Analysis of the Impact of Microfinance on Poverty Reduction in Nigeria

Abstract

The study attempt to evaluate the relationship between microfinance and poverty reduction in Nigeria between 1992 and 2018, using the ARDL estimation technique in the advent of the directive to the financial institutions by the regulatory body to raise their loan to deposit ratio to 60% before 30^th of September 2019, larger percent of which must be advanced to small and medium scale enterprises. This necessitated the study as over 80% of the financial institutions fall below this directive at present and may have to give out loans and advances of large amount mandatorily to small and medium scale enterprises. Findings from the study reveal that an inverse and significant relationship exists between microfinance and poverty reduction in Nigeria in the long run and short run. The implication of this finding is that microfinance is an effective tool for poverty alleviation in Nigeria, and aside the positive macroeconomic impact of the directives we expect this policy action to trickle down and alleviate poverty among the people. Findings also show that income redistribution in favour of the poor is also an important means of reducing poverty in Nigeria. Therefore, an effective policy mix of fiscal and monetary policy is necessary to ensure that swift impact on poverty reduction and the achievement of one of the critical socioeconomic objective of the Nigerian Government.