as a response to Punjab‘s social unrest during the 1980s when labour
absenteeism rose due to political violence.
Faced with the need to maintain productivity and meet delivery schedules, a number
of firms invested in training their labour force to take on more skilled and diverse
functions. In this case, according to Tewari, clustering generated important
advantages to local firms through the skill upgrading of local workers. It is however
less clear what returns accrued to labour.
We have argued that clusters can play a significant role in enhancing the well-being of
poor workers and small producers. The very presence of clusters changes the context
in which such workers and producers and operate, raising the prospects of enhanced
capabilities—both individually and collectively. Our poverty focused review provides
some indicators of this. It is clear that there are particular types of clusters that are
especially relevant to a poverty agenda. These include rural and urban informal
clusters which most directly generate employment for the poor. There is substantial
evidence of the widespread presence of such clusters in the developing world, and of
their dynamics of growth. Many of the more advanced, or mature, clusters evolved
out of such incipient clusters. In incipient clusters, by investing in small riskable steps
in coordination with others in the cluster, small producers and workers can not only
survive, they can grow enhancing their capabilities and functioning. We see that this
is often accelerated by the gains that clustering generates.
Local agglomeration economies are Central to growth, as well as to the capabilities
and functioning, of those engaged in incipient and mature clusters from rural
Indonesia to the urban informal sector of Lima, to the export clusters of Mexico and
Brazil and India. Joint action is also important, especially in the context of assisting
local producers and workers to confront external shocks. Cooperation through local
institutions reduced the vulnerabilities of clustered producers in Sialkot, Pakistan and
in the Palar Valley, India. And, there is some evidence to suggest that social capital
can strengthen cluster capacities and the well-being of local workers and producers.
Despite these findings, it is also evident that cluster growth trajectories lead to
differentiated outcomes. Local linkages often give way to external linkages as outside
knowledge and know how become critical to survive in global markets. Conflicts
77
between the competing interests of large and small firms can become more apparent,
with smaller producers often being squeezed.
Finally, there are clear signs that particular categories of workers, especially women
and unskilled workers, may lose out as clusters upgrade. These findings point to the
need for policy interventions. Policies aimed at supporting those who are
marginalized, producers and workers, from cluster growth trajectories. A further area
of policy is to observe where there are failures of collective joint action. That is to
say, in many cases we find evidence that, despite clustering, the potential for joint
action is far from fully developed. In what ways can external policy interventions, and
cluster development initiatives bring this about. In sum what types of such initiatives
can promote a poverty reduction agenda whereby the incomes and well-being of poor
workers and producers are enhanced? We turn to this question in the policy
conclusions. A policy agenda on clusters and poverty needs to have, as a starting
point, a method of exante identifying clusters where poverty concerns are especially
valid. Our discussion on the relationship between poverty reduction and specific
cluster features, cluster processes and cluster dynamics provides us with a basis for
mapping clusters and poverty. It provides a set of cluster features and broader
concerns that developmental actors need to consider when selecting clusters for pro-
poor development initiatives. The argument being that where, for example, clusters
are engaged in labour intensive sectors, poverty impacts of such intervention would
be greater than in clusters that were engaged in capital (or knowledge) intensive
activities. Similarly, where cluster institutions (such as trade associations) are weak,
or social provisioning ineffective, policy interventions could potentially result in
greater returns in terms of pro-poor impact. One issue that needs to also be considered
is whether working in clusters that are already strong (say in terms of effective and
representative local institutions, or in terms of competing in export markets) would
have a greater effect in terms of poverty reduction (through both direct and indirect
effects) than clusters where such institutions are weak, or where the competitiveness
of clustered firms is poor. This is an important point in terms of policy trade-offs. It is
also an area where ex-post assessment of the poverty impact of cluster development
initiatives can provide significant insights.
78
2.30 CLUSTER DEVELOPMENT PROGRAMME
Implemented through/with local BDS providers
1. Enterprise Development
Private sector in the cluster enhanced leading to creation of new enterprises (both
formal and informal), employment generation, up-skilling of workers, improved
working conditions, technology upgradation, reduced environmental impact of
production, introduction of quality control mechanisms (including ISO certification),
improved product/process quality, broadened product range.
Income generation
Employment generation
Inclusion in ―productive‖ social groups
Skill upgradation of workers
Improvement of working conditions
Reduction of drudgery
Formalization of skill supply sources
2. Business linkages
Promotion of existing/newly created enterprises through access to market information,
entry in new markets (national/international), insertion in national/regional/ global
value chains, greater availability of credit, development of internal market conditions,
development of local BDS market, export generation, participation in fairs (national,
international), cost reduction through bulk purchase, vendor upgradation.
Increased security through market diversification
Creation of disposable income/demand in the cluster
Pressure for enterprise development
3. Local governance
Promotion of the idea of cooperation among enterprises, dissemination of in-win
mentality, creation of vertical/horizontal networks, promotion of export consortia,
creation of umbrella organizations, consensus on clusterwide agenda/priorities,
institutional networking, increased political relevanceat the local/national level,
increased use of untapped support resources
Increased social capital locally
Articulation of local democratic process
79
Increased responsiveness of local support institutions
Improved environmental conditions
Note that ―negative‖ effects on poverty are not being considered (e.g. technology
upgradation can displace labour, insertion in global value chains can increase
vulnerability, etc.)
Source: Based on Clara, M., Note to Authors, UNIDO, Vienna, May 2003.
80
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Alleviation in Nigeria.‖ Proceedings of the 7th
Annual Conference of the Zonal
Research Units Organized by Research Department, CBN at Makurdi, 8 - 12 June.
Olomola, A.S., (2001), ―The nature and determinants of rural loan repayment
performance in Nigeria: The case of FADU‘s Micro-credit programme‖. NISER
monograph series NO 3, Ibadan: NISER.
Oni, T.K., (1999), ―Bank Credit Facilities for Smallholder Farmers: Implications for
Food Security in Nigeria.‖ In Fabiyi, Y. L. and E. O. Idowu (eds.) Poverty
Alleviation and Food Security in Nigeria, Ibadan, NAAE.
Ornorodion, F.I. (2007), ―Rural women‘s experiences of micro-credit schemes in
Nigeria: Case Study of Esan Women, Journal of Asian and African studies, 42(6).
Putnam, D. Robert (1993), Making Democracy Work: Civic Traditions in Modern
Italy’. New Jersey: Princeton University Press.
Robinson, M. (2001), The Microfinance Revolution: Sustaining Finance for the Poor;
Washington D.C, World Bank and Open Society Institute.
Saith, A., (2001), ―From Village Artisans to Industrial Clusters: Agendas and Policy
Gaps in Indian Rural Industrialization‖, Journal of Agrarian Change, vol. 1, No.
1.
Sandee, H., (2002), ―The Impact of the Crisis on Small-Scale Enterprises in Java,
Findings from Selected Case Studies‖, in van Dijk and Sandee (eds.), Innovation
and Small Enterprises in the Third World, Cheltenham: Edward Elgar Press.
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Singh, N., (2003), ―Readymade Garment Industry in Tiruppur‖, Mimeograph,
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2020?‖ Lecture Paper Presented in Abuja, 8th January, 2007.
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Nigeria at the International Microfinance Conference and Annual
Microfinance/Entrepreneurship Awards, Abuja, Nigeria, January 17 -18, 2008
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Ludhiana‘s Woolen Knitwear Cluster‖, World Development, vol. 27, No. 9.
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Emerging Economy: Evidence from Nigeria,‖ Journal of African Business, 7(1-2).
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_feasibility/
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86
CHAPTER THREE
RESEARCH METHODOLOGY
3.1 RESEARCH METHOD
The research method to be adopted in this work is the survey method. This is as a
result of the descriptive nature of the study, as it attempts to assess the strengths and
weaknesses and the impact of the various micro-credit strategies employed in the
development of the industrial clusters in the South-East Nigeria.
The survey method appears best suited for this work since in surveys, there are fixed
sets of questions, and responses systematically classified, so that quantitative
comparison can be made.
According to Baridam (1997), a survey, therefore, is a form of planned collection of
data for the purpose of analyzing the relationships between certain variables.
3.2 RESEARCH DESIGN
Research design is a framework or plan that is used as a guide in collecting and
analyzing data for a study (Baridam, 1997). It is a model of proof that allows the
researcher to draw inferences concerning causal relations among the variables under
investigation (Nachimias and Machmias, 1976). According to Green and Tull (1978),
it is an operational pattern or framework of the project that stipulates what
information is to be collected, from which source and by what procedures.
It is therefore, the desire of the researcher to employ the multiple data gathering
techniques which include the interview schedule and questionnaire administration.
3.3 SOURCES OF DATA
Both primary and secondary sources of data were employed in the course of the study.
3.3.1 Primary Data
The primary data were obtained from selected Officers of the: Ministry of Commerce
and Industry; SMEDAN; SMEs, CBN; Microfinance Banks and selected Industrial
Clusters in Nnewi, Onitsha and Aba through questionnaire and personal interviews.
87
3.3.2 Secondary Data
The secondary data were obtained from text books, magazines, journals, dailies and
CBN publications.
3.4 POPULATION OF THE STUDY
The population of this study comprise of the Staff and Management of the: Ministry
of Commerce and Industry; SMEDAN; SMEs; CBN; selected Microfinance Banks
and selected Industrial Clusters in Nnewi, Onitsha and Aba. Because of the inability
and difficulty in ascertaining the exact numbers of the Members of Staff of these
organizations, the population was therefore considered infinite.
3.5 DETERMINATION OF SAMPLE SIZE
To determine the sample size, the researcher conducted a pilot survey in which 20 of
the research questionnaire was administered randomly on the Management and Staff
of the: Ministry of Commerce and Industry; SMEDAN; SMEs; CBN; selected
Microfinance Banks and selected Industrial Clusters in Nnewi, Onitsha and Aba
respectively.
Out of the number, 18 were correctly filled and returned. It was taken as positive
response. The remaining 2 represented the ones that were rejected. They were
regarded as negative response. The percentage of response therefore is 90 and 10
respectively.
To calculate the optimum sample size, the researcher applied the Freund and Williams
model of sample size determination calculated at 95% confidence level and 5%
standard error.
The formula is;
N = (Z)2 (PQ)
e2
Where: N = Sample Size
P = Percentage of Positive Response
Q = Percentage of Negative Response
e = Percentage of Error
Z = Normal Variate for the desired level of confidence
88
Substituting and solving for ―N‖
N = (1.96)2 (90.10)
52
= 3.8416.900
25
With this outcome, the researcher decided to approximate the sample to 150 for easy
administration.
3.6 VALIDITY AND RELIABILITY OF THE RESEARCH
INSTRUMENT
The researcher employed both questionnaire and personnel interviews
a. Questionnaire: The questionnaire was designed and distributed to the
respondents. The questions were structured to enable the research to obtain
data in respect of the various areas identified as the objectives of the study.
b. Personal Interview: For the personal interviews, a structured interview guide
was used. The questions were designed to obtain data on certain specific
issues which may not be easily available to the general public.
3.7 METHODS OF DATA ANALYSIS
Most of the data to be collected by the researcher during the study were presented in
tabular form during the analysis. Some were presented in text form while charts were
employed where necessary.
In the general analysis, the researcher adopted descriptive statistics instead of
inferential statistics. Descriptive statistics involves the use of averages, range,
frequency, percentages, etc. in conjunction with tables for understanding and
comparison.
The researcher prefers descriptive statistics in order to keep the work as simple as
possible especially for the benefit of non-academic readers. It is observed that the use
of some statistical tools scare many people except in the academic environment and
for this reason, the use of x2 which is believed by many to be more comprehensive
and ensures easy understanding was used to test the hypotheses.
89
REFERENCES
Baridam, D. M. (1997), Fundamentals of Research Methods; Port Harcourt: Delta
Publishers Ltd.
Green, K. and Tull, W. (1978), Introduction to Research and Methods; Glasgow:
RJM Press.
Nachmias, D. and Machmias, C. (1976), Research Methods in Social Sciences;
London: Edward Arnold.
Uzoh, S. (2002), ―Practical Guide to Project and Thesis Writing‖, Lectures Handout.
90
CHAPTER FOUR
DATA ANALYSIS, INTERPRETATION AND PRESENTATION
To analyze the data collected, this chapter is divided into two sections viz,
questionnaire administration and test of hypothesis. These sections are hereby
presented in a chronological sequence in line with the research objectives, questions,
and hypotheses. The study seeks to determine the micro-credit strategies employed in
the development of industrial clusters in Nigeria, with particular interest in the South-
Eastern part of the country.
4.2 QUESTIONNAIRE ANALYSIS BASED ON OBJECTIVES OF THE
STUDY
Table 4.1: Total Number of Respondents
Respondents No of Copies
Administered
No of Useable Response
Retrieved
% rate
Government Agencies 70 67 33.5
Micro-Banks 70 68 34
Industrial Clusters 70 65 32.4
Total 210 200 100
Source: Field Survey, 2009.
Table 4.1, indicates the total number of respondents of this research study, out of a
total of 210 subjects, 70 each of the questionnaire was administered to the
respondents. Furthermore, out of the total of 210 questionnaire administered, 200 was
retrieved (67 from Govt. Agencies, 68 from Micro Banks, 65 from Industrial
Clusters). By implication, 95% of the questionnaire distributed was retrieved and
found useable.
91
Table 4.2: Knowledge of Micro-Finance Banks and their Functions
Response variable Respondents % rate
Govt. Agencies Micro-Finance
Bank
Industrial
Clusters
No % No % No % No %
Yes 67 100 68 100 65 100 200 100
No - - - - - - - -
Not quite - - - - - - - -
Total 67 100 68 100 65 100 200 100
Source: Field Survey, 2009.
The above table indicates that the respondents are fully aware and knowledgeable of
the Micro-Finance Banks and their functions. This can be substantiated by the fact
that the whole respondents affirmed to the above assertion.
Table 4.3: Their Functions Make Impact on the Nation’s Economy
Response Variable Respondents % rate
Govt. Agencies Micro-Finance
Bank
Industrial
Clusters
No % No % No % No %
Yes 65 97 67 99 58 89 190 95
No - - - - 2 3 2 1
Not quite 2 3 1 1 5 8 8 4
Total 67 100 68 100 65 100 200 100
Source: Field Survey, 2009.
The above table shows that the function of the Micro-Finance Banks make impact on
the Nation‘s Economy. This can be buttressed by the fact that a total number of 190
respondents, out of the 200 respondents representing 95% above their affirmation to
the above assertion.
92
Table 4.4: Significant Impact that the Micro-Finance Banks Existence Would
Make on the Nation’s Economy
S/n Govt. Agencies Micro-Finance Bank Industrial Clusters
1 Creation of jobs Educating and
encouraging the poor on
the importance of Micro-
Finance.
Provision of Micro-
credits for industrial
growth and development
2 Boost industrial growth
and development through
lending
Granting of Micro-credits
for industrial
establishment, growth
and development
Employment creation.
3 Encouraging commerce
(import and export)
through Micro-credits
Bringing banking to the
grass-root.
Provide banking services
to the poor, both in the
urban and at the rural
areas.
4 Bringing banking services
to the poor.
Employment generation Promote commerce and
industries.
Source: Field Survey, 2009.
The above table shows the various areas in which the existence of the Micro-Finance
Banks would make significant impact.
Table 4.5: Awareness of Industrial Clusters in Nigeria, Particularly in the South-
East.
Response Variables Respondents % Rate
Govt. Agencies Micro-Finance
Banks
Industrial
Clusters
No % No % No % No %
Yes 60 90 64 94 64 98 188 94
No 3 4 1 1 - - 4 2
Not sure 4 6 3 5 1 2 8 4
Total 67 100 68 100 65 100 200 100
Source: Field Survey, 2009.
93
The above table clearly shows that the respondents are aware of the Industrial
Clusters in Nigeria, particularly in the South-Eastern part of the country. This can be
substantiated by the fact that a total number of 188 respondents, representing 94%
affirmed to the assertion.
Table 4.6: Existence of Micro-Credit Strategies for Industrial Clusters
Development
Response Variables Respondents % Rate
Govt. Agencies Micro-Finance
Banks
Industrial
Clusters
No % No % No % No %
Yes 65 97 60 88 52 80 177 88.5
No - - 6 8 10 15 16 8
Not quite 2 3 2 4 3 5 7 3.5
Total 67 100 68 100 65 100 200 100
Source: Field Survey, 2009.
Table 4.5 above indicates that the respondents aware of the Micro-credit strategies.
And this can be proved by the fact that a total number of 177 respondents (88.5%)
affirmed to the above assertion. This can still be represented in a Pie-Chart.
KEY
318.6o
Aware of Micro-credit
strategies
26.8o
Not aware of Micro-credit
strategies
12.6o
Not sure of awareness of
Micro-credit strategies
Fig. 4.1: A Pie-Chart, Representing the awareness status of the respondents of
the Micro-Credit Strategies employed by the Micro-Finance Banks in
developing the Industrial Clusters.
No
26.8o
Not sure
12.6o
26.8o
Yes
318.6o
94
Table 4.7: The Micro-Credit Strategies Employed in the Development of
Industrial Clusters
S/n Govt. Agencies Micro-finance banks Industrial clusters
1 Service Level Agreement Membership of Cooperative
Society
2 Cluster dominance Service Level Agreement
(SLA)
3 Membership of Market Association Profit Sharing
4 Pricing (Profit Sharing)
Source: Field Survey, 2009.
The above table indicates the different strategies employed by the Micro-Finance
Banks operating within the Industrial Clusters of Aba, Nnewi and Onitsha in the
development of the Industrial Clusters.
Table 4.8: If the Micro-Credit Strategies Employed in the Development of the
Industrial Clusters in the South-East have made Significant Impact
Response Variables Respondents % Rate
Govt. Agencies Micro-Finance
Banks
Industrial
Clusters
No % No % No % No %
Yes 58 86 56 82 40 61 154 77
No 4 6 3 4 7 11 14 7
Don‘t know 5 8 9 14 18 28 32 16
Total 67 100 68 100 65 100 200 100
Source: Field Survey, 2009.
Table 4.8 above clearly indicates that the Micro-Credit strategies employed by Micro-
Finance Banks have made impact particularly in the South-East. This can be justified
by 154 respondents (77%) who claimed yes to the above question.
95
Table 4.9: The Specific Impact made by the Micro-Credit Strategies Employed in
the Development of Industrial Clusters
Responses Responses Responses
S/n Govt. Agencies Micro-finance banks Industrial clusters
1 Increased finding and
Technical-know-how
Improved economic
activities in the Industrial
Clusters
Attracted more Micro-
Finance banks
2 Attracted more Micro-Finance
Banks
It has widened the scope of
the business activities
Improved the relationship
between the Industrial
Clusters and the Micro-
Finance Banks
3 Gained more prominence in
their economic activities
Increased capital base of
the Industrial Clusters
Boosted the Confidence
and trust on the Industrial
Clusters
4 Made business (lending
and borrowing) easier and
interesting, without fear of
business collapse or fraud,
breach in agreement
Source: Field Survey, 2009.
The above table identifies the specific impact the Micro-Credit Strategies have made
on the Industrial Cluster development.
96
Table 4.10: Likely Constraints to Adequate Provision of Micro-Credit for Industrial
Clusters Development
Responses Responses Responses
S/n Govt. Agencies Micro-Finance Banks Industrial Clusters
1 Such Industrial Clusters are
considered unprofitable
Level of infrastructural
development in the Industrial
Clusters are not encouraging
Banks operating within
the Industrial Clusters are
not knowledgeable about
the operation of the
Industrial Clusters
2 Most banks operating within
the Industrial Clusters have
their Head Office outside the
Industrial Clusters
Inadequate fund to be made
available to the Industrial
Clusters
Industrial Clusters are
considered not profitable
3 Inadequate knowledge about
the Industrial Clusters
4 Lack of monitoring and
supervisory mechanism on
the operations of the
Industrial Clusters
Source: Field Survey, 2009.
The above table indicates the likely constraints to the adequate provision of Micro-
Credits for Industrial Clusters development.
97
Table 4.11: various stakeholders to industrial clusters development
Responses Responses Responses
S/n Govt. Agencies Micro-Finance Banks Industrial Clusters
1 The Regulators (CBN,
SMEDAN, SMEs, NDIC)
Chambers of Commerce, Equity
holders, Creditors.
Government Agencies (e.g
CBN, SMEDAN, NDIC &
SMEs)
Customers
2 Micro-Finance Banks Customers Federal Govt. through
CBN, NDIC, Bank
owners.
3 Micro-Finance Banks Shareholders
4 Equity holders and
Creditors
Micro-Finance Banks
Source: Field Survey, 2009.
Table above shows the various stakeholders to Industrial Clusters development.
Table 4.12: Relationship and Willingness by Stakeholders to Provide
Micro-Credit Supports
Response Variables Respondents % rate
Govt. Agencies Micro-Finance
Banks
Industrial
Clusters
No % No % No % No %
Yes 57 85 54 79 23 35 134
No 4 6 4 6 15 23 23 11.5
Don‘t know 6 9 10 15 27 42 43 21.5
Total 67 100 68 100 65 100 200 100
Source: Field Survey, 2009.
The table above shows clearly that the various stakeholders have relationship with the
beneficiaries of Micro-Credit, and they are willing to provide Micro-Credit support to
them.
98
This can be presented in a Bar-Chare.
100
90
80
70
60
50
40
30
20
10
0
Fig. 4.2: A Bar-Chart Representing the Responses to the relationship and
willingness of the stakeholders to provide Micro-Credit support to the
Industrial Clusters
Table 4.13: Any Significant Relationship between the Micro-Credit Support and the
Performance of the Industrial Clusters
Response variables Respondents % rate
Govt. Agencies Micro-Finance
Banks
Industrial
Clusters
No % No % No % No %
Yes 60 90 58 85 53 82 171 85.5
No 2 3 3 4 4 6 9 4.5
Don‘t know 5 7 7 11 8 12 20 10
Total 67 100 68 100 65 100 200 100
Source: Field Survey, 2009.
Above table clearly shows that there is a significant relationship between Micro-
Credit supports and the performance of Industrial Clusters. And this can be
substantiated by the fact that a total number of 171 respondents, representing 85.5%
affirmed to the above assertion.
Yes
No
Don‘t know
Yes
No
? ? ? ? ? ? Don’t know
? ? ? ? ? ? ?
? ? ? ? ? ? ?
? ? ? ? ? ? ??
? ? ? ? ? ? ? ? ? ?
? ? ?
67%
11.5%
21.5%
99
This can equally be represented in a Histogram
100
90
80
70
60
50
40
30
20
10
0
Fig. 4.2: A Histogram Representing the Responses to the relationship between
the Micro-Credit support and the Performance of the Industrial
Clusters.
Table 4.14: Problems Besieging the Poverty Eradication Problems Aimed at
Achieving the MDGS
Responses Responses Responses
S/n Govt. Agencies Micro-finance banks Industrial clusters
1 Lack of economic
empowerment
Ignorance Lack of financial support
2 Inadequate education Poor communication
network
Lack of educational
programmes
3 Inadequate infrastructural
development
Lack of enlightenment
programmes
Lack of Technical-know-
how
4 Insufficient basic vocational
skills
Lack of financial supports Poor communication
5 Inadequate support from
Nigerians
Lack of sense of belonging Lack of infrastructural
facilities
Source: Field Survey, 2009.
Yes
No
Don‘t know
Yes
? ? ? ? ? ? ?
? Don’t know ?
? ? ? ? ? ? ?
? ? ? ? ? ?
? ? ? ? ? ? ??
? ? ? ? ? ? ? ? ? ?
? ? ?
85.5%
4.5% 10%
No
100
The above table identifies the various problems besieging the poverty eradication
problems aimed at achieving the MDGs.
Table 4.15: Parameters used to Provide Micro-Credit Supports to Industrial
Clusters
Responses Responses Responses
S/n Govt. Agencies Micro-Finance Banks Industrial Clusters
1 Co-operative Guarantors Prospect of the business
2 Guarantor Good business record Account ownership with
the MFB
3 Collateral Reasonable collateral Guarantor
4 Business History Operating account with the
bank
Business record
5 Operating account with the
MFB
Co-operative society Collateral
Source: Field Survey, 2009.
Table 4.15 above indicates the parameters use to provide Micro-Credit supports to the
Industrial Clusters.
SECTION TWO
Test of Hypotheses
1. Ho: The strategies employed in the development of the industrial
clusters in the South-East have made no significant impact.
Chi-Square Test for Table 4.8 (Contingency Table)
Respondents Responses Total % of
Respondents
Yes No Don’t
Know
Govt. Agencies 58(52) 4(5) 5(10) 67
Micro-Finance Bank 56(52) 3(5) 9(11) 68
Industrial Clusters 40(50) 7(4) 18(11) 65
Total 154 14 32 200
Source: Table 4.8
Values in the big cells are the observed frequencies, while those in brackets are the
expected frequencies.
101
Computed X2 = (nij-eij)
2
Where nij = Observed frequencies
eij = Expected frequencies
Oi ei Oi-ei (Oi-ei) 2
(Oi-ei) 2
Ei
58 52 6 36 0.6
4 5 -1 1 0.2
5 11 -6 36 3.2
56 52 4 16 0.3
3 5 -2 4 0.8
9 11 -2 4 0.3
40 50 -10 100 2
7 4 3 9 2.2
18 10 8 64 6.4
Total 16.0
The degree of freedom is determined with the following formula:
df = (r-1) (c-1)
Where: r = The number of rows
C = The number of columns
df = (3-1) (3-1)
= 2x2 = 4
X2 (4) 0.05 = 9.488
With the 4 degree of freedom at 5% level of significance = 9.488 compared with the
calculated value of 16.0.
Decision Rule: Reject Ho if X2 Calculated is greater than X
2 given, otherwise,
do not reject Ho. Since X2 calculated = 16.0 is greater than X
2 given = 9.488, we
therefore, reject H0 (null hypothesis) and accept Hi (alternative hypothesis). The
conclusion therefore, is that: the Micro-Credit Strategies employed in the
development of Industrial Clusters in the South-East have made significant impact.
102
2. Ho: There is no willingness by the stakeholders to provide Micro-
Credit support for the sustenance of the MSMEs in the South-
East.
Chi-Square Test for Table 4.12 (Contingency Table)
Respondents Responses Total % of
Respondents
Yes No Don’t
Know
Govt. Agencies 57(45) 4(8) 6(14) 67
Micro-Finance Banks 54(46) 4(8) 10(15) 68
Industrial Clusters 23(43) 15(7) 27(14) 65
Total 134 23 43 200
Source: Table 4.12
Values in the big cells are the observed frequencies, while those in brackets are the
expected frequencies.
Computed X2 = (nij-eij)
2
Where: nij = Observed frequencies
eij = Expected frequencies
Oi ei Oi-ei (Oi-ei) 2
(Oi-ei) 2
ei
57 45 12 144 3.2
4 8 -4 16 2
6 14 -8 64 4.5
54 46 12 144 3.13
4 8 -4 16 2
10 15 -5 25 1.6
23 43 -20 400 9.30
15 7 8 64 9.14
27 14 13 169 12.07
Total 47.2
103
The degree of freedom is determined with the following is determined with the
following formula:
df = (r-1) (c-1)
Where: r = The number of rows
C = The number of columns
df = (3-1) (3-1)
= 2x2 = 4
X2 (4) 0.05 = 9.488
With the 4 degree of freedom at 5% level of significance = 9.488 compared with the
calculated value of 47.2
Decision Rule: Reject Ho if X2 Calculated is greater than X
2 given, otherwise,
do not reject Ho. Since X2 calculated = 47.2 is greater than X
2 given = 9.488, we
therefore, reject Ho (null hypothesis) and accept Hi (alternative hypothesis). The
conclusion therefore, is that: there is willingness by the stakeholders to provide
Micro-Credit support for the sustenance of MSMEs in the South-East.
3. Ho: There is no significant relationship between the Micro-Credit
supports and the performance of the Industrial Clusters in the
South-East.
Chi-Square Test for Table 4.13 (Contingency Table)
Respondents Responses Total % of
Respondents
Yes No Don’t
know
Govt. Agencies 58(52) 4(5) 5(11) 67
Micro-Finance Banks 56(52) 3(5) 9(11) 68
Industrial Clusters 40(50) 7(4) 18(10) 65
Total 154 14 32 200
Source: Table 4.13
Values in the big cells are the observed frequencies, while those in brackets are the
expected frequencies.
104
Computed X2 = (nij-eij)
2
Where: nij = Observed frequencies
eij = Expected frequencies
Oi ei Oi-ei (Oi-ei) 2
(Oi-ei) 2
ei
58 52 6 36 0.692
4 5 -1 1 0.2
5 11 -6 36 3.272
56 52 4 16 0.307
3 5 -2 4 0.8
9 11 -2 4 0.363
40 50 -10 100 2
7 4 3 9 2.25
18 10 8 64 6.4
Total 16.284
The degree of freedom is determined with the following is determined with the
following formula:
df = (r-1) (c-1)
Where: r = The number of rows
C = The number of columns
df = (3-1) (3-1)
= 2x2 = 4
X2 (4) 0.05 = 9.488
With the 4 degree of freedom at 5% level of significance = 9.488 compared with the
calculated value of 16.284
Decision Rule: Reject Ho if X2 Calculated is greater than X
2 given, otherwise,
do not reject Ho. Since X2 calculated = 16.284 is greater than X
2 given = 9.488, we
therefore, reject Ho (null hypothesis) and accept Hi (alternative hypothesis). The
conclusion therefore, is that: there is significant relationship between the Micro-Credit
supports and the performance of the Industrial Clusters in the South-East.
105
CHAPTER FIVE
SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
This chapter presents the summary of findings, conclusion drawn and
recommendations made to the study.
5.1 SUMMARY OF FINDINGS
From the analysis made, the following findings are put together:
- The respondents have adequate knowledge of Micro Finance Banks, and
they understand the functions of the MFBs.
- The MFBs make great impact on the nation‘s economy, and this impact
include: creation of Jobs; industrial growth and development; encouraging
commerce and industries; bringing banking services to the grass-root;
educating and encouraging the poor on the importance of Micro-Finance
banks; provision of Micro-Credits among others.
- The respondents are aware of Micro-Credit particularly in the South-East;
and these Micro-Credits have made great impact on the growth and
development of Industrial Clusters; the specific impact it has made
include: increased finding and technical-know-how; attraction of more
Micro-Finance Banks; gained more prominence in their economic
activities; improved economic activities; increased capital base; made
business (Lending and Borrowing) easier, without fear of business fraud or
collapse, boosted the confidence and trust on the Industrial Clusters;
improved relationship between the MFBs and their customers.
- The likely constraints to adequate provision of Micro-Credit supports
include: the Industrial Clusters are considered unprofitable; most Micro-
Finance Banks operate outside the Industrial Clusters; low level of
infrastructural development; inadequate fund to be made available, to the
Industrial Clusters; inadequate knowledge about the Industrial Clusters,
lack of Monitoring and supervisory mechanism on the operations of the
Industrial Clusters; doubts in the minds of Micro-Credits providers.
- The various stakeholders in the promotion and sustenance of Industrial
Clusters development include: the Govt. at all levels; the Govt. agencies
106
(CBN, NDIC, SMEDAN, SMEs, min. of Commerce and Industries,
Chamber of Commerce at all level).
- The strategies employed by the Micro-Finance Institutions in the
development of the Industrial Clusters, particularly in the South-East
include:
i. Service Level Agreement (SLA)
ii. Cluster dominance
iii. Membership of Market Association/Cooperative Society
iv. Pricing (i.e Profit Sharing)
- The parameter used to provide Micro-Credit supports include: members of
Co-operative societies; guarantorship; collateral; good business record;
business prospects; account ownership with the Micro-Credit support
provider.
- The strategies employed in the development of the Industrial Clusters in
South-East have made significant impact.
- There is willingness by the stakeholders to provide Micro-Credit supports
for the sustenance of MSMEs in the South-East.
- There is significant relationship between the Micro-Credit supports and
performance of the Industrial Clusters.
5.2 CONCLUSION
Based on the findings from the study, the researcher concludes thus:
No doubt there is grinding poverty in the midst of plenty resources in the country, and
no responsive and responsible government should be comfortable with this; reducing
poverty to the minimum level therefore, requires the collaborative support of all
stakeholders to play a major role in bringing succor to the poor and helping to
alleviate the scourge of poverty from the society. Currently, the world is looking at
Micro-Business Enterprises, particularly those within Clusters as the engine of growth
for industries, but if these business enterprises are not adequately supported and
encouraged in terms of Micro-Credit supports, education, effective monitoring and
evaluation, the dream, goals and objectives of their establishment will be defeated.
107
5.3 RECOMMENDATIONS
It is therefore, in the light of the above findings and conclusion that the researcher
proffers the following recommendations:
- There is the need for all stakeholders in the nation‘s economy to come
together and proffer a long lasting and result-oriented panacea to tackle the
grinding poverty in the midst of abundant resources in the country and to
reduce poverty to the minimum level by 2015, even beyond, which is one
of the Millennium Development Goals (MDGs) of the United Nations; by
so doing, the country would have succeeded in bringing succor to the poor
and helping to alleviate the scourge of poverty from the society.
- Since Micro-Business Enterprises are currently considered globally as the
engine of growth for industries, however, these business enterprises need
adequate support and encouragement in terms of Micro-Credit supports,
education, effective monitoring and evaluation, so as to help realize the
goals and objectives of their establishment, which include: employment
creation, wealth creation, business expansion, money circulation, attraction
of more Micro-Credit providers, availability of more money for business
growth and development.
Considering the efficacy of Micro-Credit supports and the significant
impact such supports make in the development of Industrial Clusters
which can be attributed to the effective/efficient strategies (Service Level
Agreement; Cluster dominance; Membership of Market
Association/Cooperative Society; Pricing, i.e Profit Sharing) employed by
the Micro-Finance Institutions operating within the Industrial Clusters, the
Micro-Finance Institutions operating outside the Industrial Clusters are
thereby advised and encouraged to appreciates and adopt the above
strategies so as to help them actualized their organizational goals and
objectives which will in turn contribute to national development and the
realization of the Millennium Development Goals (MDGs).
108
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APPENDIX I
INTERVIEW SCHEDULE
Interviewer Interviewee
S/n Questions Responses
1 What is your name Sir/Madam?
2 What is your profession?
3 What position do you occupy?
4 How long have you been in your
profession?
5 Are you aware of Micro Finance
Banks?
6 Do you think their existence would
make significant impact on the
economy of the Nation?
7 If yes, what significant impact would
their existence make on the National
Economy?
8 Are there Micro-Credit Strategies
fashioned out by the Micro-Finance
Banks in Promotion and sustenance
of Micro-Business in Nigeria,
particularly the Industrial Clusters?
9 What are these Micro-Credit
Strategies?
10 What impact do you think these
Micro-Credit Strategies make?
11 Are you aware of the Industrial
Clusters in Nigeria, particularly in
the South-Eastern part of the
Country?
12 What impact you think these Micro-
Credit Strategies would make on the
116
development of Industrial Clusters in
Nigeria, particularly in the South-
Eastern part of the Country?
13 Do you think these Micro-Credit
supports have been employed on the
Industrial Clusters development,
particularly in the South-East?
14 If yes, what impact have they made?
15 If no, what are the constraints to their
being employed?
16 Who are the various stakeholders in
the provision of Micro-Credits
supports?
17 Is there any willingness by the
various stakeholders to provide
Micro-Credit support to the
Industrial Clusters in the South-East?
18 Is there any significant relationship
between the Micro-Credit Strategies
and the Performance of the Industrial
Clusters?
19 What are the parameters used to
provide Micro-Credit support to
Industrial Clusters in the South-East?
20 What are the problems besieging the
poverty eradication programmes
aimed at achieving the MDGs?
117
APPENDIX II
QUESTIONNAIRE DESIGN FOR GOVERNMENTAL AGENCIES (FED.
MIN. OF COM. & IND, CBN, SMEDAN, SMEs); SELECTED MICRO-
FINANCE BANKS; AND INDUSTRIAL CLUSTERS (SELECTED BUSINESS
MEN & WOMEN IN ONITSHA, NNEWI AND ABA)
Institute for Development Studies
University of Nigeria,
Enugu-Campus
Enugu State.
May, 2009.
Dear Sir/Madam,
Please, find the enclosed – a questionnaire for your study and completion. I am a
postgraduate, Research Student of the above Institute and University. I am carrying
out a study on the Micro-Credit Strategies employed by Micro-Finance Banks in the
development of Industrial Clusters in Nigeria, with a focus on the South-Eastern part
of the country.
Please, feel very free to supply your information with mind free of bias or fear, as this
is simply an academic exercise; your information is strictly going to be kept in utmost
confidentiality.
Thanks for your anticipated understanding and co-operation.
Yours faithfully,
AMAGWU, F. I.
PG/M.Sc/07/47136
118
1. What profession do you belong to?
a. Civil service [ ] b. Business [ ]
c. Banking [ ] d. Insurance [ ]
e. Teaching [ ]
2. What position do you hold?
a. Senior Officer [ ] b. Middle Level Officer [ ]
c. Junior Officer [ ] d. MDL CEO [ ]
3. Years of experience in your profession?
a. 1-5yrs [ ] b. 5-10yrs [ ]
c. 10-20yrs [ ] d. 20-30yrs [ ]
e. Above 30yrs [ ]
4. Are you aware of Micro-Finance Banks and their functions?
a. Yes [ ] b. No [ ]
c. Not quite [ ]
5. Do you think their functions would make impact on the Nation‘s Economy?
a. Yes [ ] b. No [ ] c. Not quite [ ]
6. If yes, what significant impact would their existence make on the Nation‘s
Economy?
i. ------------------------------------------------------------------------
ii. ------------------------------------------------------------------------
iii. ------------------------------------------------------------------------
iv. ------------------------------------------------------------------------
v. ------------------------------------------------------------------------
7. Are you aware of the Industrial clusters in Nigeria, particularly in the South-
Eastern part of the country?
a. Yes [ ] b. No [ ]
8. Are there Micro-Credit Strategies fashioned out by the Micro-Finance Banks
for Industrial Clusters development?
a. Yes [ ] b. No [ ] c. Not sure [ ]
9. If yes, what are these Micro-Credit Strategies?
i. ------------------------------------------------------------------------
ii. ------------------------------------------------------------------------
iii ------------------------------------------------------------------------
119
iv. ------------------------------------------------------------------------
v. ------------------------------------------------------------------------
10. Have there Micro-Credit Strategies made significant impact on the
development of industrial clusters in Nigeria, particularly in the South-East?
a. Yes [ ] b. No [ ]
c. Don‘t Know [ ] d. No impact [ ]
11. What specific impact have these strategies made?
i. ------------------------------------------------------------------------
ii. ------------------------------------------------------------------------
iii ------------------------------------------------------------------------
iv. ------------------------------------------------------------------------
v. ------------------------------------------------------------------------
12. What are the likely constraints to adequate provision of Micro-Credits for
Industrial Clusters development?
i. ------------------------------------------------------------------------
ii. ------------------------------------------------------------------------
iii ------------------------------------------------------------------------
iv. ------------------------------------------------------------------------
v. ------------------------------------------------------------------------
13. Who are the stakeholders in the provision of Micro-Credit supports?
i. ------------------------------------------------------------------------
ii. ------------------------------------------------------------------------
iii ------------------------------------------------------------------------
iv. ------------------------------------------------------------------------
v. ------------------------------------------------------------------------
14. Any relationship and willingness by these stakeholders to provide Micro-
Credit support for the Industrial Clusters in the South-East?
a. Yes [ ] b. No [ ] c. Don‘t Know [ ]
15. Any significant relationship between the Micro-Credit support and the
performance of the Industrial Clusters?
a. Yes [ ] b. No [ ] c. Don‘t Know [ ]
16. What are the problems besieging the poverty eradication programmes aimed at
achieving the MDGs?
120
i. ------------------------------------------------------------------------
ii. ------------------------------------------------------------------------
iii ------------------------------------------------------------------------
iv. ------------------------------------------------------------------------
v. ------------------------------------------------------------------------
17. What parameters are used to provide Micro-Credit support to the Industrial
Clusters particularly in the South-East?
i. ------------------------------------------------------------------------
ii. ------------------------------------------------------------------------
iii ------------------------------------------------------------------------
iv. ------------------------------------------------------------------------
v. ------------------------------------------------------------------------
