Assessing the Role of Microfinance Institutions in Poverty Alleviation Within the Context of Nigeria Economic Landscape

Assessing the Role of Microfinance Institutions in Poverty Alleviation Within the Context of Nigeria Economic Landscape

Prof. Joshua Adewale Adejuwon, Abulude Ibukun Adetoun

Department of Management and Accounting, Lead City University Ibadan

DOI: https://dx.doi.org/10.47772/IJRISS.2025.90600084

Received: 21 May 2025; Accepted: 29 May 2025; Published: 01 July 2025

ABSTRACT

Nigeria faces persistent poverty and economic inequality despite its natural resources. Microfinance institutions (MFIs) serve as financial intermediaries to support underserved populations, but their effectiveness in poverty reduction is influenced by regulatory frameworks, socioeconomic conditions, and technological advancements. This study examines the role of regulation, socioeconomic factors, and technology in poverty alleviation in Nigeria. Surveys were conducted across 53 MFIs in Oyo State’s three senatorial districts (Oyo South, Central, and North) using stratified random sampling. Twelve microfinance banks were purposefully selected, and 240 questionnaires were randomly distributed. Data collection involved structured questionnaire with a 4-point Likert scale and was facilitated by six trained research assistants. Instrument validity was confirmed through a pilot study (48 respondents) and Principal Factor Analysis (Varimax Extraction), with all Average Variance Extracted (AVE) values exceeding 0.5. Reliability testing using Cronbach’s alpha verified internal consistency. Factor analysis was validated using the Kaiser-Meyer-Olkin (KMO) test and Bartlett’s Test of Sphericity. Data were analyzed using SPSS 25, applying inferential (regression, correlation) statistics to evaluate the relationship between MFIs and poverty alleviation. The findings reveal that regulatory frameworks significantly influence poverty reduction efforts, as evidenced by the rejection of the null hypothesis (H₀1) and an R² value of 0.111 (F(1,238) = 29.632, t = 5.443, p = 0.000). This underscores the necessity for well-structured policies to create an enabling environment for MFIs, fostering financial inclusion and economic empowerment. Socioeconomic factors (H₀2) exhibit a strong collective influence on poverty alleviation, with an R² value of 0.958, confirming their significance (F = 519.861, p < 0.001). Key determinants include access to education (β = 1.243, p < 0.001), healthcare (β = 1.393, p = 0.002), and social welfare programs (β = 1.425, p < 0.001). Conversely, employment opportunities (β = 0.167, p = 0.391) and infrastructure development (β = -0.278, p = 0.298) lack statistical significance, suggesting that economic growth alone may be insufficient for poverty alleviation without targeted interventions. Technological innovation (H⁰3) exhibits a significant positive correlation with poverty alleviation (r = 0.817, p < 0.001), reinforcing the role of ICT in financial accessibility and income generation. Additionally, regression analysis of MFIs’ impact on poverty alleviation yields an R² of 0.061, indicating a modest but significant effect (p < 0.001, β = 0.166, t = 4.812). The study concludes that microfinance institutions play a significant role in poverty alleviation within the Nigerian economic landscape. The study recommends enhancing regulations, financial literacy, and fintech adoption to optimize MFIs’ role in poverty reduction.Top of Form

Keywords: Microfinance institutions, Poverty alleviation, Financial inclusion, Regulatory environment, Socioeconomic factors, Technology and innovation.

INTRODUCTION

As Africa’s most populous country, Nigeria grapples with substantial economic inequalities and a notable poverty rate. Despite its rich endowment of natural resources, a significant portion of the population faces challenges such as poverty, unemployment, and limited access to financial services. In addressing these issues, the roles of microfinance institutions (MFIs) have garnered attention, given their significance in providing financial inclusion and support to vulnerable demographics (Mia et al., 2023).

MFIs have emerged as pivotal players in global poverty alleviation efforts, focusing on extending financial services to the unbanked and underprivileged sectors. In Nigeria, where a significant portion of the population lacks access to formal banking services, MFIs play a crucial role in providing microcredit, savings, and insurance products tailored to the needs of low-income individuals and small businesses. By facilitating access to financial resources, these institutions aim to empower individuals to initiate or expand small enterprises, improve their livelihoods, and uplift themselves from poverty (Okoi et al., 2022).

However, the impact of MFIs on poverty alleviation is subject to various factors, including regulatory frameworks, operational efficiency, and the socio-economic context. Moreover, compared to traditional banks, which possess broader infrastructure and customer bases, the reach and scale of MFIs may be limited (Patel, 2023). Therefore, comprehending the relative effectiveness of MFIs in addressing poverty is essential for crafting evidence-based policies and interventions to tackle socio-economic disparities in Nigeria.

In recent years, Nigeria has witnessed an expansion of banking services, with both traditional banks and MFIs striving to extend their impact. MFIs, especially, have emerged as key providers of financial services to the unbanked and underbanked populations, offering microloans, savings accounts, and other tailored financial products. Despite these efforts, the effectiveness of banks in mitigating poverty remains a subject of debate, necessitating careful examination of their interventions’ impact on poverty levels (Babalola et al., 2023).

Moreover, Nigeria’s economic landscape is characterized by socio-economic challenges such as high unemployment rates, income inequality, inadequate infrastructure, and weak regulatory frameworks. These factors significantly influence banks’ ability to address poverty and promote inclusive growth effectively (Fagbemi et al., 2022). While conventional banks have traditionally focused on serving larger businesses and wealthier individuals, recent years have seen many banks recognizing the importance of inclusive finance. Initiatives such as the establishment of microfinance departments, partnerships with MFIs, and the development of innovative financial products tailored to low-income customers have been introduced. However, challenges such as collateral requirements and limited reach to rural areas persist, hindering the full potential of financial inclusion (Kasradze, 2020). The financial sector can be a catalyst in the eradication or at least reduction of poverty through enhanced financial services for the poor in developing countries (Aribaba et al., 2020). For sustainable economic growth, a complete package of economic activities should be introduced covering, for instance, small and medium enterprises (SMEs) and microfinance banks, because SMEs can play a role in economic development, creating goods, innovation, and employment. On the other hand, enterprises need to have access to financial services to be sustainable (Ibitomi et al., 2024).

Conventional banks lend to clients who have collateral; the poor have no valuable assets to offer as collateral, so mainstream banks seldom take the risk and usually ignore the application. In any case, the mainstream banks normally operate in urban areas, whereas most poor live in rural areas, so the underprivileged are not facilitated. MFIs aim to bridge the gap in remote areas, but studies show that MFIs offer financial facilities only to a very small fraction of the projected demand of the poor. Moreover, it has been shown that these programs can improve the confidence and self-respect of borrowers. Nevertheless, microfinance is not a magic potion. Even the most innovative and participative programs can have undesirable negative impacts (Offiong et al., 2024). One obvious impact, as shown by earlier studies of microfinance, is increased income levels, but more recent studies reveal that the impact can vary per income group. The wealthier segments benefit most from microcredit programs, as they have higher skill levels, good references, and higher initial resource bases. Low-income earners are more vulnerable, and so benefit more from micro savings and micro insurance (Ezeanyeji et al., 2020).

Nonetheless, steps taken more recently by the government and other agencies providing access to financial services to underprivileged sectors show positive effects. However, more still needs to be done; for instance, there needs to be a conducive economic environment created, a legal and regulatory framework is supposed to be in place, and the most urgent current need is an improvement of financial intermediates in both rural and urban regions. It is essential to establish a well-functional financial institute to support a favorable business environment for sustainable economic growth (Omar et al., 2022). Various initiatives have been launched, such as regulations in support of technological and institutional innovations, up-scaling and growth, improved industry infrastructure, and setting up credit enhancement facilities. The new framework emphasizes inclusive financial services to make stronger fundamentals by developing proper infrastructures needed for long-term growth (Danladi et al., 2023). A strategic framework, with the core objective of developing a growth-led and sound institution, would mainly focus on expanding outreach, promotion of branchless banking and alternative delivery channels, deposit mobilization, scaling-up of micro‐enterprise development, improvement of governance, enhancement of human and institutional capacities, consumer protection, and financial literacy, and MFI regulatory mechanisms (Babalola et al., 2023).

Microfinance is an effective development tool because it empowers clients better than charity. Normally, microfinance recipients are self-employed entrepreneurs who, because they lack capital, are unable to invest in business and thus cannot emerge from intense poverty (Nair et al., 2020). One remarkable microfinance characteristic is convenience. MFIs hire Local Credit Officers (LCOs) who visit every village and each house to collect or pay out funds. Most times an LCO will hold a group meeting to address various activities, enabling them to share views, offer suggestions, and give feedback (Kainzbauer, & Hunt, 2019). Since commercial banks require a guarantee for loans while poor people are not able to provide the same, this segment cannot avail themselves of loan facilities from conventional banks. Apart from this, there are many other reasons why these banks are not willing to facilitate the poor—such as lack of experience/training of the poor, high costs associated with small loans, illiteracy, and low-profit margins. This situation raised the need for an idea of microcredit. For those who have no guarantee or any assets to present as collateral, microfinance provides a way to access finance to run businesses, alleviate poverty, and sustainably gain social benefits (Morduch, 2023).

Microfinance has become a lasting approach for the economic development of the poor. The Asian Development Bank (ADB) defines it as “the extension of comprehensive financial services such as loans, money transfers, payment services, deposits, and insurance to poor and low-income earning households and their microenterprises.” It further implies that microfinance purveys financial facilities sustainably to improve the lives of the poor (Morduch, 2023). Since the inception of microfinance, many hypotheses have been developed on market coverage and poverty-related issues. The issue of poverty is not unique to Nigeria; it is a global challenge, as evidenced by its inclusion as one of the Millennium Development Goals (Oweibia, 2024). Despite evidence indicating that individuals living in poverty are creditworthy and willing to engage in financial transactions, the introduction of microfinance banking in Nigeria in 1988, with the establishment of the People’s Bank, aimed to provide financial services to this demographic. While this banking concept has contributed to poverty reduction in some developed and developing economies, its impact in Nigeria has been limited despite more than a decade of operation (Ihugba et al., 2013).

Recent data on poverty in Nigeria, as of 2023, continues to paint a concerning picture. Despite efforts to combat poverty, the situation remains dire. According to updated statistics, the percentage of Nigerians living below the poverty line has persisted at alarming levels. As of 2023, it is estimated that a significant portion of the population, potentially exceeding 60%, continues to struggle with poverty (Need, 2023). The persistence of poverty in Nigeria underscores the ongoing challenges faced by policymakers and stakeholders in addressing this issue effectively. Despite various poverty alleviation programs and initiatives, including the implementation of economic empowerment strategies, the impact on poverty reduction has been limited.

Furthermore, factors such as economic instability, inadequate access to basic services, and persistent unemployment contribute to the perpetuation of poverty in Nigeria (Edache, & Gaiya, 2024). The COVID-19 pandemic has also exacerbated these challenges, leading to further economic hardship for many Nigerians (Ozili, 2021). While numerous studies have explored aspects of poverty alleviation in Nigeria, there remains a gap in comprehensive understanding regarding the specific influence of the regulatory environment, socioeconomic factors, and the role of technology and innovation in shaping poverty dynamics. Hence this research aims to provide insights that can inform policy formulation and implementation strategies geared towards more effective poverty alleviation measures in Nigeria.

The specific objectives of the study are:

1. examine the influence of the regulatory environment on poverty alleviation within Nigeria.
2. explore the effect of socioeconomic factors on poverty alleviation within the Nigerian context.
3. investigate the relationship between technology & innovation and poverty alleviation in Nigeria.

Hypotheses

The following null hypotheses will be tested in this study:

1. Regulatory environment has no significant influence on poverty alleviation within Nigeria
2. Socioeconomic factors have no significant effect on poverty alleviation within the Nigerian context
3. Technology & innovation has no significant relationship on poverty alleviation in Nigeria

LITERATURE REVIEW

Conceptual Review

Microfinance Institutions

The word “micro” literally means small and finance also means investment or support; therefore, microfinance can be defined literally as small investment or support. Microfinance can be defined as the practice of offering small, collateral-free loans to members of co-operatives who otherwise would not have access to the capital necessary to begin small business or other income-generating activities (Mawa, 2008).

Microfinance refers to the provision of financial services: loans, savings, insurance, or transfer services to low-income households”. Mawa, (2018) further describes microfinance as small loans, savings mobilization, and training offered to the poor to enable them to create self-employment by starting their businesses and thus generating income. Basic business skill training should accompany the provision of micro-loans to improve the capacity of the poor to use funds. Commercial banks overlook the financial services that microfinance offers to the underprivileged, such as loan facilities, savings chances, money transfers, and insurance for health and company assets. Microfinance helps the poor to smooth the working of their business and make their investments. According to James Roth, Micro-finance supports people especially women to move out of poverty as it rewards productive capital to the poor who have been omitted from the formal banking sector (Roth,1997). It was confirmed that micro-finance is a powerful tool of self-empowerment to the poor at the world level particularly women in developing countries. In a study, a researcher asserts that as far as gender equality is concerned, micro-finance is an effective tool that promotes women and youth empowerment (Chilongozi, 2022).

Microfinance connotes the provision of financial services to the poor and people at the lower strata of the society who are traditionally not served by the conventional financial institutions especially the commercial banks. Microfinance institutions are defined as institutions whose major business is the provision of microfinance services (Chilongozi, 2022). Microfinance institutions were established to enhance the flow of financial services to the millions of the country’s populations in rural areas and the urban poor who are traditionally overlooked and underserved by conventional banks. In the past, the FGN had initiated a series of publicly funded micro/rural credit programmes targeted at the poor. Some of such notable programmes include: the Rural Banking Programme in 1977, the Sectoral Allocation of Credits with a concessionary interest rate in the early 1980s, and the Agricultural Credit Guarantee Scheme of the CBN. Other institutional arrangements were the establishment of the Nigerian Agricultural and Cooperative Bank Limited (NACB), the National Directorate of Employment, the Nigerian Agricultural Insurance Corporation, the Peoples Bank of Nigeria (PBN), the Community Banks and the Family Economic Advancement Programme (FEAP) (Adeniyi, 2021). All these initiatives and programmes achieved limited success in channelling credit to the rural populace to enhance their means of livelihood.

In 2000, the FGN merged the NACB with the PBN (and FEAP to form the Nigerian Agricultural Cooperative and Rural Development Bank Limited) to enhance the provision of finance to the agricultural sector. The federal government also created the National Poverty Eradication Programme with broad mandate of eradicating poverty through provision of credit and employment opportunities. The interest in the provision of microcredit has burgeoned in the last three decades in Nigeria. In recent times, multilateral lending agencies, bilateral donor agencies, developing and developed countries and non-governmental organisations all support the development of microfinance services (Adeniyi, 2021). In consequence, microfinance has grown rapidly during the last two decades from an initial low enthusiasm to occupying the front seat in development discourse on poverty reduction and poverty alleviation.

Regulatory Environment

The regulatory environment surrounding microfinance institutions in Nigeria plays a crucial role in shaping their operations, effectiveness, and impact on poverty alleviation. Existing literature highlights the significance of regulatory frameworks in ensuring financial stability, consumer protection, and institutional governance within the financial sector. Madialo, (2022), Macchiavello, (2012), & Durodola, (2022) have identified key regulatory factors such as licensing requirements, prudential regulations, supervision mechanisms, and legal frameworks governing microfinance and banking activities. Studies suggest that a supportive regulatory environment characterized by clear, transparent, and enforceable regulations can foster innovation, competition, and sustainability within the microfinance and banking sectors, thereby enhancing their capacity to reach underserved populations and facilitate access to financial services among low-income individuals and small businesses. Conversely, regulatory constraints, bureaucratic hurdles, and inconsistencies in regulatory enforcement may hinder the growth and outreach of microfinance institutions, limiting their ability to effectively address poverty and promote inclusive economic development (Modan, & Hassan, 2018).

The issue of regulation and supervision has attracted a growing interest in the microfinance sector akin to the formal financial sector. The regulation in the formal financial sector aims to maintain a balance between shareholder and debtor/depositor interests, arises from in-formation asymmetries that are due to the peculiar nature of the assets of the banking firm (Arouri, et al., 2014). Financial organizations, such as banks and depository intermediaries, may take on unduly risky positions in order to boost expected returns for shareholders, which could cause a conflict of interest between depositors and shareholders. The primary cause of this moral hazard issue is the asymmetric distribution of information, which gives insiders—such as bank owners and managers—an informational advantage over outsiders—such as depositors and creditors. This can result in agency issues, such as depositors’ incapacity to keep an eye on financial institutions’ decisions (Babajide et al, 2020).

Socioeconomic Factors

The complex foundation that human civilization is constructed upon is comprised of socioeconomic considerations. These variables cover a wide range of topics, from social standing and employment prospects to income and education. Taken together, they influence the opportunities and limitations that people and communities face as they work toward prosperity and well-being. The idea of income is fundamental to socioeconomic issues since it determines access to basic goods and services as well as acts as a gauge of financial resources. The unequal distribution of wealth within a society, known as income inequality, is a distinguishing characteristic of socioeconomic dynamics and has significant effects on both economic mobility and social cohesion. High levels of income inequality can exacerbate disparities in access to education, healthcare, and housing, perpetuating cycles of poverty and marginalization (De Schutter et al., 2023).

A key component of socioeconomic development, education opens doors to both social and economic mobility. Having access to a high-quality education gives people the competencies, information, and abilities needed to prosper in a global economy that is becoming more and more competitive. On the other hand, differences in educational achievement, which are frequently associated with socioeconomic status, might support intergenerational cycles of disadvantage by preventing upward mobility and perpetuating social inequality. Opportunities for employment are crucial in determining socioeconomic results because they give people the ability to support themselves financially and enhance the well-being of their communities. On the other hand, underemployment and unemployment present serious problems since they not only rob people of their money but also damage their sense of self-worth and social standing. Structural factors, such as technological change, globalization, and labor market dynamics, influence the availability and distribution of employment opportunities, exacerbating disparities in income and well-being (De Schutter et al., 2023).

Technology & Innovation

Technological innovation stands as the cornerstone of human progress, driving transformative change across every facet of society, from communication and transportation to healthcare and industry (Apata, 2024). At its essence, technological innovation represents the relentless pursuit of creativity and ingenuity, pushing the boundaries of what is possible and unlocking new opportunities for human endeavor. The landscape of technological innovation is vast and ever-evolving, encompassing a diverse array of disciplines, from information technology and biotechnology to renewable energy and artificial intelligence. Each innovation, whether incremental or disruptive, carries the potential to reshape industries, redefine social norms, and alter the course of history. One of the defining features of technological innovation is its capacity to catalyze exponential growth and change. The phenomenon known as Moore’s Law, which describes the doubling of computing power approximately every two years, exemplifies the rapid pace of technological advancement. This exponential growth curve underpins the proliferation of digital technologies, enabling breakthroughs in fields such as data analytics, machine learning, and automation (Tidd, & Bessant, 2020).

Moreover, technological innovation is characterized by its interconnectedness and convergence. The convergence of technologies, such as the integration of computing, telecommunications, and biotechnology in the field of digital health, fuels synergies and amplifies impact, driving cross-disciplinary collaboration and innovation. This convergence also blurs the boundaries between physical and digital realms, giving rise to interconnected ecosystems were information flows seamlessly across platforms and devices. At the heart of technological innovation lies the spirit of entrepreneurship and experimentation. Innovators, whether in academia, industry, or grassroots communities, embody a pioneering ethos, challenging conventional wisdom and pushing the boundaries of what is possible. Entrepreneurial ecosystems, characterized by vibrant startup cultures, venture capital investment, and supportive policy frameworks, serve as fertile ground for nurturing innovation and scaling transformative ideas (He et al., 2023).

Poverty Alleviation

Poverty was defined as a condition characterized by severe deprivation of fundamental human necessities such as food, safe drinking water, sanitation facilities, health, shelter, education, and information at a UN Summit on social development, ‘the Copenhagen Declaration’ in 1995. A person is considered poor when his or her consumption falls below the poverty line of $1 per day. Poverty, according to Reinking, & Bouley, (2021), is multifaceted and intertwined, involving a lack of shelter, assets, and money, as well as hunger, pain, discomfort, tiredness, social exclusion, vulnerability, powerlessness, and low self-esteem.

Poverty for rural people entails a lack of food, insecurity, infertility, and the inability to participate in social activities. Poverty is defined by urban dwellers as a lack of job, poor social services, insufficient capital, and a lack of training skills. A professor remarked that traditional banking processes had inherent limits and were directed solely at individuals who were already wealthy. In this context, a scholar considered an alternative institutional framework that may be used to improve the lives of disadvantaged members of society. This review of literature analyzes the success of microfinance programs under the hypothesis that, if financial resources were made available to the poor on appropriate terms and conditions, the poor might establish productive employment without external aid (Thai-Ha, 2021).

Poverty is a multidimensional problem that requires broad intervention to break the vicious cycle of poverty demands. According to reports, more than 150 million of the world’s poorest families obtained a microloan in 2011, with the attainment of this target affecting the lives of an estimated half a billion people (Quinones & Remenyi, 2014). When the United Nations named 2005 as the International Year of Microcredit, intense disagreements among advocates of poverty and sustainability camps reached a high stage, and this year can be considered a landmark for the microfinance (MF) divide (Morduch, 2023). It is both human and unfair to observe a society in which a few hundred million people have access to all of the planet’s resources while billions struggle to survive. Citing research conducted in 2000, the scholar states that “the richest 10 percent owned 85 percent of the world’s resources, and the 1 percent owned 40 percent of the world’s assets” (Milanovic, 2010).

Physical weakness is a result of hunger, small stature, lack of food, weakened immune systems caused by illnesses, and difficulty in accessing or affording healthcare. Chambers (2006) has documented the various forms of deprivation that individuals in extreme poverty identify as their experience, which are not taken into account by metrics of income poverty. These include malnourishment, limited stature, and physical weakness from starvation. A household’s physical weakness can lead to poverty in a number of ways, including decreased pay for women and the weak, limited productivity of weak labor, incapacity to farm greater areas or put in long hours, and so on (Kjosavik, 2021). It sustains isolation because of a lack of time or energy to attend meetings, lack of education, remoteness, and being out of contact. This sustains poverty as services do not reach those who are remote; illiterates cannot read information of economic value and find it difficult to obtain loans (Narayan, 2000). Isolation means lack of contact with political leaders and therefore missing out on government development policies. Vulnerability is part of the many links. It relates to poverty through the sale of productive assets and physical weakness to handle contingencies; time and energy have to be substituted for money. Isolation also leads to withdrawal (Lashitew et al., 2021). Powerlessness contributes to poverty in many ways, through exploitation by the powerful (Chambers, 2006).

THEORETICAL REVIEW

Financial Inclusion Theory

The term “financial inclusion” gained more prominence in the early 21st century with efforts to ensure that individuals and communities, particularly those in low-income and underserved areas, have access to affordable and appropriate financial services. These services include savings accounts, credit, insurance, and payment systems. While there is no single person or year associated with the development of financial inclusion theory, it has evolved as a response to the challenges of financial exclusion and the goal of reducing poverty and improving economic well-being for all (Ozili, 2021). It has since become a cornerstone of global development and economic policy (Nwambeke, 2023).

This theory underpins the topic as it emphasizes the importance of providing financial services, such as microcredit, to low-income individuals and communities. Financial inclusion theory asserts that broadening access to financial services, particularly among underserved and marginalized populations, can have profound positive impacts on economic development and poverty reduction (Honohan, 2008). By providing individuals and communities with access to savings accounts, credit facilities, insurance products, and payment systems, financial inclusion seeks to empower people to manage their finances more effectively, invest in income-generating activities, and build assets over time (Banerjee et al., 2022). Financial inclusion is seen as a means of fostering economic opportunities, as it enables individuals to access credit for entrepreneurial ventures, smooth consumption patterns, and accumulate savings for future investments. Moreover, by bringing previously excluded groups into the formal financial system, financial inclusion can reduce reliance on informal financial services, which often carry higher costs and greater risks for users (ul Ain, 2020).

In the context of developing countries like Nigeria, where large segments of the population remain unbanked or underbanked, financial inclusion is regarded as a critical strategy for promoting inclusive growth and poverty reduction (Nwambeke, 2023). By expanding access to financial services among low-income individuals, women, rural communities, and other marginalized groups, financial inclusion initiatives aim to create pathways for economic empowerment and social inclusion, ultimately contributing to broader socio-economic development objectives (Guterres, 2020).

Institutional Theory

Institutional theory emphasizes the importance of regulatory frameworks, organizational structures, and cultural norms in shaping banking practices and outcomes. Institutions, both formal (such as regulatory bodies and banking regulations) and informal (such as cultural norms and social expectations), significantly influence the behavior and performance of banks within the financial system (Eicher, 2019). Regulatory frameworks play a crucial role in defining the rules of the game for banks, setting standards for capital adequacy, risk management, consumer protection, and market conduct (Ocasio, 2023). Well-designed and effectively enforced regulations can promote financial stability, market integrity, and consumer confidence, thereby fostering a conducive environment for banking operations and promoting sound banking practices (Kanter, 2019).

Organizational structures within microfinance institutions, including governance mechanisms, management systems, and internal controls, also shape their behavior and performance. Efficient organizational structures facilitate decision-making processes, risk management practices, and operational efficiency, enabling banks to serve their customers and fulfill their socio-economic mandates effectively (Meyer & Rowan, 1977). Cultural norms and social networks within the banking industry and wider society also influence banking practices and outcomes. Trust, reciprocity, and social capital are essential elements in fostering relationships between microfinance banks and their clients, facilitating access to financial resources, and promoting financial inclusion (Sun et al., 2020). Understanding and navigating the institutional landscape is crucial for banks seeking to operate effectively within diverse socio-cultural contexts and achieve their poverty alleviation objectives (Bouilloud, et al., 2020).

METHODOLOGY

This study employs a quantitative research design, utilizing surveys to collect numerical data on individuals’ experiences and perceptions of microfinance institutions, and poverty alleviation in Oyo State, Nigeria. The study focuses on 53 microfinance institutions operating across the state’s three senatorial districts: Oyo South, Oyo Central, and Oyo North. To ensure unbiased selection, the study employs a stratified random sampling technique, dividing the study area into 12 units based on local government areas (Saunders, 2014). Twelve microfinance banks were purposefully selected, with 240 questionnaires distributed randomly to customers across these banks.

The structured questionnaire includes demographic questions and closed-ended items on a 4-point Likert scale to measure respondents’ perceptions effectively (DeVellis & Thorpe, 2021). Six trained research assistants facilitated data collection. The validity of the research instrument was established through a pilot study conducted with 48 respondents from similar microfinance banks not included in the main study. Principal factor analysis, using the Varimax Extraction Method, confirmed construct validity, with all Average Variance Extracted (AVE) values exceeding the 0.5 threshold (Hair et al., 2019). Face, content, and criterion validity were further assessed by senior lecturers and the researcher’s supervisor. Reliability was tested using Cronbach’s alpha, confirming internal consistency across variables such as regulatory environment, socioeconomic factors, technology & innovation, and poverty alleviation (Nunnally & Bernstein, 1994).

Additionally, the Kaiser-Meyer-Olkin (KMO) test and Bartlett’s Test of Sphericity validated the dataset’s suitability for factor analysis, ensuring robust findings for further analysis (Field, 2018). Data for this study was collected through a survey administered with the assistance of six (6) trained research assistants. These assistants helped distribute and retrieve the questionnaires from respondents across the selected microfinance institutions. The survey aimed to capture insights from individuals who have directly interacted with microfinance institutions regarding their influence on poverty alleviation.

The collected data was analyzed using Statistical Package for the Social Sciences (SPSS) version 25. Descriptive statistics such as frequencies, percentages, and means were used to summarize responses. Inferential statistics, including regression analysis and correlation analysis, were applied to examine the relationship between microfinance institutions and poverty alleviation (Pallant, 2020).

RESULTS

Test of Hypotheses                                                                                                                 

Hypothesis One

Regulatory environment has no significant influence on poverty alleviation within Nigeria

The null hypothesis one which states that regulatory environment has no significant influence on Poverty alleviation within Nigeria was tested using simple linear regression analysis. In the analysis, the values of regulatory environment were regressed on the values of Poverty alleviation in Nigeria. The data for regulatory environment (independent variable) was generated by summing responses of all the items while Poverty alleviation in Nigeria (dependent variable) was generated by adding responses of all items used to measure the variable. The regression test results are presented in table 1.

Table 1: Summary of Regression Analysis for the Influence of the Regulatory Environment on Poverty Alleviation within Nigeria.

Source: Researcher’s Field Survey Results (2024)

Table 1 shows the regression analysis conducted to examine the Influence of the Regulatory Environment on Poverty alleviation within Nigeria. The regression model showed an overall significant relationship between the regulatory environment and Poverty alleviation in Nigeria (F(1, 238) = 29.632, p < 0.000). The coefficient of determination (R Square) indicates that approximately 11.1% of the variance in Poverty alleviation can be explained by the regulatory environment variable. The constant term (intercept) in the model is 18.794, with a t-value of 6.534 and a p-value of < 0.001. This suggests that when the regulatory environment variable is zero, the predicted Poverty alleviation score is 18.794.

The coefficient for the regulatory environment variable is 0.599, indicating that for every one-unit increase in the regulatory environment score, there is a predicted increase of 0.599 units in the Poverty alleviation score. This coefficient is statistically significant (t = 5.443, p < 0.001), indicating that the regulatory environment significantly influences Poverty alleviation in Nigeria.

The significant regression results suggest that the regulatory environment plays a crucial role in Poverty alleviation efforts within Nigeria. A higher regulatory environment score is associated with higher levels of poverty alleviation. This implies that effective regulatory policies and frameworks are essential for creating an enabling environment that supports poverty alleviation initiatives, particularly in the context of microfinance institutions and banks.

Hypothesis Two

Socioeconomic factors have no significant effect on poverty alleviation within the Nigerian context.

The null hypothesis two which states that socioeconomic factors have no significant effect on poverty alleviation within the Nigerian context was tested using Multiple Regression Analysis. The multiple regression analysis was conducted to explore the effect of socioeconomic factors on poverty alleviation in Nigeria. The results are presented in table 2.

Table 2: Summary of Multiple Regression Analysis for the Effect of Socioeconomic Factors on Poverty Alleviation within the Nigerian Context

Source: Researcher’s Field Survey Results, 2025

From the results in table 2, the multiple regression analysis results conducted on the effect of socioeconomic factors on poverty alleviation within the Nigerian context reveal some significant findings. The R Square value of 0.958 indicates that approximately 95.8% of the variance in poverty alleviation can be explained by the socioeconomic factors included in the model. This high proportion suggests that the selected variables have a strong collective influence on poverty alleviation efforts in Nigeria. The significant ANOVA result (F = 519.861, p < 0.001) indicates that the overall regression model is statistically significant. This means that at least one of the independent variables has a significant relationship with the dependent variable, which in this case is poverty alleviation. The Adjusted R Square value of 0.956, which is close to the R Square value, suggests that the model is robust and not overly influenced by outliers or irrelevant variables. This further reinforces the reliability of the regression model in predicting poverty alleviation based on socioeconomic factors.

The results reveal that access to education (β = 1.243, p < 0.001)   significantly impacts poverty alleviation, emphasizing its pivotal role in breaking the cycle of poverty through skill enhancement and increased opportunities. However, although employment opportunities (β = 0.167, p = 0.391) suggest a positive relationship, the lack of statistical significance (p = 0.391) implies that its influence on poverty alleviation in the model is not supported. Conversely, income inequality (β = -0.923, p = 0.002) exhibits a statistically significant negative association (p = 0.002) with poverty alleviation, emphasizing the need to address inequality for effective poverty alleviation. Similarly, access to quality healthcare (β = 1.393, p = 0.002) demonstrates a statistically significant positive impact (p = 0.002), highlighting the role of improved healthcare access in reducing poverty. Additionally, social welfare programs (β = 1.425, p < 0.001) reveal a highly significant positive relationship (p < 0.001), underscoring the importance of effective social safety nets in supporting vulnerable populations and reducing poverty.

The analysis reveals that infrastructure development (β = -0.278, p = 0.298) lacks statistical significance (p = 0.298), indicating a lack of support for its relationship with poverty alleviation in the model. Conversely, access to affordable housing (β = 2.351, p < 0.001) exhibits a strong positive relationship (p < 0.001) with poverty alleviation, underlining the importance of adequate housing for stability and improved living conditions in reducing poverty. However, gender equality (β = -0.185, p = 0.439) does not show statistical significance (p = 0.439) in its impact on poverty alleviation within the model. On the other hand, corruption and governance issues (β = 1.139, p < 0.001) display a statistically significant positive relationship (p < 0.001) with poverty alleviation, emphasizing the need to address corruption for effective governance and resource allocation towards poverty reduction efforts. Furthermore, socioeconomic empowerment programs (β = 1.154, p = 0.013) demonstrate statistical significance (p = 0.013), indicating a positive relationship between such initiatives and poverty alleviation, suggesting that empowerment programs can enhance individuals’ capacity to improve their socio-economic status and mitigate poverty.

Hypothesis Three

Technology & innovation have no significant relationship on Poverty alleviation in Nigeria

The null hypothesis three which states that technology & innovation has no significant relationship on Poverty alleviation in Nigeria was tested using correlation analysis to determine the relationship between the variables. The correlation results are presented in Table 3.

Table 3: Summary of Correlation Analysis for Technology & Innovation has no Significant Relationship on Poverty Alleviation in Nigeria

Source: Researcher’s Field Survey Results (2025)

From table 3, the correlation analysis conducted to examine the relationship between technology & innovation and Poverty alleviation in Nigeria revealed compelling insights. With a high positive correlation coefficient of 0.817, there exists a strong and significant relationship between technology & innovation and Poverty alleviation efforts in the country. This indicates that as levels of technology & innovation increase, so do the efforts aimed at reducing poverty. The mean score for “technology & innovation on poverty alleviation” was found to be 31.84, with a standard deviation of 2.695, while “Poverty alleviation in Nigeria” had a mean score of 34.38, with a standard deviation of 4.566. This indicates the distribution and variability of responses within the dataset, providing context for the correlation findings. The statistical significance of the correlation, as reflected by the p-value of 0.000, which is well below the conventional threshold of significance (p < 0.05), shows the robustness of the observed relationship.  These findings indicate that technology & innovation indeed have a significant positive impact on Poverty alleviation efforts within the Nigerian context.

DISCUSSION

The findings from the conducted hypotheses tests provide insightful perspectives on the relationship between microfinance institutions, environmental factors, and poverty alleviation, within the Nigeria context.

Regarding the influence of the regulatory environment on poverty alleviation (H₀1), the regression analysis yielded significant results. The obtained R-squared value of 0.111 suggests that approximately 11.1% of the variance in Poverty alleviation can be explained by the regulatory environment. Moreover, both the F-statistic and the coefficient were found to be statistically significant (F(1,238) = 29.632, t = 5.443, p = 0.000), indicating a substantial impact of regulatory measures on Poverty alleviation. Thus, the hypothesis positing the regulatory environment’s influence on Poverty alleviation is rejected. This finding aligns with the observations made in “Governance and Poverty Reduction: An Appraisal of Government Policies and Programs of Poverty Reduction in Nigeria” which identifies the absence of good governance, inconsistency in policies, and poor implementation as key reasons for the failure of previous poverty reduction measures (Odalonu, 2022). The findings from the conducted hypotheses tests shed light on the intricate relationship between various factors and Poverty alleviation in Nigeria. It also aligns with the findings of Tafamel, (2019), who observed a positive and significant relationship between microfinance institutions and Poverty alleviation. The scholars recommended providing a conducive environment for microfinance institutions, which resonates with the notion that regulatory frameworks can facilitate poverty reduction efforts. This also aligns with the recommendations provided by Prince et al., (2023), where stimulating economic growth, undertaking institutional reforms, and prioritizing the basic needs of the poor are highlighted as crucial strategies. Effective regulation can facilitate these initiatives by creating an environment conducive to economic development and ensuring equitable distribution of resources.

Concerning the impact of socioeconomic factors on poverty alleviation (H₀2), the multiple regression analysis conducted on the effect of socioeconomic factors on poverty alleviation within the Nigerian context yielded significant findings. With an R Square value of 0.958, approximately 95.8% of the variance in poverty alleviation can be explained by the included socioeconomic factors, indicating a strong collective influence on poverty reduction efforts. The significant ANOVA result (F = 519.861, p < 0.001) confirms the overall statistical significance of the regression model, implying that at least one independent variable has a significant relationship with poverty alleviation. The Adjusted R Square value of 0.956 suggests that the model is robust and not overly influenced by outliers or irrelevant variables, reinforcing its reliability in predicting poverty alleviation based on socioeconomic factors.

Specifically, access to education emerged as a significant factor (β = 1.243, p < 0.001), highlighting its pivotal role in breaking the poverty cycle through skill enhancement and increased opportunities. Conversely, employment opportunities (β = 0.167, p = 0.391) lacked statistical significance, suggesting limited influence on poverty alleviation. Income inequality (β = -0.923, p = 0.002) demonstrated a significant negative association, emphasizing the need to address inequality for effective poverty alleviation. Access to quality healthcare (β = 1.393, p = 0.002) and social welfare programs (β = 1.425, p < 0.001) also showed significant positive relationships with poverty alleviation. Infrastructure development (β = -0.278, p = 0.298) lacked statistical significance, while access to affordable housing (β = 2.351, p < 0.001) demonstrated a strong positive relationship. Gender equality (β = -0.185, p = 0.439) did not show statistical significance, whereas corruption and governance issues (β = 1.139, p < 0.001) and socioeconomic empowerment programs (β = 1.154, p = 0.013) exhibited significant positive relationships with poverty alleviation. These findings underscore the multifaceted nature of poverty alleviation efforts, emphasizing the importance of addressing various socioeconomic factors for effective poverty alleviation in Nigeria.

These results of the regression analysis on the impact of socioeconomic factors on poverty alleviation within the Nigerian context align with and complement the findings presented in this study. The observation that income inequality, although not statistically significant in the regression analysis, may still play a crucial role in poverty behavior resonates with the findings as cited in the study, highlighting the significance of growth as a primary factor influencing poverty trends, while acknowledging the role of income distribution in shaping poverty outcomes. This suggests that while income inequality may not emerge as a major cause of poverty in the regression analysis, it remains an important consideration in understanding poverty dynamics in Nigeria, as emphasized by the broader study (Todaro & Smith, 2020).

Furthermore, some scholars emphasize the significant negative association between access to education and poverty alleviation, corroborating the findings of the study regarding the transformative impact of education on poverty alleviation. The study’s focus on the role of education in equipping individuals with essential skills and opportunities aligns with the analysis results, underscoring the importance of educational interventions in breaking the poverty cycle and fostering socio-economic empowerment (Guterres, 2020). Additionally, the study’s insights into the impact of political stability, infrastructure development, and unemployment on poverty dynamics complement the regression analysis findings, providing valuable context for interpreting these relationships. The scholars’ observations regarding the negative relationship between political stability and poverty, as well as the negative coefficient associated with infrastructure development, resonate with the analysis results, highlighting the multifaceted nature of poverty alleviation efforts in Nigeria (Reinking, & Bouley, 2021).

Moreover, the study’s emphasis on the positive correlation between unemployment and poverty, as well as the role of corruption and governance issues in shaping poverty outcomes, reinforces existing knowledge. By highlighting the detrimental effects of unemployment and corruption on poverty reduction efforts, this study underscores the importance of addressing systemic barriers to poverty alleviation (Gasper, 2022).

Exploring the relationship between technology and innovation and poverty alleviation (H₀3), correlation analysis uncovered a positive correlation. The correlation coefficient of 0.817, significant at p < 0.001, indicates a strong association between technology and poverty alleviation efforts. This finding resonates with the call for infrastructural development and technological advancements outlined in this work (Huynh, 2024). Moreover, it complements the discussion on unemployment and income inequality in this study, highlighting the potential of technology and innovation in creating productive job opportunities and addressing income disparities. This finding aligns with the recommendations of this scholar, who emphasizes promoting innovation and entrepreneurship as essential components of poverty reduction strategies (Henrekson et al., 2024).

This study provides quantitative evidence of the strong association between technology and poverty alleviation, while also offering qualitative insights into the strategic initiatives and policy interventions aimed at harnessing ICT for socio-economic empowerment and job creation in Nigeria. The study underscores the pivotal role of ICT in promoting innovation, investment, and competition, as articulated in the eight-point agenda within the National Communication Commission’s (NCC) strategic vision 2015-2020. By facilitating the rollout of broadband infrastructure and promoting broadband services accessibility, the NCC aims to create opportunities for all Nigerians, particularly youths, to participate in the digital economy and harness the transformative potential of ICT for poverty reduction. This aligns with the analysis findings, which highlight the significant positive relationship between technology and poverty alleviation, emphasizing the importance of ICT-driven initiatives in addressing socio-economic disparities and fostering inclusive growth (Okundia, 2022).

Furthermore, the results and recommendations from other studies complement the findings of the present study. For instance, the study by Ezeanyeji et al. (2020) on the impact of microfinance banks on poverty alleviation in Nigeria provides empirical evidence supporting the efficacy of microfinance as a strategy for poverty reduction. The positive relationship between access to microloans and the standard of living of respondents underscores the importance of financial inclusion in poverty alleviation efforts, which resonates with the findings of the current study regarding the role of socioeconomic factors. This finding echoes the importance of financial development and access to credit, as discussed in the study by Leng et al (2024). While the strength of banking channels and access to credit may not alone lead to substantial poverty alleviation, the integration of technology and innovation can enhance the effectiveness of poverty alleviation initiatives.

The study’s findings provide valuable insights into how MFIs and banks can effectively contribute to poverty alleviation efforts in Nigeria. The significant influence of the regulatory environment on poverty alleviation underscores the importance of supportive policies and regulations for financial institutions. A conducive regulatory framework enables MFIs and banks to operate efficiently, expand their outreach to underserved populations, and offer a diverse range of financial products and services tailored to meet the needs of low-income individuals and communities.

The profound impact of socioeconomic factors on poverty alleviation highlights the multifaceted nature of poverty reduction efforts. Factors such as access to education, income inequality, healthcare, and social welfare programs emerged as significant determinants of poverty reduction. For MFIs and banks, addressing these socioeconomic challenges requires innovative approaches to financial inclusion. By providing microcredit, savings accounts, insurance, and other financial services, MFIs and banks can empower individuals to improve their livelihoods, access essential services, and build resilience against economic shocks.

Moreover, the positive relationship between technology and poverty alleviation underscores the transformative potential of digital financial services. In Nigeria, leveraging technology can enhance the accessibility, affordability, and efficiency of financial services, particularly for underserved populations in remote areas. Mobile banking, digital payments, and fintech innovations offer promising avenues for expanding financial inclusion, reducing transaction costs, and improving the overall customer experience (Demirgüç-Kunt et al., 2018).

The regression analysis conducted to explore the impact of microfinance institutions (MFIs) on poverty alleviation within the Nigerian economic landscape yielded significant results. The coefficient of determination (R Square) indicated that approximately 6.1% of the variance in poverty alleviation could be explained by the inclusion of the predictor variable “Microfinance Institutions on Poverty Alleviation” in the model. However, the adjusted R Square, which accounts for the number of predictors and sample size, remained consistent at 5.8%. This suggests that while the model had statistical significance, the proportion of variance explained was relatively modest. The coefficient for the predictor variable “Microfinance Institutions on Poverty Alleviation” was statistically significant (p < 0.001), with a value of 0.166. This indicated that for every one-unit increase in the presence or effectiveness of microfinance institutions in addressing poverty, there was a corresponding increase of 0.166 units in the outcome variable of poverty alleviation. The associated t-value of 4.812 further confirmed the significance of this relationship.

These findings suggest that microfinance institutions have a positive and significant impact on poverty alleviation within the Nigerian economic landscape. Despite the relatively low percentage of variance explained, the positive coefficient indicated that as microfinance institutions became more effective or prevalent, there was a corresponding improvement in poverty alleviation efforts in Nigeria.

This result contradicts the findings of Sherpa et al (2024), who indicated that microfinancing, contrary to expectations, increased poverty in the long run. They emphasized the importance of proper utilization of microfinance loans to ensure poverty reduction. On the other hand, Ezeanyeji et al., (2020) highlighted the long-term effects of microfinance banks’ activities on poverty reduction, suggesting that while immediate impacts may be limited, microfinance initiatives contribute to poverty reduction over time. Other scholars such as Cai et al., (2023) also underscored the significance of microfinance banks in poverty alleviation and economic growth in Nigeria, albeit with varying effects on different aspects such as assets, deposit liabilities, and loans and advances.

CONCLUSION AND RECOMMENDATIONS

In conclusion, this study sheds light on the intricate dynamics of poverty alleviation in the Nigerian economic landscape, particularly within the context of microfinance institutions (MFIs). The analysis indicates that microfinance institutions play a significant role in poverty alleviation within the Nigerian economic landscape. Despite explaining a relatively modest proportion of the variance in poverty alleviation, the positive and statistically significant relationship between the presence or effectiveness of microfinance institutions and poverty reduction suggests their importance in addressing economic disparities. The research also reveals that effective regulatory measures play a pivotal role in shaping the operating environment for MFIs. Transparent and supportive regulations enable financial institutions to expand their reach, innovate financial products, and enhance their contribution to poverty alleviation. Policymakers must prioritize regulatory frameworks that foster financial inclusion, consumer protection, and institutional stability to maximize the impact of MFIs on poverty alleviation. Moreover, the study highlights the multifaceted nature of poverty alleviation, emphasizing the importance of addressing various socioeconomic factors. Access to education, income inequality, healthcare, and social welfare programs emerged as significant determinants of poverty reduction. MFIs can leverage their resources and expertise to provide tailored financial solutions that empower individuals and communities to overcome poverty-related challenges.

Furthermore, the positive correlation between technology adoption and poverty alleviation underscores the transformative potential of digital financial services. By embracing technological innovations, MFIs can enhance financial access, affordability, and efficiency, particularly for underserved populations. Mobile banking, digital payments, and fintech solutions offer promising avenues for expanding financial inclusion and driving sustainable development. In essence, this study underscores the critical role of MFIs in poverty alleviation efforts in Nigeria. By aligning their strategies with the study’s insights and collaborating with stakeholders across sectors, financial institutions can catalyze inclusive economic growth, social equity, and poverty alleviation. With concerted efforts and targeted interventions, MFIs can contribute significantly to building a more prosperous and resilient society for all Nigerians.

RECOMMENDATIONS

Based on the findings of this study on the role of microfinance institutions (MFIs) in alleviating poverty in Nigeria, several recommendations are proposed:

Policymakers should prioritize regulatory reforms aimed at enhancing the enabling environment for MFIs. Transparent and supportive regulatory frameworks should be developed to promote financial inclusion, consumer protection, and institutional stability. Additionally, policymakers should streamline bureaucratic processes and address regulatory barriers to facilitate the expansion of financial services to underserved populations.

Stakeholders, including government agencies, development partners, and non-governmental organizations, should invest in capacity building initiatives for MFIs. Training programs focused on risk management, product innovation, and technology adoption can enhance the operational efficiency and sustainability of financial institutions. Furthermore, initiatives to improve financial literacy among clients can empower individuals to make informed financial decisions and maximize the benefits of financial services.

Efforts to promote financial inclusion should be intensified, particularly in rural and marginalized communities. MFIs should leverage innovative delivery channels, such as mobile banking and agent banking, to reach unbanked populations effectively. Collaboration with telecommunications companies, fintech startups, and community-based organizations can facilitate the expansion of financial services to remote areas and underserved populations.

MFIs should diversify their product offerings to address the diverse financial needs of clients. Tailored financial products, such as microloans, savings accounts, insurance products, and agricultural finance solutions, can cater to the specific needs of different customer segments. Moreover, the development of innovative financial products, such as digital lending platforms and peer-to-peer lending networks, can expand access to credit and promote entrepreneurship among low-income individuals.

Embracing technological innovations is essential for enhancing the efficiency, accessibility, and affordability of financial services. MFIs should invest in digital infrastructure, such as mobile banking platforms, automated teller machines (ATMs), and online banking portals, to improve service delivery and customer experience. Additionally, partnerships with fintech companies can facilitate the integration of cutting-edge technologies, such as blockchain and artificial intelligence, to enhance the security and scalability of financial transactions.

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