Effects of Micro Credit on the Livelihood of Rural Households in Enugu State, Nigeria

Abstract Micro-credit has been identified as a sustainable and effective poverty reduction strategy that can be employed to reallocate resources to the rural active poor. The livelihood of rural dwellers is usually characterized by low potentials. It is however believed that their access to micro – credit may improve their livelihood outcomes such as income, well-being, reduced vulnerability, food security, access to social amenities, economic expansion and employment. Also, it brings additional perspective to the national challenge of increasing agricultural production through sustainable micro-credit schemes offered to the rural households. Paucity of information on sources of micro-credit accessed by rural households in Enugu State and the effects on their livelihood outcomes necessitated this research. The broad objective of the study was therefore to examine the effects of micro-credit on the livelihood of rural dwellers in Enugu State, Nigeria. The specific objectives were to: (i) describe the livelihood and socio-economic characteristics of the rural households, (ii) describe the sources of micro-credit available and accessible to the rural households, (iii) establish relationship between the socioeconomic and livelihood characteristics of the rural households and their access to micro-credit categories, (iv) examine the volume of micro-credit received and utilized for improvement of the rural households’ livelihood outcomes and (v) examine the constraints that hinder rural households’ access to micro-credit facilities in Enugu State. The study was carried out in Enugu State, Nigeria. Sixty respondents were selected from each of the three agricultural development zones in the state making a total of 180 respondents. Primary data were collected using a structured questionnaire. Data generated were analyzed using descriptive statistics, multinomial logit model and factor analysis. It was found out that a greater percentage (31.7%) of the respondents were between 45 and 50 years of age while their computed means was 57 years. Male dominated the rural household heads (68%). Greater percentage of 58.4% of the household heads were married while 8.3%, 25% and 8.3% were single, widowed and divorced respectively. Thirty-six (36%) had secondary education, 28% had primary, 19% had tertiary while 10% had no formal education. About 40% of the respondents earned below N101, 000 per annum. Majority of the respondents (763.7%) were engaged in farming, trading 13.3% and services 10%. Micro credit was not available to about 30% of the rural households while 70% had access to various kinds of micro credit. Eighty (80%) of the accessed micro credit was short term, 16.7% medium term and 3.3% long term. Age, group membership and farm size positively influenced access to the combined informal and formal micro credit categories while income level and savings negatively influenced access to the categories. Gender, marital status, household size, group membership and farm size positively influenced access to informal micro credit category while savings negatively influenced access to the category. About 70% of the respondents accessed different categories of micro credit. About 58% of them invested the entire amount borrowed but 42% invested only part of the funds and diverted the rest. Among the borrowers, 81% perceived some improvements on their livelihoods and socio-economic outcomes after they invested in economic ventures but 19% did not agree to that. Major constraints to micro credit access among the rural households include inadequate information, lack of skills and infrastructure; lack of cooperative membership and policy, poverty and illiteracy, and socio-personal. It was therefore recommended that: there was need to understand that the major source of livelihoods among the rural households is farming and thus, every rural livelihood programme should first address their farming welfare and; proactive regulatory micro credit acts capable of reaching out to the very active poor be enacted to ensure that government’s microcredit schemes are not hijacked by economic saboteurs.