Informal Financial Institutions and Poverty Reduction in an Informal Sector in Nigeria: Case of Rotating Savings and Credits Associations (ROSCA) in Ijebu Ode

Despite the concerted effort of various governments and international bodies through a number of lofty programmes and measures aimed at making dent on poverty, there is still a worrisome trend of poverty situation in the world. This explains that poverty reduction is the most difficult obstacle bewildering any country in the developing world where on the average, majority of the population is considered poor. Meanwhile, the depth and severity of extreme poverty in Nigeria also has been alarming. And over the years, the government under-took some poverty reduction initiatives with the aim of reducing, if not totally eradicating poverty; especially using informal finance in order to enable people have access to funds that will improve their means of livelihood. This study attempts to explore the mode of operation and reasons why informal financial institution and poverty reduction in the informal sector is prevalent in Nigeria through the help of Rotating Savings and Credit Association (ROSCA). Furthermore, the study critically explains the comparative analysis of access to funds in both formal and informal financial institutions in the areas of fund mobilization and availability, default management and their effects on the participants‘ well-being. Forty respondents were sampled from the six identified ROSCA groups for this study and were subjected to Focused Group Discussions (FGDs) in Ijebu-Ode, Ogun State, Nigeria. The findings revealed that the existence of ROSCA in Nigeria has brought a relief and succor to the people because of its easy access to funds and conveniences. This implies that the cheapness and availability of ROSCA funds is one of the core reasons that have been promoting its emergence all over the world. The result also showed that ROSCA groups are strong providers of insurance and informal employment; especially for those who aspire to engage in private business and other entrepreneurial practice. In addition, the findings revealed that ROSCA (informal financial institution) is quite convenient and helpful in terms of credit provisioning than banks (formal financial institution) because the latter has apparent potential profitability and it has standard and regulatory requirements which seem difficult to comply with for some people especially low income earners and rural poor. In conclusion, it could be deduced that ROSCA has demonstrated that informal sector and informal finance remain very relevant in enhancing income of the poor household and for community development in developing countries. -- Relevance to Development Studies -- Income generation improves economic sustainability and reduces the poverty level of a society. With increased income, development is attracted and a society is better off. Informal Financial Institution like ROSCA in Ijebu Ode is positively impacting on the lives of the people because of its flexibility, accessibility and especially the recognition of each person‘s capability to contribute in the pot. One for one and one for all as they say.