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 socio-economic 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.


Title Page




Table of content



1.1 Background of the study    1

1.2 Statement of the problem    4

1.3 Objectives of the study    6

1.4 Hypotheses of the study    6

1.5 Justification of the study     6

1.6 limitations of the study ---------------------------------------------------------------------7


2.1 History of micro credit     8

2.2 Meanings of micro credit    9

2.3 Sources of Micro credit Facilities     10

2.4 principles of Micro Credit    11

2.5 The sustainable livelihoods framework    12

2.6 Rural livelihood and Agriculture    12

2.7 Sustainable Livelihoods and Poverty Alleviation     13

2.8 Micro credit: source of livelihood among rural households    14

2.9 Effects of micro credits    15

2.10 Evidences of Micro Credit Benefits ---------------------------------------------------16

2.11 Challenges of micro credit in Nigeria     17

2.12 Credit constraints and rationing    18

2.13 Conceptual framework of the study    19

2.14 Theoretical framework of micro credit     21

2.14.1 Micro credit and theory of portfolio choice    21

2.14.2 Theory of credit rationing    22

2.14.3 The life theory in the context of microfinance    23

2.14.4 Micro finance performance theories -----------------------------------------------24

2.15 Analytical Framework    27 

2.15.1 Descriptive Statistics    27

2.15.2 Credit Rationing Model (CRM)    27

2.15.3 Factor analysis    28

2.15.4 Multinomial Logit model    28CHAPTER THREE: METHODOLOGY

3.1 Study Area     30

3.2 Sampling Techniques     31

3.3 Method of Data Collection    31

3.4 Data Analysis     31

3.5 Model Specification     32


4.1 Socio-Economic and Livelihood Characteristics of Rural Households    35

4.2 Types/Sources of Micro Credit Available/Accessible to the Rural

      Households in Enugu State.     39

4.3 Relationship between Socio-Economic Characteristics of the Rural Households

      and Access to Micro Credit     40

4.4 Volume of Micro Credit received/utilized for Improvement of Rural

      Livelihoods     44

4.5 Constraints to Accessing Micro Credit among rural Households in

      Enugu State    46


5.1 Summary    48

5.2 Conclusion    49

5.3 Recommendations     50




1.1    Background of the Study

The declaration of the Millennium Summit to halve extreme poverty by 2015 may not be fully achieved unless sustainable livelihoods and effective poverty reduction strategies are employed to reallocate resources to the rural sector (International Fund for Agricultural Development, 2001). This rural sector is dominantly agrarian (Olukosi and Ogungbule, 1991), and reviving agriculture is only part of the answer to end poverty, which has to be accomplished by social changes that can give the poor a greater power over some factors militating against improved livelihoods and such changes may come through micro credit schemes organized either by the government and/or non-governmental agencies at all levels.   

 Also, continued innovation and improvement of rural micro credit facilities can help to promote livelihood diversity. Micro credit facilities (MCFs) are provided by both formal and informal institutions but the formal providers avoid doing business with the rural people and their micro enterprises because the associated cost and risks are considered to be relatively higher.

The unwillingness or inability of these commercial financial institutions to provide financial services to urban and rural poor, coupled with the unsustainability of government sponsored development financial schemes contributed to the growth of private sector-led microfinance in Nigeria (Anyanwu, 2004).

About 94.4% of the farmers in Nigeria are small scale when judged by international standards where all farms less than 10 hectares are classified as small scale (Olukosi and Ogungbile, 1991) and most small scale farms are owned by the rural people as sources of their livelihood. The major constraint to agricultural development is insufficiency of credit facilities (Agu, 1998). Apart from the need for credit for agricultural development, rural farmers may also require credit to meet non-agricultural expenses like food, shelter, clothes, education, litigation and traditional ceremonies and such credits do not increase the farmers’ income or help in repayment of the credit when it falls due. However, for outreach and repayment of micro credit to be successful, farmers require that it should be adequate and be disbursed quickly when needed.

    However, Ditcher (199) defined micro credit as the extension of very small loans to those in poverty designed to spur entrepreneurship. Micro credit is characterized by individuals who lack collateral, steady employment and verifiable history of credit access and they cannot meet even the most minimal qualification to gain access to formal credits. Micro credit is a part of micro-finance which is the provision of wider range of financial services to the very poor (Ditcher 1999).  For Asgedom (2014), the Savings and Micro Credit Program of Eritrea was established to provide financial services to the poor and lower.  Access to credit has been recognized to be among the factors of production vital towards accelerating household and national economic development (Kangogo, Lagat and Ithinji 2013). However, despite their prevalence, small enterprises and most of the poor population in developing countries have very limited access to financial services provided by the conventional financial institutions.  income individuals to enhance their business activities and alleviate poverty level.

Generally, credits are classified into short term, medium term and long term, based on the time of repayment. Short term credit is the type of credit available for only one season or production cycle, usually one year. Medium term credit on the other hand is for a period of two to five years while long term credit is generally used for permanent improvement on the farm. Ugwuanyi and Ugwuanyi (1999) opined that such long term credit may be amortized over a period of fifteen to twenty years. Although farmers generally have need for the three types of credit but in rural areas of developing countries like Nigeria, emphasis is placed on short and medium term credits of which the sources are classified into;    

1.    The institutional or formal source of credit including government lending agencies, farmer cooperative banks, commercial banks, NGOs, multi-lateral agencies;

2.    The non-institutional or informal source of credit including friends, relatives, local money lenders (merchants), the Isuzu, age-grade.

           Informal micro credit is provided by traditional groups that work together for the mutual benefits of their members and operate under different names such as ‘esusu’ among the Yorubas of Western Nigeria, ‘etoto’ among the Igbos in the East and ‘adashi’ among the Hausas (Anyanwu; 2004). The key features of these informal schemes are savings and credit components, informality of operations and higher interest rates in relation to the formal sector. He further noted that the informal associations that operate traditional microfinance in various forms are found in all the rural communities in Nigeria. They also operate in the urban centers but size of activities covered under the scheme has not been determined.

The non-traditional, formalized microfinance institutions (MFIs) are operating side by side with the informal service providers but the link between the two has not been harnessed to benefit the rural communities in poverty reduction programes. International organizations are coming to the realization that Non-Governmental organizations (NGOs) are veritable and effective channels to ensure programme implementation and effectiveness particularly in poverty projects (Okunmadewa, 1998).

According to Ditcher (1999), the World Bank Sustainable Banking with the Poor Project in mid-1996 estimated that there were more than 1,000 MFIs in over 100 countries that provide micro credit facilities (MCFs) in each having a minimum of 1,000 members with three years of experience. In a survey of 206 MFIs, 73% were NGOs, 13.6% credit Unions, 7.8% banks and the rest savings unions. The rural communities may access more MCFs from MFIs if MFIs obtain resources from donor agencies, which they loan to members at the rural grassroots. For instance, external donor funds accounted for about 77% of their funding between 1992 and 1996 (Ogundipe, 1999). This was supported by the report of Adetunmbi (1999) that over 80% of the aggregate loan funds available in the semi-formal micro credit institutions (MCIs) in Nigeria is from donor and governmental sources while 20% is self-imposed tariffs but he went further to doubt if these MCFs have created substantial livelihoods in the rural areas.

    Historically, livelihood thinking dates back to the works of Chambers in the mid-1980s (further developed by Chambers, Conway and others in early 1990s). Since then, a number of development agencies have adopted livelihood concepts and made efforts to begin implementation. For chambers and Conway (1999), a livelihood comprises the capabilities, assets (including both material and social resources) and activities required for a means of living. A livelihood is sustainable when it can cope and recover from stresses and shocks and maintain or enhance its capabilities and assets both now and in the future, while not undermining the natural resource base. In order to understand this concept better, the Department for International Development (DFID), building on the works of practitioners and scholars, developed the sustainable livelihood framework (SLF). This framework is an analysis tool, useful for understanding the many factors that affect a person’s livelihood and how those factors interact with each other. The SLF views livelihood as a system and provides a way to understand:

a.    The assets people draw upon including savings and credits,

b.    The strategies they develop to make a living,

c.    The context within which livelihood is developed

d.    And those factors that make livelihoods more or less vulnerable to shocks and stresses.

Ellis (1998) opined that livelihoods are formed within social, economic and political contexts. Institutions, processes and policies such as markets, social norms, land ownership policies affect our ability to access and utilize micro credits for a favourable livelihood. He further argued that micro credit can be in cash or in-kind but emphasized that there are many advantages to using cash as a means of giving credit to create a sustainable livelihood. He noted that the use of cash transfers the decision-making power to the individual who typically knows what he needs and when to buy it. Cash also reduces administrative costs. This argument has been consistently echoed by beneficiaries of cash grants (Harvey, 2007)

    Recently, the Nigerian government has shown some commitment in the success of micro credits through the traditional banking industry. They have begun to realize that lending to the rural poor will improve the livelihood of the rural people. The government has also shown interest in improving household livelihood through micro credit schemes, policies and programmes including Agricultural Credit Guaranteed Scheme (ACGS), Family Economic Advancement Program (FEAP), Local Economic Empowerment Program (LEEMP), National Poverty Eradication Program (NAPEP), Small and Medium Enterprise Equity Investment Scheme (SMEEIS).

1.2         Statement of the Problem

    The rationale for providing micro credit facilities (MCFs) by microfinance institutions (MFIs) both formal and informal, to the rural communities is to give small rural business entrepreneurs the opportunity to engage in sustainable livelihood project (Jason and kasia, 2008). According to Anyanwu (2004), the reasons may include the following: to improve the socio-economic conditions of the people, especially those in the rural areas through the provision of loan assistance, skill acquisition, reproductive health care services, adult literacy and girl child education; to build community capacities for wealth creation among enterprising poor people and to promote sustainable livelihood by strengthening rural responsive banking methodology; and to eradicate poverty through the provision of micro credit and skill acquisition development for income generation. He noted that Nigerians, rich and poor, are enterprising and industrious but the rural poor who account for over half of the population do not have good access to formal banking services and rely heavily on formal and informal MFI products such as micro credits, micro-insurance, micro-savings, micro-training and micro-remittance services. Therefore, there is a high need to analyze the level of availability and accessibility of these micro-finance products among the rural households. 

    Secondly, following the contributions of some micro credit schemes and programmes in Nigeria, such as ACGS, FEAP, NAPEP and SMEEIS, there is an urgent need to have in place a research oriented policy guide and criteria that would be used to measure the effects of such schemes in the social, economic and demographic contexts. Though, Anyanwu (2004) adopted outreach and sustainability from CGAP (1996) as criteria for measuring the success of such programmes in some economies but those criteria lack detailed analyses on the utilization and effect of MCFs among rural households.

However, gender, age and other social differences may significantly affect access to livelihood assets within the households and other groups.  Rural dwellers are usually farmers that produce their own food, often have low potential land and over 70% of  all undernourished people live in rural areas (Muller, 2007). Ibeanu, Onuoha, Ezeugwu and Ayogu, (2010), also noted that agriculture is the main occupation of the rural dwellers. For Onyekuru and Eboh, (2011), rural dwellers in Enugu State are mainly farmers and artisans or paid workers, and relatively poor.

Sequel to the aforementioned problems, thorough investigations of micro credit availability, accessibility, outreach, sustainability and effects on the livelihoods of rural households in Enugu State need to be done. However, this study intends to answer the following research questions: (1) what are the socio-economic characteristics of the rural households in Enugu State? (2) What are the sources and types of micro credits in the rural areas of Enugu state? (3) How many of the active poor among the rural households have good access to MCFs? What are the livelihoods’ characteristics and how their combinations improve livelihoods diversification? (4) To what extent have the MCFs enabled the rural households to undertake economic activities capable of developing sustainable livelihoods in the study area?

1.3    Objectives of the Study

The broad objective of this study is to analyze the effects of micro credit facilities on rural livelihood among households in Enugu state, Nigeria.

The specific objectives of this study are:

i.         Describe the socio-economic and livelihood characteristics of rural households in Enugu state.

ii.    Describe the sources of micro credit available and accessible to rural households in the study area.

iii.    Establish relationship between socio-economic characteristics of rural households and their access to micro credit types.

iv.    Examine the volume of micro credits received and utilized for improvement of rural households’ livelihood outcomes.

v.    Uncover the constraints that hinder rural households’ access to micro credit facilities in Enugu state.

vi.    Use the findings in this study to recommend workable micro credit policies for Nigeria.    

1.4    Hypothesis of the Study

    The following hypotheses were tested:

Ho: there is no significant difference between informal and formal types of micro credit in the study area.

Ho: there is no significant effect of micro credit on the rural livelihood outcomes of the respondents.

Ho: there is no difference in livelihood outcomes between the micro credit lenders and non-lenders.

1.5    Justification of the Study

    Emphatically, credit problems have been extensively discussed and literature reviewed by series of scholars but much study has not been narrowed sensitively to micro credit availability, accessibility, utilization and effect among rural households of Enugu State. Recent findings indicate that the operations of MFIs that provide both formal and informal micro credit facilities (MCFs) have grown phenomenally in the last ten years, driven largely by expanding informal sector activities and the reluctance of banks to fund the emerging micro enterprises but called for further research on micro credit services provided by the MFIs which have neither been given any publicity nor captured explicitly in the official financial statistics (Anyanwu, 2004).

    However, this study aimed at proffering solutions to the problems of micro credit availability, accessibility and utilization by grassroots rural communities. The results will also help policy makers in deciding how MCFs delivery would be executed to boost agricultural production and enhance the living standard of the rural households through micro credit.

1.6 Limitations of the study

    The major limitation of this study was time constraint. Within this stipulated time limit, reliable field study was not feasible which would have ideally given a more in-depth view.

 Other limitations encountered in the research include poor finance, language barrier and low educational background in the rural areas which made interaction very difficult.





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