Effect of Micro-Credit on Welfare of Small Scale Entrepreneurs in Nigeria: A Case Study of Oyo State

Abstract: The study evaluated the effect of microcredit on small scale entrepreneurs in Oyo state, Nigeria and its implication on their welfare. Primary data were collected with the aid of well-structured questionnaire. Multi-stage sampling technique was adopted in selecting 200 respondents comprising agriculture and non-agriculture small businesses within Ibadan metropolis. The data collected were analyzed using descriptive statistics, Foster Greer Thorbecke and binary logit regression. Results of analysis of respondents' access to credit revealed that more than two-third (69%) of the respondents did not have access to microcredit while only 31% had access to microcredit. On the implication of micro-credit access to welfare of the respondents, the study revealed that poverty incidence was higher (P0=0.4876) among respondents that did not use microcredit than those with access (P0=0.4419). This suggests that incidence of poverty declines with access to microcredit but this is only by a small percentage of about 5%. Similar to the result of poverty incidence, respondents who did not use microcredit had the highest (P1=0.1104) poverty gap. However, the severity of poverty index among respondents with access to microcredit was higher (P2=0.0359) than those without access (P2=0.0352). The study recommends that strategic policies should be set up to mitigate factors that inhibit access to micro-credit by small scale entrepreneurs as the study showed that access to microcredit is necessary for small business growth and for improving welfare. Such policies should target the economically active age group of small-scale entrepreneurs, improving their literacy levels, and encouraging their ownership of account with lending institutions such as micro-finance bank of choice.