Integrating Theory and Empirical Data: Microfinance, Poverty and Islam in Nigeria

Abstract

Nigerian Muslims have lived without adequate legal and regulatory provisions for microfinance institutions that are specifically targeted at their peculiar needs. Islam forbids usury (i.e. interest) and majority of poor Muslims in Nigeria avoid both conventional commercial and microfinance banks mainly to abide by the dictates of their religion (Islam). Southerners live closer to the hub of country’s financial sector and do not exclude themselves from it like the Northerners. Meanwhile, the literature is replete with lots of evidence in favour of finance for growth and finance for poverty alleviation. This study expressed the rate of change of output with respect to time (i.e year)as a function of labour, capital per head, technology and effect of microfinance for both the South and the North in form of a mathematical(not econometrics) model. Geogebra mathematical software was used to simultaneously obtain output (not rate of change of output over time) for each region as a function of time. A simulation of this model was presented in graphical form for easy identifications of changes to output of reach region due to the simulated figures.  The results of the analysis show that the prevalence of microfinance banks in the South over the North can explain the difference in the rate of poverty between the two regions. Critical mass of Shariah-Compliant microfinance is recommended for the North to bridge the gap observed in the poverty rate between the regions.