The Effect of Informal Financial Institutions on Poverty Alleviation in Nigeria

Abstract

Poverty is one of the most common traits of the emerging economies. Government at all levels at different occasions has adopted one poverty alleviation program or the other, all aimed at alleviating poverty but to no avail. In most of the economies around the world in which Nigeria is one, the poor people are mostly excluded from formal financial system credits. Sequel to this the bank-less poor have developed a wide variety of informal financial arrangements to meet their finance needs. Thus, the role of informal financial institutions in rural savings mobilization and disbursement in Nigeria cannot be over emphasized. Without them, most of the rural poor would have had little or no access to credit facilities hence increased level of poverty. This paper investigated the major problems encountered by these institutions and the extent to which they have helped to achieve the goal of poverty alleviation in Nigeria. The study adopted a descriptive survey design comprising of a population of 800 respondents. Data collected were analyzed using simple percentage and descriptive statistics.Findings revealed that informal financial institutions has no significant effect in alleviating poverty in Nigeria; while poverty-mentality, illiteracy, low infrastructure and cultural loan-defaults are the major problems encountered by these institutions. The paper recommends among other things the education of the rural poor to embark on viable projects so as to reduce loan defaults arising from unviable ventures.

Keywords: Poverty Alleviation; Informal Financial Institutions; Rural poor; bank-less poor.