Effectiveness of Microcredit in Reducing Household Poverty Level: An Empirical Study Based on Hambantota Women’s Development Federation. Ajitha Wijayasena 1, Ushan Karunasinghe 2, Pulasthi Semasinghe 3, Michitha Bandara 4 Department of Business Management, Sri Lanka Institute of Information Technology. November 2016 1
[email protected], 2
[email protected], 3
[email protected], 4
[email protected] Supervisor: Mr. Kingsley Bernard ABSTRACT – “Poverty is the denial of choices and opportunities which is a violation of human dignity”. Unfortunately poverty is often an invisible problem where the voices of the poor are seldom heard especially in developing countries such as Sri Lanka. As a remedy for this contemporary issue, a mechanism named microcredit was originated where people have given small loans who are too poor to qualify for traditional bank loans and other financial services due to lack of collateral, steady employment or verifiable credit history. This research is based on measuring the effectiveness of microcredit facility offered by Hambantota Women’s Development Federation (WDF) and its impact on credit holder’s household poverty alleviation. Three major measures of household poverty alleviation were identified (entrepreneurial success, living standard & women empowerment) and determined the effectiveness of microcredit on those key measures. From the results it is concluded that effectiveness of microcredit has a significant positive relationship with entrepreneurial success (0.491), living standard (0.448), women empowerment (0.400) and household poverty alleviation (0.518). Hence it is suggested that microcredit facilities are essential in empowering women, developing women entrepreneurs, improving their living standards and thereby to reduce their household poverty levels. Keywords: effectiveness of microcredit, entrepreneurial success, living standard, women empowerment, poverty alleviation. I.
INTRODUCTION
The purpose of this research is to identify the effectiveness of microcredit in household poverty alleviation in Hambantota district. By 2000, poverty has becoming a severe issue among most of the developing countries such as Sri Lanka. To address that issue United Nations came up with a framework named ‘Millennium Development Goals’ in order to eradicate world poverty by 2015 (United Nations, 2000). There they identified women empowerment and development SLIIT
as a key to alleviate poverty. Having that objective Microfinance Institutes (MFIs), Banks and some MFI-NGOs expanded their services with offering microfinance facilities such as microcredit, micro-insurance, micro-leasing and other consultancy services to poor people; especially for women in Sri Lanka. Microcredit is a component of microfinance that involves providing credit to the poor (Wrenn, 2005). Most of the past literature concluded that there is a significant positive relationship between poverty reduction and microcredit. A focus note by CGAP (Consultative Group to Assist the Poor) concluded that no single intervention can defeat poverty and the beauty of microfinance is that, as programs approach financial sustainability, they can reach far beyond the limits of scarce donor resources (Littlefield et al., 2003). Fundamentally this research will describe the effectiveness of microcredit on household poverty alleviation. Hence this research will be focused on the issue ‘has microcredit become an effective strategy in reducing household poverty level’. A. Problem Statement The main research problem of this research is “has microcredit become an effective strategy in reducing household poverty level”. According to Yogendrarajah, women constitute 70 per cent of the world's 1.3 billion absolute poor and the very young (girl children) and old (old women) are more vulnerable to poverty (Yogendrarajah, 2011). On the other hand an empirical research done considering 20 MFIs shown that 68% of the memberships are hold by the female population in Sri Lanka (Atapattu, 2009). This attest the need of undertaking this research because the only way Sri Lanka can uplift poor women is by identifying the root causes of their poverty. Most of the past researchers concluded that it is necessary to enhance the entrepreneurial skills of the rural women in order to reduce their household poverty level. These women need to be recognized and provide financial aids to improve and empower themselves socially and economically. The first 1
sub-problem of the research is identified as “has microcredit become an effective strategy in women entrepreneurial success”. Subsequently the next sub-problem is recognized as “has microcredit become an effective strategy in improving household living standards”. According to past literature, both of these two sub-problems and the third sub problem; “has microcredit become an effective strategy in empowering women” have a direct linkage with the main research problem. By observing solutions for these subproblems it can accomplish the main objective of the research which is to examine the effectiveness of microcredit in household poverty reduction in Hambantota district. B. Significance of the Study Sri Lanka is a developing country. Nevertheless the PHCR (Poverty Head Count Ratio) of Sri Lanka shows a significant decrease over last 2 decades. It attests that as a country Sri Lanka has contributed significantly to reach MDGs by lowering the poverty level of the population. According to latest information Sri Lanka’s official poverty line at national level for August 2016 was Rs. 4,063 (Department of Census and Statistics, 2016). According to the Ministry of Finance and Planning, majority of the people who are vulnerable to poverty are from rural areas of Sri Lanka (Ministry of Finance and Planning, 2010). However these reports concluded that over the past years there was a significant decrease of poor population in Sri Lanka. Hence the significant of this research is to realize how microcredit programs supported these achievements in lowering poverty in household level. If the contribution of microcredit is significant, thus can improve, promote and encourage microcredit programs in rural areas thereby to reduce household poverty in Sri Lanka. Further this research will provide a clear guidance to Sri Lankan government to reduce household poverty and reach MDGs using microcredit, if it identified as an effective strategy in reducing household poverty level. II.
LITERATURE REVIEW
Microfinance is a provision of financial services to lowincome poor and very poor self-employed people (Otero, 1999). Poverty is a concept that applies to all humans and more seriously to people in the developing world. “Fundamentally, poverty is the denial of choices and opportunities which is a violation of human dignity.” (Administrative Committee on Coordination United Nations, 1998). Poverty is also defined as the deprivation of basic necessities of life such as food, shelter, accommodation, and clothing (Boateng et al., 2015). The poverty level of Sri Lanka has continuously declined over the past years while the country is reaching MDGs of halving poverty by 2015. According to HIES, the PHCR based on the official poverty line was 6.7% in 2012/13 compared to 8.9% recorded in 2009/10 and 15.2% in 2006/07 SLIIT
(Central Bank, 2014). At the same time various microfinance programs were came up. Majority of these microfinance/microcredit programs were targeting rural women. According to Microfinance industry report 2010, almost 90% of the 7,141 microfinance outlets are located in areas classified by the Department of Census and Statistics as “Rural”. Less than 10% of outlets are located in urban areas and only 1% belongs to the estate sector. It concluded that majority of the MFIs are concentrating on empowering poor people who are closer to the national poverty line. Primary objective of this research is to examine the effectiveness of microcredit in household poverty reduction. Yogendrarajah and Semasinghe conducted an empirical study focuses on women empowerment through microcredit under post-war development in Jaffna District and the results concluded that microcredit has a significant relationship and positively correlated (0.752) with empowerment at 0.01 significant levels and its impact is crucial as well. It suggested that microcredit facilities are essential in empowering women and developing women entrepreneurs under post-war development (Yogendrarajah and Semasinghe, 2013) since most of them are unable to claim traditional loans from banks. However the results of that research concluded that higher the level of microcredit positively correlated with empowering poor women. Furthermore another base research concluded that “microcredit tends to be an important factor to have an impact on household income which minimizes the poverty situation to a reasonable context.” (Mazumder and Wencong, 2013). A. Background of the Research The topic of this research is "Effectiveness of microcredit in reducing household poverty level: An empirical study based on Hambantota Women’s Development Federation." Most of the past literature concluded that microfinance can be used as a tool to reduce household poverty level. In a research done by D.G.P. Kaluarachchi and A. Jahfer shown that microfinance programs significantly help poor people to uplift their live but also revealed that microfinance facilities are no 'magic bullet' for poverty reduction where many other changes are also needed. Finally, it is concluded that there is a significant relationship between the microfinance and poverty alleviation in a certain level of percentage (Kaluarachchi and Jahfer, 2010). B. Conceptualization
Figure 1: Conceptual Framework
2
Microcredit is a component of microfinance and is the extension of small loans to entrepreneurs, who are too poor to qualify for traditional bank loans (Khan and Rahaman, 2007). In order to measure this variable, few questions were included in the questionnaire that formulated in Likert scale format. Those will include the respondent’s level of agreement with loan obtaining process, loan amount, loan cycle, loan interest, loan repayment process and the awareness about the whole credit program. “Fundamentally, poverty is a denial of choices and opportunities which is a violation of human dignity.” If further elaborate, it can be defined as the inability of a household to fulfill their basic human needs. Poverty was planned to measure by analyzing three major dimensions which are entrepreneurial success, living standard and empowerment. C. First Sub-problem Discussion Under the main research problem, the first identified subproblem is “has microcredit become an effective strategy in women entrepreneurial success”. A research done by Jahangir Alam Chowdhury on the topic of "Does the Participation in the Microcredit Programs Contribute to the Development of Women Entrepreneurship at the Household Level: Experience from Bangladesh" concluded that microcredit programs does not promote women entrepreneurship at the household level (Chowdhury, 2008). However the Sri Lankan context may different from Bangladesh and some of past literature shown that microcredit programs promote women entrepreneurship in household level. Another study on the topic of "Role of microcredit in women's empowerment in Pakistan" concluded that microcredit has a positive impact on women socio-economic status and empowerment and it increases the self-confidence and feelings of identity for women in the society to some extent. Further it revealed that microcredit is much helpful for the women who have their own businesses or have some ideas and expertise about the business before getting credit (Haq and Kamran, 2009). Moreover a research done by Sedina Misango and Orpha Ongiti expressed that women entrepreneurs play a major role in poverty reduction in Kenya (Misango and Ongiti, 2013). Based on those conclusions it is assumed that there is a positive relationship between effectiveness of microcredit and women entrepreneurial success is tested by analyzing the results of the questionnaire. Hypothesis 1: H1a: There is a positive relationship between effectiveness of microcredit and women entrepreneurial success.
living standards”. Most of the past literature concluded that living standards play a major role in poverty reduction. Hence they considered improvements in household living standard as a poverty reduction dimension. According to the researchers Zahid, Shahid and Muhammad, microfinance is playing a vital role in fulfillment of basic needs, improving living standard and increasing self-employment (Iqbal et al., 2015). According to Shafin, microcredit program participation had positive impact on per capita food expenditure, landholding, and women’s ownership of nonland assets (Fattah, 2014). Similarly Ganga and Upali concluded that microcredit has supported income and employment generating activities among their clients (Tilakaratna and Wickramasinghe, 2005). Another research done by Asmamaw concluded that almost all microcredit holders reported an increase in their incomes which has improved their standard of living, empowered economically etc. (Chirkos, 2014). Based on those conclusions it is assumed that there is a positive relationship between effectiveness of microcredit and improvement of household living standards. Therefore the household living standard is another major dimension of poverty in this research. Hypothesis 2: H1b: There is a positive relationship between effectiveness of microcredit and improvement of household living standards. E. Third Sub-problem Discussion The third identified sub-problem is “has microcredit become an effective strategy in empowering women”. According to the researcher Yogendrarajah microcredit is not sufficient in the process of empowering income poor women, but it is one of the very important ingredients in that process (Yogendrarajah, 2011). Further, a research done by Saeid and Carina on the topic of "Empowerment through entrepreneurship", concluded that entrepreneurship can be a tool for increasing empowerment among educated immigrant women (Abbasian and Bildt, 2009). Correspondingly it shows there is a closer relationship between women entrepreneurship and empowerment too. Another research on the topic of "Impact of microcredit programs on eliminating economic hardship of women” concluded that there is a strong positive relationship between microcredit programs and elimination of economic hardship of women (S and F.B., 2010). So that it is necessary to identify the elements of microcredit programs that need to improve in order to empower poor women. However it is assumed that there is a positive relationship between effectiveness of microcredit and women empowerment based on the above conclusions. Thus, women empowerment also will be another dimension of poverty to be measured in this research.
D. Second Sub-problem Discussion The second identified sub-problem is “has microcredit become an effective strategy in improving household SLIIT
Hypothesis 3: H1c: There is a positive relationship between effectiveness of microcredit and women empowerment. 3
F. Research Objectives
To examine the effectiveness of microcredit in household poverty reduction. To examine the effectiveness of microcredit in women entrepreneurial success. To examine the effectiveness of microcredit in improving household living standards. To examine the effectiveness of microcredit in empowering women.
III.
METHOD
A. Sample & Sampling Technique Convenience sampling technique was used in selecting Janashakthi bank societies. Accordingly 04 Janashakthi bank societies were selected; Hambantota, Godawaya, Mirijjawila and Dehigahalanda. Each bank consists around 500 members. Hence from each bank, 50 members were randomly added to the sample because it is very hard to observe all microcredit holders in each bank. Likewise the planned sample was 200 respondents but only 152 responds were collected due to time and feasibility constraints. The study was made considering only women clients who were taking loans for productive purposes such as starting or developing their own businesses. Further it is planned to select both type of clients who were taking loans for more than 2 years (Mature clients) as well as less than 2 years (Recent and Incoming clients) in order to measure how well microcredit supports to improve their household status over the period of the membership. B. Data Collection A cross-sectional descriptive research design is used in this study. Both semi-structured interviews and a well-developed questionnaire were used in the data gathering process. Interviews were held with the Managing Director of the WDF and other respective bank managers in order to gather information about microcredit holders (borrowers) of the organization. Subsequently the questionnaire was used to gather data from microcredit holders. Most of the questions were adopted from a household survey done by Sri Lankan – German Development Cooperation (GTZ) (Kristina Czura, 2010). This questionnaire basically gathered credit holders’ demographic and socio-economic information under 6 sections. Information related to size of the loan, recovery of loan, period of joining and other membership characteristics are also collected from the respondents. As well as gathered information about the perception of the respondents on effectiveness of microcredit on poverty reduction, empowerment, improvement of living standards and entrepreneurship. Almost all the questions related to core poverty dimensions will be Likert scale questions, rating SLIIT
Strongly Agree 5; Agree 4; Not Decided 3; Disagree 2; Strongly Disagree 1 (Charles et al., 2011). These Likert Scale questions helped to convert the questionnaire results into a statistical model without any substantial complications. C. Data Analysis The Pearson Correlation analysis is used to examine the relationship between effectiveness of microcredit, women entrepreneurial success, improvement of living standards, women empowerment and household poverty alleviation by using Statistical Package for Social Sciences (SPSS). Regression analysis is carried out to test how significant the effectiveness of microcredit on women entrepreneurial success, improvement in living standard, women empowerment and ultimately on the household poverty alleviation (Yogendrarajah and Semasinghe, 2013). In this study effectiveness of microcredit is identified as the independent variable whereas household poverty alleviation is identified as the dependent variable. D. Limitations
IV.
Number of respondents are limited to a maximum of 200 only from one microcredit organization. The area was restricted to 04 GNDs of Hambantota which may fail to represent the most accurate scenario of the whole district. Faced difficulties when developing the theoretical framework because no established theories were particularly defined the microfinance field yet. The data were collected merely from women respondents in the region. Various other factors may affect (e.g. Education level) entrepreneurial success, living standard and women empowerment, but in this research only the effectiveness of microcredit is viewed closely. FINDINGS & DISCUSSION
A. Characteristics of the Sample The sample consists of 38 respondents from Hambantota, 44 from Godawaya, 40 from Mirijjawila and 30 respondents from Dehigahalanda Janashakthi Bank Societies. About 80% of the sample represents mature clients (122 clients) who were taking microcredit for more than 2 years and the rest is representing the recent and incoming clients (30 clients) who are new to this microcredit program. Moreover, about 28% of the selected households were headed by those women credit holders where the major decisions of that particular households were primarily undertaken by them. Only 1.3% of clients (2 clients) had the university education, 16.4% has only completed the advanced level, 28.9% has only accomplished the ordinary 4
level examination whilst about 30% just studied till the ordinary level but not completed the examination and 23% of the clients had no satisfactory level of education. Roughly 98% of the loans were taken in order to initiate a business or develop their businesses. Only 2% of the sample (3 clients) took loans for other purposes such as to build and repair their houses, to purchase assets as well as to repay loan installments and interest. Around 71% of the clients have taken loans more than three times whereas nearly 12% of the clients have taken loans 3 times, about 8% of the clients have taken just 2 loans and 9.2% of the clients have taken just one loan from the organization. Approximately 50% of the majority of the clients are engaged in self-employment whereas about 21% are functioning in agricultural businesses such as paddy cultivation. Another 17.1% of the total respondents are doing wholesale and retail businesses whilst around 20% of the respondents are engaged in fisheries and livestock businesses. Another thing that realized in here was the nature of the business of clients vary with the location where they dwelled in. As an example it is recognized that most of the fishermen who involved in fishery businesses are settled in Godawaya GND since it was well known as a small fishing hamlet. Further it realized that the type of the business has a significant impact on the household poverty alleviation. In other words it is recognized that the degree of household poverty alleviation vary with the type of the business activities of the respondents. B. Key Findings Descriptive Statistics Std. Mean Deviation Effectiveness of Microcredit Entrepreneurial Success Living Standard Women Empowerment Household Poverty Alleviation
Entreprene urial Success
Living Standard
SLIIT
Sig. (2tailed) N Pearson Correlation Sig. (2tailed) N Pearson Correlation Sig. (2tailed) N
4.3289
.49573
152
3.8691
.71975
152
3.8612
.70898
152
4.3355
.63771
152
4.0219
.59595
152
Entrepr eneurial Succes s
Living Stand ard
Women Empow erment
H/H Povert y Alleviat ion
.491**
.448**
.400**
.518**
.000
.000
.000
.000
152
152
152
152
**
**
.896**
.000
.000
.000
152
152
152
**
.904**
.000
.000
152
152
.772
.525
.551
.787** .000 152
Table 2: Correlation Test Results Regressions Model Summary - Effectiveness of Microcredit Vs. Entrepreneurial Success R Adjusted R Std. Error of Model R Square Square the Estimate 1 .491a .241 .236 .62929 a. Predictors: (Constant), Effectiveness of Microcredit Model Summary - Effectiveness of Microcredit Vs. Living Standard R Adjusted R Std. Error of Model R Square Square the Estimate 1 .448a .201 .195 .63599 a. Predictors: (Constant), Effectiveness of Microcredit Model Summary - Effectiveness of Microcredit Vs. Women Empowerment R Adjusted R Std. Error of Model R Square Square the Estimate 1 .400a .160 .154 .58644 a. Predictors: (Constant), Effectiveness of Microcredit Model Summary - Effectiveness of Microcredit Vs. H/H Poverty Alleviation R Adjusted R Std. Error of Model R Square Square the Estimate 1 .518a .268 .263 .51155 a. Predictors: (Constant), Effectiveness of Microcredit
N
Correlations
Pearson Correlation
Pearson Correlation Sig. (2tailed) N **. Correlation is significant at the 0.01 level (2-tailed).
Table 3: Regression Test Results
Table 1: Descriptive Statistics
Effectivene ss of Microcredit
Women Empowerm ent
Table 2 shows that there is a positive correlation of 0.491 between effectiveness of microcredit and entrepreneurial success at 0.01 significant levels. From this results hypothesis 1 (H1a) has been accepted and it is proved that there is a significant positive relationship between effectiveness of microcredit and entrepreneurial success of women. Moreover by having a mean of 3.8691, which is a value above the midpoint of a 5 point satisfaction scale, demonstrated that majority of the clients accept that there is a substantial development in their enterprises. From the regression analysis it can be observed that entrepreneurial success of women is influenced by effectiveness of microcredit by 24.1% (R square value) and remaining 75.9% is determined by other factors such as education level, training and development, modern technology development etc. Furthermore Table 2 shows that there is a positive correlation of 0.448 between effectiveness of microcredit and living standard at 0.01 significant levels. From this results the hypothesis 2 (H1b) also has been accepted and it is proved that there is a significant positive relationship between effectiveness of microcredit and improvements in household living standard of clients. As well as a mean of 3.8612 demonstrated that most of the clients have agreed that there is a remarkable improvement in their household living 5
standard along with the time. When it comes to the regression analysis it can be observed that improvement in household living standards is influenced by effectiveness of microcredit by 20.1% (R square value) and remaining 79.9% is determined by other factors such as price levels, economy conditions etc. Also there is a positive correlation of 0.400 between effectiveness of microcredit and women empowerment at 0.01 significant levels according to Table 3. From this results hypothesis 3 (H1c) also has been accepted and it is proved that there is a significant positive relationship between effectiveness of microcredit and women empowerment. From the sample majority of the women have agreed that they have empowered along with the time which is clearly reflected by a mean value of 4.3355. From the regression analysis it can be observed that women empowerment is influenced by effectiveness of microcredit by 16% (R square value) and the remaining 84% is determined by other factors such as self-esteem, self-confidence etc. Further it demonstrated that there is a positive correlation of 0.518 between effectiveness of microcredit and household poverty alleviation at 0.01 significant levels. These results ensured that the major research question; “has microcredit become an effective strategy in reducing household poverty level” has been answered clearly. Further from regression analysis it can be observed that household poverty alleviation is influenced by effectiveness of microcredit by 26.8% (R square value) and the remaining 73.2% is determined by other factors such as knowledge, health, conditions of the economy etc. C. Other Findings
Incoming and Recent Clients:
Descriptive Statistics – Incoming and Recent Clients Std. Mean Deviation N Effectiveness of 3.8778 .56550 30 Microcredit Entrepreneurial 2.9900 .67382 30 Success Living Standard 2.8667 .56128 30 Women 3.7533 .66991 30 Empowerment Household Poverty 3.2033 .52099 30 Alleviation
Table 4: Descriptive Statistics - Incoming and Recent Clients
Entrepreneuri al Success
Pearson .711** .476** Correlation Sig. (2.000 .008 tailed) N 30 30 Living Pearson .343 Standard Correlation Sig. (2.063 tailed) N 30 Women Pearson Empowermen Correlation t Sig. (2tailed) N **. Correlation is significant at the 0.01 level (2-tailed).
Entrepre neurial Success Effectiveness of Microcredit
Women Empow erment
.300
Sig. (2tailed)
.107
.006
.524
.053
30
30
30
30
.490**
.121
.357
30 .813** .000 30 .757** .000 30
When it comes to incoming and recent clients, Table 6 shows that there is a positive relationship between effectiveness of microcredit and all other measures as well as household poverty alleviation. However the only significant relationship that has been identified between effectiveness of microcredit and household living standard at 0.01 significant levels. There is no significant relationship identified between effectiveness of microcredit with entrepreneurial success, women empowerment and household poverty alleviation for recent and incoming clients of WDF.
Mature Clients: Descriptive Statistics – Mature Clients Mean
Effectiveness of Microcredit Entrepreneurial Success Living Standard
Std. Deviation
N
4.4399
.40885
122
4.0852
.54677
122
4.1058
.49619
122
Women Empowerment
4.4787
.54336
122
Household Poverty Alleviation
4.2232
.41370
122
Table 6: Descriptive Statistics - Mature Clients
Correlations – Mature Clients
Entrepre Living neurial Stand Success ard Effectiveness of Microcredit
Pearson Correlation Sig. (2tailed)
Pearson Correlation
N
SLIIT
Living Standa rd
.000
Table 5: Correlation Test Results - Incoming and Recent Clients
Correlations – Incoming and Recent Clients H/H Pover ty Allevi ation
.890**
Entrepreneuri al Success
Living Standard
N Pearson Correlation Sig. (2tailed) N Pearson Correlation Sig. (2tailed) N
Women Empow erment
H/H Povert y Allevia tion
.307**
.101
.296**
.305**
.001
.267
.001
.001
122
122
122
122
**
**
.807**
.000
.001
.000
122
122
122
**
.820**
.000
.000
122
122
.580
.308
.376
6
Women Empowermen t
Pearson Correlation Sig. (2tailed) N **. Correlation is significant at the 0.01 level (2-tailed).
.724** .000 122
Table 7: Correlation Test Results - Mature Clients
When it comes to mature clients, correlations test results appeared to be significantly different from the correlation test results of the recent and incoming clients. Table 9 demonstrated that there is a positive correlation of 0.307 between effectiveness of microcredit and women entrepreneurial success, a positive correlation of 0.296 between effectiveness of microcredit and women empowerment as well as a positive correlation of 0.305 between effectiveness of microcredit and household poverty alleviation at 0.01 significant levels. However the Table indicates that there is no significant relationship between effectiveness of microcredit and household living standard for mature clients. Nevertheless by having a higher mean of 4.1058, indicates that majority of the client’s living standards have increased along with the time. D. Discussion of Results
Discussion of Key Findings:
In brief it is concluded that effectiveness of microcredit has a significant positive correlation with entrepreneurial success (0.491), living standard (0.448), women empowerment (0.400) and household poverty alleviation (0.518). A base research done by Ganga Tilakarathna and Upali Wickramasinghe expressed similar results concluding that “microcredit has supported income and employment generating activities among their clients where many businesses that have started under microfinance programs are either micro enterprises or small-scale self-employment activities that use little or no technology and skills.” (Tilakaratna and Wickramasinghe, 2005). Another research done regarding women empowerment through microcredit under post-war development conveyed similar results concluding that “microcredit facilities are essential in empowering women and developing the women entrepreneurs.” As well as that particular research shows, there was a positive correlation of 0.441 between microcredit and entrepreneurship development at 0.01 significant levels (Yogendrarajah and Semasinghe, 2013). Likewise, these similar results attested that microcredit has become an effective strategy in women entrepreneurial success. When it comes to living standard of clients, the housing condition were considered as a very important factor. A survey done by GTZ evident that about 96.5% of the WDF’s clients in their sample have their own houses as well as about 27.7% of those clients have improved their houses recently (Kristina Czura, 2010). Likewise, this research conducted by us demonstrated indistinguishable results where around 96.7% of the clients have stated that they are living in their SLIIT
own accommodation as well as about 46.7% of them have dove recent improvements or repairs to their households. Similarly, a base research done on microfinance and poverty alleviation in Sri Lanka concluded that “microfinance programs significantly help poor people to uplift their live which lead for poverty alleviation in Sri Lanka.” (Kaluarachchi and Jahfer, 2010). As well as the research done by Kennedy and Maheswaranathan demonstrated almost identical results with this research concluding that microcredit resulted in improving the quality of life than existed earlier. Moreover it concluded that “microcredit loans empower the poor to seek alternative ways to improve their lifestyles.” (S and F.B., 2010). This research has further shown that there is a significant positive correlation of 0.400 between effectiveness of microcredit and women empowerment. The same base research stated above which was done on the topic of ‘Women Empowerment through Microcredit – A Special Reference to Jaffna District’ also concluded that “microcredit has a significant relationship and positively correlated (0.752) with empowerment.” (Yogendrarajah and Semasinghe, 2013). Another research done by Yogendrarajah stated that there is a strong positive correlation between microcredit and women empowerment however it is not sufficient in the process of empowering poor women (Yogendrarajah, 2011). That statement is also corroborating the results of this research because, even though there is a significant relationship between effective microcredit and women empowerment, the regression analysis demonstrated that women empowerment is influenced by effectiveness of microcredit only by 16% and the remaining 84% is determined by other factors such as self-esteem, selfconfidence, education and family support etc. Nevertheless it demonstrated that there is a positive correlation of 0.518 between effectiveness of microcredit and household poverty alleviation at 0.01 significant levels where one can accept that effective microcredit can be used as a poverty reduction tool in households in Hambantota district. According to the research done by Kaluarachchi and Jahfer, “microfinance programs significantly help to poor people to uplift their live which lead for the poverty alleviation.” Also they said that “there is a significant relationship between microfinance and poverty alleviation in certain percentage.” (Kaluarachchi and Jahfer, 2010). As well as an almost identical conclusion was found in a research done on the topic of “Microcredit and Poverty reduction – A case of Bangladesh.” It highlighted that “microcredit tends to be an important factor to have an impact on household income which minimizes the poverty situation to a reasonable extent.” (Mazumder and Wencong, 2013).
Discussion of Other Findings:
In brief it is concluded that mature clients in the sample are enjoying the benefit of poverty reduction in their households due to effective microcredit more than the incoming and 7
recent clients. According to the results of the analysis from the responds of the incoming and recent clients, it is found that there is a positive relationship between effectiveness of microcredit and all other measures as well as household poverty alleviation. The only significant relationship that can be identified is between effectiveness of microcredit and household living standard. It revealed that for incoming and recent clients, the impact of microcredit is mainly on their consumption/expenditure level. This confirms the fact that the incoming and recent clients mainly use credit for consumption purposes while relatively better off households make use of credit for income generating activities or building their asset bases. Thus their living standard has improved but there is no significant favorable change recognized in their household poverty situation. However when it comes to mature clients, the context is different. According to the results it is found that there is a positive relationship between effectiveness of microcredit and all other measures as well as household poverty alleviation. Most importantly it is found that there is a positive correlation of 0.307 between effectiveness of microcredit and women entrepreneurial success, a positive correlation of 0.296 between effectiveness of microcredit and women empowerment as well as a positive correlation of 0.305 between effectiveness of microcredit and household poverty alleviation at 0.01 significant levels. However it is identified that there is no significant relationship between effectiveness of microcredit and household living standard but by having a higher mean of 4.1058, indicates that majority of the client’s living standards have increased along with the time not because of effective microcredit but because of the other factors such as economy conditions etc. it seemed to be that mature clients of the organization utilized the credit obtained more effectively on income and profit generating activities such as micro enterprises. Thus the results concluded that there is a significant positive relationship between effectiveness of microcredit and household poverty alleviation of mature clients. V.
CONCLUSIONS & SUGGESTIONS
standard and increase the level of empowerment thereby reducing their household poverty level. Majority of the clients appear to upscale their lives and got rid of the economic hardship by properly utilizing the credit received. However microcredit seems to have a little effect on women empowerment whilst have the most effect on entrepreneurial success over the other dimensions of poverty. Moreover there was a question asked from the respondents and the answers revealed that almost 61% of the respondents strongly agreed that microcredit is an effective strategy in household poverty alleviation as well as around 97% of the respondents stated that this program must be promoted as a successful method of poverty alleviation. The results of the study further revealed that mature clients in the sample are enjoying the benefit of poverty reduction in their households more than the incoming and recent clients since majority of the incoming and recent clients mainly used credit for consumption purposes while most of the mature clients utilized their credit on income and profit generating activities. However it will take time to enrich the lives of incoming and recent clients through effective microcredit since it isn’t identified as a magic bullet for poverty reduction. Moreover this study was conducted based on a rural area of the country. Hence same results cannot be generalized to an urban context. Another important thing to note that this credit program have played a crucial role in inculcating saving habits among their members because it is a requirement of the program to maintain a particular amount as a deposit in the bank. Finally it is concluded that there is a need to complement microcredit delivery with social awareness rising, building confidence and self-esteem among poor women. The microcredit program of the WDF is thus identified as a systematically developed effective credit program. As well as these kind of credit programs must be promoted in order to protect poor women from exorbitant interest loans as well as to enhance women entrepreneurship skills, standard of living, degree of empowerment and thereby to alleviate household poverty. Nevertheless it is very important to remember that financial services alone are not sufficient in household poverty alleviation of poor women.
A. Conclusions
B. Suggestions
Fundamentally, this research focuses on household poverty alleviation through effective microcredit. From the above discussion, it can be concluded that there is a significant positive relationship between effectiveness of microcredit and household poverty alleviation however it is not sufficient in that process because still most of the women are not much aware about microcredit programs. Further it revealed that the involvement in credit program had a significant positive impact on entrepreneurial success, living standard and women empowerment which are essential in household poverty alleviation. In simple terms microcredit supports majority of the clients by improving their enterprises, living
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Interest rate of the loan should be reduced in a reasonable manner. Must increase the loan amount in accordance with the type of the businesses of credit holders. Must increase the super loan amount which offered to clients in order to utilize for special purposes such as purchasing some fixed assets to the business (current amount is Rs. 50,000). Must change the sequential way of issuing loans starting from Rs. 10,000 which will enable clients to go for higher loan amounts in a shorter period of time. 8
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There must be effective follow-ups organized by each bank society after issuing loans in order to observe whether clients are utilizing loans for productive purposes or not. Must raise the awareness of incoming and recent clients about the microcredit program. ACKNOWLEDGEMENT
“This thesis is dedicated to our parents, lecturers, staff and the members of the Hambantota Women’s Development Federation, all other researchers in the world and our friends who always inspired us in every step to accomplish this research.” REFERENCES Abbasian, S. and Bildt, C. (2009). Empowerment through entrepreneurship - a tool for integration among immigrant women? (1), Jonkoping, Sweden. Administrative Committee on Coordination United Nations. (1998). Statement of Commitment for Action to Eradicate Poverty. UNESCO. [Online]. Available at: http://www.unesco.org/most/acc4pov.htm. Atapattu, A. (2009). State of Microfinance in Sri Lanka. Boateng, G. O., Boateng, A. A. and Bampoe, H. S. (2015). Microfinance and Poverty reduction in Ghana. 6 (1), p.99– 108. Central Bank. (2014). Economic and social infrastructure. In: Annual Report of Central Bank Sri Lanka 2014, (January), p.61–82. Charles, A., Hamed, B. and James, K. (2011). Impact of Microfinance on Poverty Alleviation in Nigeria : An Empirical Investigation Impact of Microfinance on Poverty Alleviation in Nigeria. European Journal of Humanities and Social Science, 2, p.97–111. Chirkos, A. Y. (2014). Impact of microfinance on living standards, empowerment and poverty alleviation of poor people in Ethiopia. Journal of Finance and Accounting, 5, p.43–67. Chowdhury, J. A. (2008). Does the participation in the Microcredit programs contribute to the development of women entrepreneurship at the household level? Experience from Bangladesh. (August 2008), p.21–23. Department of Census and Statistics. (2016). District official poverty lines. [Online]. Available at: http://statistics.gov.lk/poverty/monthly_poverty/index.htm [Accessed: 31 March 2016]. Fattah, S. (2014). The effect of microcredit on standards of living in Bangladesh. Haq, M. Z. U. and Kamran, M. (2009). Role of Microcredit
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