WHAT CAPABILITIES DO THEY VALUE AND HAVE REASON TO VALUE?
This section explores service users’ perception of poverty as expressed during the interviews. Similar to the approach employed in the Voices of the Poor (Narayan et al., 1999), an inductive approach is employed to uncover the dimensions of poverty that the poor value and to capture their perception of poverty. This required that the researcher sets aside her prejudices about what the poor value, and instead capture their values. In line with the conceptualization of poverty in this study, the finding shows that poverty is a multidimensional concept. Service users were specifically asked about their perception of poverty and what they consider to be the characteristics of a poor person. We find that both men and women, young and old, associate poverty with unemployment or the inability to engage in productive activities that can generate income, and the inability to provide basic material household needs.
Especially for the poor, access to a stable wage employment emerged as a key defining factor. As mentioned in chapter 4, whether in urban, semi-urban or rural communities in Nigeria, unemployment remains relatively high; and so is poverty. Particularly for the poor, who can rarely find permanent wage employment, they engage in informal microenterprises with daily wage labour and low earnings. For LAPO clients, the poor are perceived to be ‘those who do not have a job’.
I see the poor as people who are not productive or hard working (RESP 23, Female, 35, 7)
I see the poor as someone who is lazy, or afraid of going into business (RESP 24,
Male, 42, 2)
Poverty for me is not lack of money. It is a mindset that I cannot do anything that brings in money (RESP 16, Male, 47, 3).
Some important points evident from these quotes include the struggle for a means of livelihood rather than emphasizing a minimum standard of living. Particularly, it is almost irrelevant what job or business one is engaged in. As long as one is not lazy but bold enough to ‘struggle’ for a means of livelihood, then they are not considered to be poor. Given the absence of a social welfare system and the dearth of basic amenities and social infrastructure in the Nigerian context, the ability to engage in productive activities capable of raising sufficient income to finance the achievement of capabilities is key to escaping poverty. Particularly, given that at least 80% of respondents are married with at least one dependant, the importance of a stable source of income cannot be overstated. Given the subject of interest – microfinance clients, the success of their microenterprise becomes paramount.
This particularly justifies the researchers’ choice to measure poverty reduction as increased ability to achieve successful business outcomes. Given that all LAPO service users already own and run microenterprises of their own, increased capabilities for business profitably can be considered as indicators of poverty reduction as this reduces their vulnerability to poverty. As mentioned in the previous chapter, this study adopts an increased ability to increase business size, introduce new products, reduce cost, develop new business, and increase business asset as indicators of successful business outcomes.
Secondly, poverty is consistently perceived as the inability to provide basic material needs of food, water, clothing, and shelter. This material well-being aspect of poverty is relatively well known. For the poor, it is often a daily struggle to meet basic material need for food, water, clothing and shelter. This becomes acute without a job, or productive land or other sources of income.
I don’t see myself as poor because I can pay school fees, rent, cloth my children and provide 3 square meals for my children (RESP 8, Female, 46, 4)
When someone cannot feed, clothe and send their children to school that is when you can say they are poor. I don’t see myself as poor (RESP 12, Female, 46, 2).
I see myself as someone who is struggling but not poor because I can cloth my children and pay their school fees. (RESP 18, Female, 39, 3)
In employing material well-being as a measure of poverty, most studies that employ the individual as the unit of analysis, have focused on the ability of the poor to meet these basic material needs for themselves. However, these quotes show that in the Nigerian context, service users value the ability to provide these basic material needs for their households. This does not imply that the former is not important; but numerous examples of parents going without food in order to feed and clothe their children are well documented in the literature (Narayan et al., 1999). In addition to the traditional basic needs, child education is generally considered to be an important capability that service users’ value. Particularly for the poor, an educated child is widely seen as ‘hope for a better tomorrow’. Evident in the second quotes is a sense of powerlessness and helplessness. The fact that as a parent, you know the right thing is to provide for your family, but you just cannot do it’, is considered to be the major characteristic of the poor. This reinforces the need for the capability approach which emphasizes an increased ability to ‘do’ and ‘be’.
Based on these findings, increased capability at the household level is selected as an important dimension that service users’ value. Even for the unmarried and those without children, these service users also value increased material well-being. In selecting indicators for increased ability to meet basic material needs, increased ability to contribute towards household finances, child education, household savings, household assets and household emergencies are selected to proxy increased capabilities at the household level. For instance, increased contribution to household finances is employed as an indicator of increased consumption (food, water, clothing and shelter). Similar indicators have been used in terms of measures of food and non- food expenditure (World Bank Living Standards Measurement Survey). Providing for the household also requires certain household assets such as sleeping beds, cooking items etc. In all, these capabilities are similar to two of the poverty dimensions – material wellbeing (food, asset, work) and social wellbeing (ability to care for, raise, marry and settle children) – selected in the Voices of the Poor (Narayan et al., 1999). As with the indicators of increased ability to achieve successful business outcomes, these household indicators are not exhaustive and subject to criticisms and debate. As is common with empirical research, the researcher faced the challenge of selecting measurement tools or proxies. However, the use of the selected household capabilities
and business outcomes is justified by their use in other reputable studies (Narayan et al., 1999; World Bank LSMS, 2000).
Although the capability approach emphasizes the individual as the unit of analysis, the poverty reducing effect of microfinance often transcends the individual to the household and business level. Therefore, studies focused on the individual alone, are unable to capture much of the poverty reducing potential of microfinance (Hulme, 2000). Much impact assessments since the late 1990s now ask respondents about increased capabilities at the individual, business and household level (Chen and Dunn, 1996). This study adopts this approach. At the business level, factors such as returns to investment and profitability have been widely used to explore the effects of microfinance. However, it is now widely recognized that with low income households, poor book keeping, the widespread use of loans for non-business purposes and the fungibility of financial resources makes it difficult to separate business from household activities (Zeller et al., 1997). By assessing individual capability increases at the household level, this study addresses the issue of fungibility as loans diverted from the business will most likely end up in the household. Additionally, increased capability at the business level means little except it is positively accompanied by welfare related outcomes. This study therefore retains the individual as the unit of analysis but yet captures the household and business outcomes.
In conclusion, service users’ perceptions of poverty place value on a stable source of livelihood, and the ability to meet basic material household needs. In line with the capability approach, service users speak less about income and more about the capability to achieve functionings. One limitation of this approach is that it does not consider the type of employment, the earning capacities of the productive activities or the extent to which these basic material needs are met. For instance, what is the nutritional value of the food provided, what kind of shelter is provided? This however points out the situation in Nigeria where the emphasis is on ‘surviving’ – meeting the basic necessities and not on the extent to which they are met.
6.5 CONCLUSION
This chapter explored service users experience with the different features of microfinance as well as their implementation processes to identify the potential of these for good or harm. Based on the capability approach to poverty adopted in this study, it also identified the capabilities that service users’ value. Beginning with the former, the results confirm the proposition that the various implementation processes
and features of microfinance have unique effects on service users with differing potential for good or harm.
As regards group lending, group formation in the LAPO intervention is done based on peer selection as proposed in the literature. Although service users experience showed no exclusion, the criteria for selecting group members as well as the use of individual guarantee to insure risk suggests the possibility of exclusion. This imperfect information about the risk status of peers means that groups start off and remain heterogeneous. With low information levels as well as an implicit understanding amongst service users that loans will more often than not be used to meet some of the multiple deprivations that the poor face, peer monitoring was basically low. While monitoring repayment ability during weekly group meetings was more dominant, monitoring the use of loans was basically non-existent. Heterogeneous groups as well as low monitoring levels suggest that service users are exposed to greater risk of moral hazard. While peer support of business and other welfare related needs enable service users to share ideas and build social networks vital to the success of their businesses and for raising social capital important tool for combating poverty; peer support in terms of financially assisting peers who face repayment challenges often comes at a cost to service users as the supporting client(s) often lose their money as they are often unable to enforce repayment due to incomplete information. Finally, while the threat of social sanction is widely used and relatively potent as regards its usefulness in enforcing repayment, the actual implementation of social sanctions and peer pressure comes at a cost to service users, including damaging social relations. Hence, while we can argue that social capital develops more with successful repayment of loans; this study cannot argue based on the available data that social capital develops more with time. This is beyond the scope of the study and would require more data for its analysis. Hence, the researcher identifies this as an unanswered question and calls for further research to investigate the long term impact of microfinance on social capital.
While the targeting of women fosters the empowerment of women in terms of the increased ability to support the household and greater independence, this as well as the labelling of microfinance as a pro-women initiative might foster the exclusion of the male poor from participation in microfinance. As regards microcredit, the opportunity to consistently access loans with ease despite the lack of collateral is identified as a major source of utility. Yet, the characteristics of microcredit show differing potential for good or harm. First, we find some inconclusive result as regards loan sizes. Non-
defaulting clients consider high loans to negatively affect repayment capability while defaulting clients argue otherwise. Even though quantitative findings support the latter, we cannot overlook the fact that service users who experienced repayment difficulty had loan amounts greater than NGN100, 000. With loan use, loans are largely used to meet business and other household needs. This not only represents increased capability to meet household needs but from the service users’ perspective, does not come at a cost to repayment ability? Service users widely hold the view that the use of loan does not matter as long as repayment is made when due. Service users unanimously cite short repayment intervals as one of the features of microfinance loans that have the potential to harm clients experience with microfinance. One reason for this been the high repayment burden that comes from the use of dynamic incentive without a corresponding increase in the repayment period. Last but not the least, service users generally consider the interest rate on LAPO loans to be considerably cheap, particularly when compared with other options available to them.
Service users generally consider savings to be beneficial to the expansion of capabilities. Particularly, the opportunity to safely accumulate mandatory savings while making repayments stands out for service users. However, the potential to lose savings due to its use as loan guarantee for default by peers is considered damaging to service users experience. Non-financial services are seen to be beneficial to the expansion of capabilities. However, the obscurity surrounding the access to some of the more criteria-determined non-financial services is potentially damaging to the utility derived from the use of microfinance as well as the trust that ought to exist between financial service providers and their clients.
With regard to identifying what capabilities service users value and have reason to value, the selection of capabilities, In conclusion, service users’ perceptions of poverty place value on a stable source of livelihood, and the ability to meet basic material household needs. In line with the capability approach, service users speak less about income and more about the capability to achieve functionings. Firstly, this particularly justifies the researchers’ choice to measure poverty reduction as increased capabilities at the business level. Secondly, with the result showing that in the Nigerian context service users value the ability to provide basic material needs for their households, increased capability at the household level is selected as an important dimension that service users’ value. In addition to the basic needs of food, water, clothing, and shelter, child education was perceived as a key capability that service users value. In selecting
indicators for increased ability to meet basic material needs, increased ability to contribute towards household finances, child education, household savings, household assets and household emergencies are selected to proxy increased capabilities at the household level. Hence, in addition to the 5 indicators of increased ability to achieve successful business outcomes54, this study adopts 10 capability indicators that microfinance clients value and should value. These indicators remain subject to criticisms and debate.
54These indicators as discussed in chapter 5 include: increased ability to increase
business size, introduce new products, reduce cost, develop new business, and increase business asset.
7
CHAPTER SEVEN
MICROFINANCE AND POVERTY REDUCTION
7.1
INTRODUCTION
Having identified the capabilities that microfinance clients’ value and have reason to value, this chapter evaluates the effectiveness of microfinance, as well as the role of clients' microfinance practices in the expansion of capabilities. In order to achieve these objectives, this chapter addresses the questions: how effective is microfinance in enabling the expansion of capabilities for the poor? What borrower-related microfinance practices are better associated with higher expansion of capabilities for the poor? As discussed in chapter 3, beyond a client-focused approach to the evaluation of microfinance, client-related practices also dictates the ability of clients to experience poverty reduction. Hence, the evaluation of microfinance should also account for this practices and their effect. In achieving the set objectives, this chapter begins with a descriptive analysis of the quantitative data; providing a general picture of the characteristics of the respondents. The next section evaluates the effectiveness of microfinance in poverty reduction at the business and household levels using frequency tables and cross-tabulations to explore variations across clients’ demographics. This is followed by a regression analysis of clients’ group and loan practices on one hand and poverty reduction on the other. The final section concludes the chapter with specific attention to providing answers to the questions under review.