From a contextual and service users’ perspective, this thesis investigates the poverty reducing effect of microfinance including the implementation processes and features of microfinance. Poverty is in this study conceptualised as ‘capability deprivation’ so that poverty reduction is achieved through improved capabilities for the poor. The literature review on microfinance begins with an attempt to locate the reasons for microfinance within the context of the finance-development and credit rationing literature. It also recognises the institutional-based approach to understanding the exclusion of the poor; and recognizes the role of lending group and social relations within the group in shaping individual and social capabilities of the poor. Next, it reviews some of the recent discourses in the microfinance literature. It uncovers a call in the literature for studies that look beyond impact to evaluate the features and characteristics of microfinance delivery and use from the clients’ perspective. The central arguments of this thesis include: (i) the utility or disutility of microfinance stems from the features of microfinance and its implementation strategies, as well as clients’ practices. (ii) The microfinance literature has not paid enough attention to the perspectives of service users, which can adversely affect microfinance assessments and its potential for poverty reduction. The study examines LAPO microfinance intervention in semi-urban and urban areas in Edo State, Nigeria. Given the research objective, design and methods, data collection and analysis were guided by the Interpretive, Capability and Poverty Participatory Assessment approaches. The mixed methods approach is selected as the most appropriate for addressing the research questions. Secondary data as well as primary data sourced from 35 interviews and 62 questionnaires were employed. Data analysis was conducted using qualitative, frequency distributions, cross-tabulations, Logit and OLS regression analysis. This study finds that service user perceptions of poverty place value on a stable source of livelihood, and the ability to meet basic material household needs. Hence, poverty reduction is measured as increased household capabilities as well as the increased ability to achieve successful business outcomes. The findings show that service users’ perceptions affirm the poverty reducing effect of microfinance. It also confirms the proposition that the various implementation processes and features of microfinance have unique effects on service users with differing potential for good or harm. The use of trust and personal relations as criteria for selecting group members, as well as the use of an individual guarantee to insure against risk due to imperfect information, suggests the possibility of exclusion. Heterogeneity in groups as well as low
monitoring levels leave service users exposed to greater risk of moral hazard. Peer support enables service users to share ideas and build social networks vital to the success of their businesses and for raising social capital important for combating poverty. Despite the potency of the threat of social sanctions in enforcing repayment, the actual implementation of social sanctions and peer pressure comes at a cost to service users, including damaging social relations. While the targeting of women fosters their empowerment, the labelling of microfinance as a pro-women initiative has the potential to reinforce rather than challenge the prevailing gender bias in the Nigerian society. As regards loans, high repayment burden arising from the use of dynamic incentive creates the potential for harm. The use of savings as loan guarantee against peer defaults also has a similar effect. Although service users affirm the role of savings and non-financial services in the expansion of capabilities, the obscurity surrounding the access to some of the more criteria-determined non-financial services, is found to be damaging to service users’ experience. Hence, this study argues that while there are some links between poverty reduction and microfinance, these two are complexly related.
