An Appraisal of Trader Money in Poverty Alleviation in Nigeria

An Appraisal of Trader Money in Poverty Alleviation in Nigeria

Chapter One

Objectives of the Study

The main objective of this study is to examine the impact of Trader money on the welfare of the poor and poverty alleviation in Nigeria. The specific objectives include the following:

To examine the roles of trader money towards the dispersion of credit among the working poor in
To assess the extent to which trader money institutions have successfully helped the poor to improve their standard of
To assess the impact of trader money on the growth of small and medium scale enterprises in Nigeria.

CHAPTER TWO

LITERATURE REVIEW

Roles of Trader money in Micro, Small and Medium Enterprises (MSMES )

Some Innovative Ideas

Trader money has several major roles in micro, small and medium enterprises. Kefas (2006) submitted that Trader money was often considered one of the most effective and flexible strategies in the fight against global poverty. It is sustainable and can be implemented on a massive scale necessary to respond to the urgent needs of the world‟s poorest people. Trader money has also filled up certain gaps which the main stream banking has neglected in serving the people, particularly the poor. The nature of the gaps and examples of how such gaps have been filled by trader money institutions have been well documented.

Provision of Seed Money: Malama Umma, a housewife from Bauchi State, Nigeria, as reported by Kefas (2006) took a first loan from the Development Exchange Centre (DEC) trader money institution and used it to buy a spaghetti making machine. She used the profit she made to buy a sewing machine and within one year, she was able to repay the loan. This is an example of a trader money institution providing seed money for an individual to start a successful
Business Training and Social Rehabilitation: As reported in Units Innovative Solutions to Global Poverty Publication (2005), Susan, aged 30, single, with two children lived in Nairobi, She grew up in a poor area of Kenya and got married, but the husband left her when he learnt that Susan contacted HIV. She ended up in prostitution as she was not able to find work, and had to support the two children and herself. Later she learnt about Jamii Bora, a Nairobi based trader money institution from her neighbour in the slum. Trader money institution provided Susan with some form of business training skills and gave her a loan to start a clothes mending and sales business. Jamaii Bora‟s trader money services enabled Susan to quit prostitution and moved her family away from slum into a safer house. Here is evidence of rehabilitation and business training provided by a trader money institution.
Social Rehabilitation: Marcelino, a Colombian was forced to flee from his village in rural Colombia as a result of warfare (guerilla) to Barrio Nelosn Mandela – a shanty town just outside of He took a loan of $95 from Mario Santo Domingo (trader money) opened with the express purpose of helping migrants like Marcelino. The loan was used to open a small variety store. After a year, Marcelino owned the most impressive store in the neighbourhood. This rehabilitation gap filling scenario was reported in the book “Access For All: Building including financial systems” (2006:19).
Start Up Funding and Training in Business Practices: Jumba, a widow who lives in Gar, Bauchi State, Nigeria, as reported by Kefas (2006) belonged to a women‟s group and took a loan of N2,000 from DEC. She said that she was not afraid because trader money (DEC) had taught her many things such as good farming practices and how to utilize a loan. She bought a goat and two rams fattened the rams and sold them at great profit, and repaid the This is a testimony of a widow who had access to credit from a trader money institution which also taught her good business practices, particularly how to raise animals and provided the start up finance.

Promotion of Socio-Economic Conditions and General Welfare: Agbobli, Kekar, Togo and Garba (2007) in their contribution to the publication “UNDP, UNCDF Mid-Term Evaluation Reports” identified Non-Governmental Organizations (NGOs) that are noted for their commitment to poverty alleviation, particularly in areas of promotion of socio-economic conditions and general welfare of the communities where they provided Farmers Development Union (FADU) located in Ibadan Oyo State is one of such NGOs. It provides development programmes aimed at reaching the poor and the vulnerable groups with basic and social services for improved rural income, nutrition, employment and raising the standard of living conditions. These are services which the mainstream banks hardly provide. This indeed is filling a huge gap in the financial and economic landscape of the nation and of humanity in general.
Literacy Campaigns: Agboli (2007) also detailed out the contributions of the Anambra Self Help Organization (ASHO). The NGO, apart from providing micro-credit services to its members, it also conducts literary campaigns within its community with emphasis on boys‟ school

Interventions of Non-Governmental Organizations (NGOs)

Some institutions known as Non-governmental Organisations (NGOs) have been involved in trader money basically to alleviate the suffering of the poor. Agbobli, Kekar, Togo, Garba (2007), identified the five Non Governmental Organizations (NGOs) noted for their commitment to poverty alleviation. They are:

Farmers Development Union (FADU) located at Adegoke Adelabu Rd, GRA, Ibadan, Oyo The organization was founded in 1989 to provide development programmes aimed at reaching the poor and vulnerable groups with basic economic and social services for improved rural income, nutrition, employment and raising the standard of living conditions. FADU receives financial assistance from Eze in Germany, European Economic Commission (EEC) and Ford Foundation. Services to its members: (a) Agricultural loans (famers) (b) Working Capital loan for members in commerce sector and equipment loan to others. Currently FADU has over 500,000 members of which 65% are women and membership spans 29states in Nigeria. To date, it has 165,000 borrowers, out of which 70% are women.
Community Women and Development (COWAD). COWAD is based in Ibadan, Oyo. It is an NGO which supports rural women by improving socio-economic conditions and promotion of their general welfare. The clientele is grass root women. COWAD was nationally organized in 1982 by the Federal Government of Nigeria. Presently, its program and activities are financed by members‟ contributions and income from sales of its publications. Ford Foundation and Eze (Protestant Churches Development Agency) of Germany provide grants in support of its operations. COWAD provides credit facilities to its members for income generating activities, such as cottage industry, farming, food processing, livestock rearing and petty trading. It has provided its services to over 2,000 rural poor women directly or indirectly. It is presently in Oyo, Osun and Ogun States where there are over 5,000 members.

CHAPTER THREE

RESEARCH METHODOLOGY

Research Design

This section covers the description of the type of survey adopted in the study. It is expected to define the population, the sample size as well as the sampling technique adopted in selecting the sample size. Sources of data collection, data analysis and data presentation are part of the research design. This research is designed to study the impact of trader money on the small scale businesses and individual customers for which the banks provide services. The purpose is to assess the role of such services in alleviating poverty and promoting economic development. Lagos and Ogun States constitute the scope of field survey. Questionnaire was administered in a survey conducted among trader money and their customers in Lagos and Ogun States.

Population and Sample Design

The target population for this study consists of trader money (Trader money) in Lagos and Ogun States as well as the microentrepreneurs patronizing trader money in the two states. According to CBN (2009), there are three hundred and five (305) Trader money in the SouthWest part of Nigeria. These banks are categorized into those with final licences (169) and those with Provisional Licences (136). Out of the total, Lagos State controls the lion share of 147 Trader money with 74 in the licenced category while 73 have provisional licences. Ogun State, on the other hand has a total of 51 Trader money with 29 licensed while the remaining 22 have provisional licenses. In total, the two States have 198 Trader money, with 123 of them in the licensed category while the remaining 95 have provisional licences. The rationale for the choice of the two States is that most of trader money in Nigeria are concentrated there. In this respect, of a total of 253 Trader money in the SouthWest, 243 are located in Lagos and Ogun States respectively. It follows that sample drawn from the States are, all things being equal, more likely to reveal the characteristics of trader money and their customers.

CHAPTER FOUR

DATA ANALYSIS AND DISCUSSION OF RESULTS

Trader money Institutions (Trader money) and their Characteristics in the Study Area

A total of forty-one banks were covered in this study and majority of them (75.6%) operate in Lagos State while the remaining 24.4% operate in Ogun State. Twelve of these banks, representing 29.3% of the total sampled operate as Unit banks, that is, community-based banks. Such banks can only operate branches and/or cash centres within a prescribed local government area subject to meeting the prescribed prudential requirements and availability of funds for opening branches/cash centres. Twenty seven of the banks which represent 65.9% of all banks surveyed are state Banks that are permitted to operate in all parts of the State in which they are registered, subject to meeting the prescribed prudential requirements and availability of funds for opening branches. Only two of the banks (2.49%) did not declare their scope of operation (whether unit or state banks) in the survey questionnaire.

The survey of trader money also tried to find out the status of the Bank surveyed in terms of whether they are head office branch, or cash office. The findings reveal that four of the banks representing 9.8% are Head office of their various banks, nineteen of them (46.3%) are branch offices, while 8 (19.5%) are cash offices. The remaining 10 (24.4%) did not report the status of their banks. Table 1 gives the summary statistics of the frequency distribution of the selected variables.

CHAPTER FIVE

SUMMARY OF FINDINGS AND RECOMMENDATIONS

Summary

Trader money is a key strategy for poverty alleviation. Inadequate access to credit by the poor has been identified as one of the contributing factors to poverty. Trader money‟s achievements in poverty reduction have been celebrated worldwide. Since the last decade in Nigeria, Trader money schemes have proved to be a successful adaptation to the domestic credit markets. Trader money institutions have helped to relax the constraints on the poor‟s access to productive capital, and consequently, contributed to break the various circles of poverty caused by low income and low investments.

This study examined the contributions of Trader money institutions to poverty reduction in Southwest Nigeria, using both primary and secondary data collected from Trader money institutions (Trader money) and randomly selected customers (micro, small and medium enterprises) of the same Institutions.

The study tries to contribute to the existing literature by investigating the impact of Trader money on welfare and the success of micro, small and medium enterprises (MSMEs) and subsequent reduction in poverty. In analyzing the impact of Trader money on enterprise performance, the study posited economic relationship between enterprise performance and some relevant explanatory variables. The study employed different performance indicators such as levels of profit (LOP), employment (EMPL) and return on assets (ROA). Other explainable variables depicting enterprise characteristics of the Micro-entrepreneurs were also used. These include age of enterprise, the gender, the educational qualification, the business type, loan frequency, age of business, business location, loan amount, marital status and training before loan.

A total of 41 banks operating in Lagos and Ogun States, Southwest Nigeria were covered in the study. Twelve (12) of the banks sampled operate the unit model of MFB i.e. community-based banks while 27 of the banks surveyed are state-wide banks which are permitted to operate in all parts of the state in which they are registered. Two out of the 41 banks surveyed, however, did not declare their scope of operations. The banks were randomly selected and 10% of the entrepreneurs-customers of the banks were selected through the stratified random sampling approach yielding 321 respondents.

The study examined the nature and significance of Trader money‟ services to customers paying particular attention to trader money‟ basic intermediation functions of funds mobilization, credit allocation and distribution among respondents. The volume and determinants of loan demand were also investigated. The study also explored the economic analysis of of loan demand using the linear probability model. The study further examined the influence of Trader money on personal welfare of respondents.

Findings

Trader money have made satisfactory impact

The study found out that most of trader money Institutions in Nigeria are rather too young to have made a very remarkable long term impact. Most of the micro-entrepreneur-customers are in their prime age of life which falls in the economic activity group. Furthermore, about 73% of the customers are women, which validates the general belief that we have more women engaged in Trader money activities in Nigeria than men. The study confirmed that majority of the Micro- entrepreneur-customers have only primary and secondary education with only few having post- secondary education. It also confirmed that most of trader money in Nigeria are tailored after the Grameen Bank which focuses on the poor and people with basic, little or no education.

Operators started to open accounts in 2005 when CBN introduced Trader money Policy

The study also discovered that the account operators began in the year 2005 when the Central Bank of Nigeria introduced trader money Policy and have consistently been on the increase till date.

Regulatory Search-light by CBN in 2009 adversely affected numbers of accounts opened

The study also established that the CBN supervision shifting from CAMELS to Risk-based approach on activities of trader money in Nigeria by the apex bank in 2009 affected the number of customers that opened accounts with the banks. This indicates that government policies on the operations of Trader money can affect the ability and willingness of customers in their desire to transact business with the banks.

Loan demand is interest rate insensitive

It was also established, while assessing the determinants of loans received by customers, that loan demand is interest rate insensitive. Hence, it is the availability rather the cost of loan (as measured by the magnitude of interest rate) that influences the volume of loan demanded and received by the customers of Trader money. As earlier stated in section 4.3.2, this can be explained, premised on the Cost versus Availability doctrine. In Nigeria and some other African countries, availability doctrine tends to influence financial behaviour more than cost doctrine, whereas by conventional wisdom, it ought to be the other way round, Customers in the graduate and post- graduate category do more business with Trader money than other categories. Also, male customers demand higher levels of loan amount relative to their female counterparts. The location of a business is also found to be insensitive to loan demand.

Assessing the loan demand probability function, the results showed that the number of years an account has been opened by a customer does not affect the probability of credit demand by the respondents.

Business location does not affect credit demands

Business location does not also affect the probability of micro-credit demand. Over 80% of those in Lagos receive microcredit while the majority of respondents in Ogun State (67%) have never applied for credit.

Supplier-Contractor enjoys more credit from Trader money.

It was also established that entrepreneurs in supplier-contractor business have higher probability of securing micro-credit from trader money relative to other businesses in the reference category. This group of micro-entrepreneurs have established a tradition of prompt loan repayment and thus have better access to micro-credit facilities offered by Trader money. The reason adduced for this is that they operate on short-term basis.

Business expansion dominated frequency of loan demands

The results further showed that business expansion dominated the frequency of loan request by customers followed by children education and then land/asset acquisition and consumer-durables.

Savings Habits

The savings habit of the customer improved with the provision of trader money services and their monthly income also rose by approximately 88% within an average of about three years within when an account was opened and loan facilities were granted to the respondents.

The results of this study further confirm some findings by other scholars and earlier researchers and the research work has been able to find answers to the research questions raised in the introductory chapter in the following ways:

Trader money is an effective poverty alleviation strategy as it reaches the target customers more effectively and helps to a large extent in improving their standard of living and social
Trader money institutions loans are more readily available for development related
Trader money institutions can really get people out of their poverty level with consistent utilization of loans for developmental activities by their customers. This also impacts greatly on Customers‟ savings habit and income generation. By financing more small and medium scale enterprises, trader money have made a significant contribution to creation of employment and improving household

Determinants of Loan Demand

The outcome of the study on the determinants of loan demand showed that the kind of business the entrepreneur engaged in, the level of education attained, gender, marital status, age and state of origin are the determinants of loan demand.

Looking at the result critically, it was revealed that the following kinds of business variables; trading, supplier/contractor, fashion designing and small scale manufacturing, all have negative impact on loan demand. This implies that a unit increase in all these variables decrease the level of loan demand and each of them is statistically significant. The result also showed that graduate and post graduate level of education are positive determinant of loan demand. It is also interesting to observe that the variable male gender is a positive determinant of loan demand. Marital status- single is also a positive determinant of loan demand and trader money – LAPO is a positive determinant of loan demand and statistically significant at 1%. This implies that entrepreneurs having account with Lapo are likely to demand for loan, also male entrepreneurs, and single entrepreneurs do the same. It is interesting to note that the number of years for which account has been opened is not a determinant of loan demand.

The result obtained also showed that the variable age group less than 30 years is a negative determinant of loan demand and statistically significant at 5%, while age group 30 – 44 years is not statistically significant. The study also showed that entrepreneurs state of origin particularly from East and West geographical zone are positive determinants of loan demand and they are statistically significant at 5%. It is interesting to find that location of business and being self – employed is not a determinant of loan demand.

The linear probability function was estimated for those that have ever received loan and those that have not. The result of the linear probability function showed that age of the respondents did not affect the probability of loan demand, since none of the age-cohort is statistically significant. As regards trader money variables, the result obtained confirmed that the number of years account is opened does not affect the probability of credit demand. On business related variables, business location-Lagos and supplier/contractor business type have higher probability of securing loan from Trader money Institutions.

Trader money Bank and Personal Welfare of the Respondents

On this aspect of the study, the result obtained showed that all trader money have granted N9.1 million, N6.5 million and N4.9 million in each of the three loan categories respectively. The result also shows that the first loan received by the respondents was utilized for business development related issues, the second loan was utilized for business expansion by most of the respondents, while the third loan followed the same trend. Other issues such as children education, land/asset acquisition and consumer durable are the other things the loans were used for. The result also shows that the majority of the respondents saved regularly – which implied that Trader money has helped them to develop the habit of saving regularly. Most of the respondents‟ weekly income also showed increase of 88% after receiving and utilising the loan within a period of three years. The result also showed that those with higher educational qualifications are likely to increase their income faster. There appeared to be no significant difference between the growth of income of males and female gender. In terms of Trader money being used by the respondents, those using other Trader money seemed to have higher income growth than those in LAPO even though LAPO have greater outreach. Those in Ogun State experienced higher income growth than those in Lagos, this may be associated with higher standard of living in Lagos compared to Ogun State. In terms of state of origin, those that are from the Eastern part of the country experienced higher income growth than those from other regions, ostensibly due to the tenacity and shrewdness of an average Easterner in business.

Determinant of Income Distribution among trader money customers

The result obtained for this aspect of the study showed that education (as measured by the number/levels of formal education attained, gender, region of origin (East and West) are significant determinants of income distribution. This implies that as each of these variables increase by a unit, weekly income also increases for trader money customers. The result for the stepwise regression showed that loan amount, number of years account opened with trader money, and respondent‟s level of education positively affected earnings of the respondents.

Conclusion of Study

The advocation of microfinancing was triggered by the insensitivity of the conventional formal finance sector. The essence was to reach the overwhelming population of the poor and to assist in the drive to alleviate poverty. Trader money movement has captured the imagination of academics, policymakers, and practitioners. It has demonstrated possibilities for lending to poor households and has transformed discussions on poverty alleviation to realism. The last twenty years have seen significant advances in the provision of financial services to improve economic development and eradication of poverty. This includes providing the financial means to access credit, and start small businesses, with the potential to enhance community, local and national development. It has been proven that when trader money is properly harnessed and supported, it can scale-up beyond the micro-level as a sustainable part of the process of economic empowerment by which the poor can lift themselves out of poverty.

Trader money should not be seen as a universal remedy for poverty and related development challenges, but rather as an important tool in the mission of poverty alleviation. Poverty is a multidimensional problem, embedded in a complex and interconnected political, economic, cultural, and ecological system. Owing to poverty’s large scope and multiplicity of actors, there is no single guaranteed approach to its eradication. As a result, solutions are as multifaceted as the causes. Problems and solutions are not isolated phenomena, but occur within an interconnected system in which actors and actions have reciprocal consequences. As trader money becomes more widely accepted and moves into the mainstream, the supply of financial services to the poor will likewise increase, improving efficiency and outreach, while lowering costs. This, in turn, can have a multiplier effect on people’s standard of living. Perhaps the greatest contribution of trader money is that it empowers people, by providing them with confidence, self-esteem, and the financial means to play a larger role in their development. The potential of trader money far exceeds the micro-level, scaling-up to address macro-problems associated with poverty eradication.

The major findings noted earlier showed that the determinants of loan demand are the type of businesses which the entrepreneurs engage in, and the level of education attained by the entrepreneurs. Male gender has higher propensity to demand for loan. The results also show that Trader money: (i) increase entrepreneurial activities through loan granted, utilized for business development, (ii) raise income of trader money clients, (iii) increase consumption of all durable commodities, (iv) increase children education, (v) enhance acquisition of land/asset and, (v) enhance social welfare in the community. These findings suggest that trader money is one of the successful critical interventions for empowering the poor people.

In conclusion, the study has established that trader money programmes have impacted the businesses and lives of the beneficiaries in several positive ways, particularly in their economic circumstances and access to essential life-enhancing facilities and services. The study has also shown that the number of years a client opened account with trader money, religion, place of business location and self employment are not determinants of loan demand. More research is needed in the area of impact assessments so as to inform the designers of programmes on measures that will ensure maximum benefits both to trader money and their clients.

Among other benefits of trader money, the following are key:

In a country where poverty is prevalent like Nigeria, government can use Trader money as a tool for poverty
Trader money can foster employment generation through development of entrepreneurial activities in particular for the poor.
In countries with formal financial markets like we have in Nigeria, trader money can be used as a way to reach the huge un-served markets which mainly consists of the

POLICY IMPLICATIONS AND RECOMMENDATIONS

For Trader money

Higher education, having been found to increase the income of trader money clients: Trader money clients should therefore, be encouraged by trader money to improve on their current level of education by engaging in adult education or life-long learning as this will have the potency to increase their level of income;
Trader money should seek long term capital from the Pensions and Insurance Companies in the This will enable them grant larger volume of loan and to greater number of people who will improve their outreach level;
Trader money should ensure and strive to put in place procedures, policies and products that will enhance the participation of both men and women in their various programmes in order to achieve gender responsiveness and equity; and
Trader money should design appropriate products that are flexible enough to meet the different needs of the poor for both production and consumption

For Government

Government should urgently tackle the problems of infrastructural development and maintenance. These include electricity, water and efficient transportation system which impact greatly on the standard of living of the people;
iii There should be provision of incentives by government to sustain Trader money in order to further extend their services to the rural areas;
Capacity building of Trader money in Nigeria should be mandatory so as to develop appropriate policies that will enhance sustainability and stability; and

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