Abstract

This study sought to find out the effect of microfinance on poverty alleviation in Buea Cameroon. The study employed descriptive research method. The population consisted households accessing microfinance credit in Buea. Random sampling was to select households that were studied. A sample of 100was used. The study used questionnaire to collect data which was then summarized, tabulated and analysed using the regression statistical technique.

The results were tested using a 5% confidence level. The study found that microfinance institutions positively contribute to the alleviation of poverty at the household level in Buea by providing finance access to low-income earners, less educated and those in the informal sector which helps in the expansion of business, acquisition of better residential places, and acquisition of education, health and improved welfare.

The study also found that access to microfinance loans significantly increases household income and provides avenues for people to be saved. The study recommends that microfinance institutions continuously improve their outreach to enable them to reach more deserving low-income earners throughout the country and households’ education on the use of finances obtained enhanced.

CHAPTER ONE

INTRODUCTION

1.1 Background To The Study

Wide-spread poverty, with all the problems that come with it, is the greatest challenge of our time. One of the identified constraints facing the poor is the lack of access to formal sector funds to enable them to take advantage of economic opportunities to increase their output, Thereby moving out of Poverty (Sumner, 2007).

Traditional aid has not helped in solving this problem (Meehan, 1999). Microfinance has been identified as one of the influential development efforts towards promoting financial sustainability for poor individuals in the society (Lindvert, 2006:38). The microfinance revolution has changed attitudes towards helping the poor in many countries and in some has provided substantial flow of finance, often to very low-income groups or households, who would normally be excluded by conventional financial institutions (Kurmanalievaet al, 2003:53).

Microfinance has proven to be an effective and powerful tool for poverty reduction (Morduch and Haley, 2001: 131). As a result, in recent years, microfinance has been considered an integral component of poverty reduction strategy by many governments, international organizations and donors.

Improved access and efficient provision of savings, credit, and insurance facilities in particular can enable the poor to smooth their consumption, manage their risks better, gradually build their asset base, develop their micro-enterprises, enhance their income earning capacity, and enjoy an improved quality of life. Like many other development tools, however, microfinance has insufficiently penetrated the poorer strata of the society. The poorest still form the vast majority of those without access to primary health care and basic education; similarly, they are the majority of those without access to microfinance (Irobi, 2008:56).

It is often argued that the financial sector in low-income countries has failed to serve the poor. With respect to the formal sector, banks and other financial institutions generally require significant collateral, have a preference for high-income and high loan clients, and have lengthy and bureaucratic application procedures.

With respect to the informal sector, money lenders usually charge excessively high-interest rates, tend to undervalue collateral, and often allow racist and/or sexist attitudes to guide lending decisions. The failure of the formal and informal financial sectors to provide affordable credit to the poor is often viewed as one of the main factors that reinforce the vicious circle of economic, social and demographic structures that ultimately cause poverty. It is imperative to understand the ways in which microfinance contributes to economic growth and poverty reduction.

This provision of funds in form of credit and microloans empowers the poor to engage in productive economic activities which can help boost their income level and thus alleviate poverty in the economy. Microfinance institutions (MFIs) are important, particularly in developing countries, because they expand the frontier of financial intermediation by providing loans to those traditionally excluded from the formal financial markets (Caudill, Gropper, & Hartarska, 2012:52).

Microfinance is an effort to improve the access to loans and to savings services for poor people. It is currently being promoted as a key development strategy for promoting poverty reduction and economic empowerment. It has the potential to effectively address material poverty, the physical deprivation of goods and services and the income to attain them by granting financial services to households who are not served by the formal banking sector.

1.2: Problem Statement

For many developing countries, microfinance continues to be considered as a very important instrument for poverty reduction. The widely held assumption is that providing financial services to poor households enables them to become micro entrepreneurs, accumulate savings, improve their income, smooth consumption, manage risks and eventually escape the vicious cycle of poverty.

Yet, there is great controversy as regards the poverty reducing effect of microfinance. Critics argue that microfinance has not improved incomes, but has led to increased indebtedness of the poor, even leading to suicide in some cases. It is safe to say that the discourse in the literature has moved beyond the criticism that the reality is at odds with the ‘purist approach to microfinance’, as it is now widely accepted that microfinance is not the ‘miracle’ it was claimed to be.

However, the international development community remains optimistic about propagating microfinance as an effective tool for poverty reduction, and it appears that it is here to stay as a proclaimed sustainable instrument for poverty alleviation. This relies on the claim that microfinance has shown huge success in effectively and efficiently providing sustainable financial services to the poor who are otherwise excluded from mainstream financial services. With these different viewpoints, a sober reflection would be to ask the question: does microfinance actually reduce poverty?

Moving forward, the body of literature to which this study is designed to contribute toward the recent call to approach the delivery and evaluation of microfinance from the clients’ perspective and vantage point.

1.3 Research Questions

1.3.1 Main research question

The main research question of this study is: what is the effect of microfinance institutions on poverty alleviation?

1.3.2    Specific research questions

1. What is the effect of microfinance loans on poverty alleviation in Buea Cameron?
2. What is the effect of microfinance savings on poverty alleviation in Buea-Cameroon?
3. What are the effects of microfinance transfers on poverty alleviation in Buea-Cameroon?

Read More: Public Administration Project Topics with Materials