ncial services have been developed recently where they have managed to bring scale and more rigour into the financial industry. The financial institutions developed first can be traced in Europe such as the Medici family of Florence which was developed in the 15th century. Banks have grown more rapidly during the agricultural and industrial revolution as from the 1700s onwards. By this time banks were mainly providing their services to the people who were wealthier.
Financial services targeting the poor were not existent until in the 1700s in Europe where Jonathan Swift initiated the Irish Loan Fund system. The system created was used to provide small loans to people from the rural areas especially the farmers who could not borrow money via the traditional means, and they were in need of capital to help them start small businesses. It is from this idea that many others sprung up where in the 1800s, more than 300 funds sprung up throughout Ireland where they provide similar services as substantiated by Mosley & Hulme, 2006.
Products and services provided by the microfinance institutions
Most of the MFIs are started with the aim of alleviating poverty in people’s minds because they provide more than just financial services. The main services that they provide include (Helms, 2007);
Financial intermediation- this happens to be the main services that MFIs offers where it entails more n the provision of working capital, savings, and loans.
Enterprise development services - this happens to be a complementary service that most of the MFIs offer. It entails basic training which is mainly meant for encouraging most of the successful microenterprises. It ensures a better success rate on the various credit services offered by the microfinance institutions; the training mostly based on marketing and business management.
Social services – it was very difficult for institutions to offer financial services where social services were poor and in such areas people were unable to use them. Most people were likely to be living hand to mouth, but they never had any basic social services. This made it difficult for people who were in such circumstances to be engaged in any sustainable entrepreneurial activity. Therefore, microfinance institutions started offering the basic social services which included assistance in health and education.
Microfinance services in the UK
Microfinance service provision has been developing in the UK in the early 1970s. Most of the institutions which have been developed aimed at helping a certain group of people who are identified via their personal characteristics example being young people, women, and ethnic minorities. There are other schemes which have been developing which focus on specific geographical areas including the inner cities which have been deprived or those rural communities who have been isolated as substantiated by Sulimierska & Miele, 2017.
Ayayi & Sene, 2010 cited that for the last decade, microfinance has been the world’s high profiled development intervention which generously funded. Microfinance institutions are formed by the small loans can unlock various endless opportunities for most of the people in the world who are poor. In spite of all this development, there has been no any regulatory framework for these institutions in the UK. This is because these institutions are not in any way listed as specific sectors. Most of the microfinance institutions are not classified as banks, and therefore they cannot take deposits.
Services rendered by microfinance institutions in the UK
The enterprises in the UK which provide microlending services carry out some services which include; provision of finance which is mainly meant to help individual set up or expand businesses. There are another several services which they offer and cannot be ignored, and they are outlined in this section with the sole reason of alleviating poverty and promoting financial inclusivity (Yunus and Weber, 2009):
a) Provisions of business finance to groups which have been excluded
One of the main function of microfinance institutions I the UK is providing finance to most of the start-up businesses or those groups that have been excluded from traditional sources of finance. Most of the groups which have been highly regarded in this particular section are the youth business trust. Other sources of finance which are being provided included small grants and equity funding.
b) Providing flexible loans which are of low-cost
The microfinance institutions in the UK provide cheap and flexible financial products which are all designed to meet people’s needs. These enterprises are in a large way of providing their services even without the availability of collateral or security.
c) Offering encouragement and support
Most of the microfinance institutions have an important function whereby they are involved in the provision of support which is as a package to most of the micro-enterprises. Imai et al, 2011 said that it is a role through which they can provide self-help to the disadvantaged people and also the communities where they are offered opportunities to acquire skills and other experiences through which they can be able to secure permanent route out of their state of poverty.
Commercial banks and microfinance
There are recent reports which indicate that there is a vast potential for the low-income customers who are looking for retail financing services and this is leading to most of the commercial banks penetrating into the opportunity. Therefore, most of the banks and other financial institutions have been entering the microfinance market at a very high rate in the last decade. There are various factors which have been promoting these institutions to introduce the microloans which are all related to the internal organization of the institution and also the market into which its operation takes place. In spite of all this, the major incentives are mostly related to the fact that risks that are to be beard are in line with the profits earned as substantiated by Allen et al, 2011.
The main drivers of these banks into the microfinance services include both external and internal services. The internal factors mostly include; profit, excess liquidity, risk diversification, image, bank leadership, public relations, the compatibility with the strategy formulated by the bank, and the opportunities that exist in the cross-selling. The external factors include; competition, trend, regulations, the market pressure inserted on margins and the dissertation of the traditional clients as substantiated by Ndikumagenge, 2014 .
Organizational background of the institutions under the study
Barclay’s PLC
Barclays PLC happens to be a financial and a banking services provider firm with their headquarters in London. It is considered to be the largest banking, and financial services provider ranked number 10, and one of the largest company in the world ranked number 21.barclays is a universal bank and has two business groups where the first one deals with corporate and investment banking and wealth management. The second one deals with global retail banking.
Barclays is a financial institution which also has microfinance initiative. The main aim of this department is to enhance the access of loan product and basic saving. They have initiative not only in the UK but also in other countries where their branches are based in (Home.barclays, 2018b). Barclays has invested a lot of money in this initiative to ensure that the community based financial services are available to all people.
HSBC
HSBC Holdings is a financial and banking service provider in the whole world with its headquarters in Canary Wharf, London. It is considered to be the second largest provider of both financial and banking services, and it is the second-largest public company. The bank was founded in London on the year 1991with its background in Hong Kong and Shanghai (Web.archive.org, 2018).
HSBC has formulated a business model with the aim of providing financial services on the doorsteps of the poor. They believe that the tiny loans they offer to these individuals can bring a huge difference especially when capacity building and financial literacy is incorporated (HSBC.com, 2018). HSBC has a global commitment which is meant to help it have a sustainable business via financial inclusion. Therefore, it has partnered with other microfinance institutions to empower the micro-entrepreneurs in some of the vulnerable communities.
Lloyds Banking Group
Lloyds Banking Group is one of the leading financial providers based in the UK. This institution provides a wide range of banking and other financial services primarily in the UK to both corporate and personal customers. After being formed in 2009, the institution has majored in activities such as commercial, retail and corporate banking, pension and investment provision, general and life assurance (Sulimierska & Miele, 2017).
Gross lending by MFIs to SMEs in the United Kingdom
Lloyds Banking Group has an SME charter which was mainly formulated to offer the microfinance services (Lloydsbankinggroup.com, 2018a). The main aim of the charter is to support most of the small business which are in the deprived areas. This mainly is to enable them in tackling the problems associated with economic recovery and unemployment. The commitment by the bank helps it tap into the large population of the unbanked. Lloyds Banking Group commitment to providing retail services to the customers has made it the largest retail bank in the UK. These services are essential to ensuring the majority of the residents take advantage of banking services to uplift themselves economically.
According to the Community Development Finance Association, there was an increase in lending by microfinance lenders from £113 million to £200 million in 2009 (Moules, 2018). The growth of the microfinance sector reflects the subsequent growth of country’s GDP as well as increased financial inclusion thus reducing poverty. This shows the increased demand for microfinance services from the unbanked population as well as the small business owners’ unable to access services from the mainstream financial providers. More recently, the figure increased considerably with the increasing demand for microloans from the microfinance providers. The highest reported thus far has been £ 5.8 billion reported in March 2017 (Statista, 2018). The figure below indicates the micro-lending report from 2015 to 2017 to the SMEs by banks in the UK.
The figure below demonstrates the increasing role of banks in funding the SMEs in the UK. With the SMEs playing a major role in contributing to the economic growth in the country, UK’s GDP consequently grows. While growth in the SME sector accelerates economic growth, employment opportunities also sprout thus helping in the reduction of poverty. Below is that table:
A Graph Showing Gross lending by MFIs to SMEs in the (UK) from November 2015 to October 2017 (million £)
Source: www.statista.com/statistics
An Analysis of Microfinance Services as a Tool Used to Reduce Poverty
Sarma & Pais, 2011 argue that there are various opinions conflicting and several other studies which have analyzed the degree level to which the microfinance institutions reduce poverty to the user. There are their studies which show that microfinance services do not reduce poverty. More so, results of these studies indicate that most of the borrowers in these microfinance whose starting income were below the poverty line, ended up with less incremental income after accessing those loans; this is when compared to people who even did not access these loans. They argue that microfinance services are not the main factors considered to determine the success of these institutions in enhancing the well being of the households. They consider that there are other factors which are required for the microcredit services offered to be effective. These services tend to be more beneficial when the institutions are offering them offer other services such as management, entrepreneurial and training on how to manage the loans. For the services to be more beneficial to the enterprises, the small businesses requires that there are well functioning and vibrant domestic markets which have enough people with enough money to be able to buy what is being sold by these enterprises. Thus, it is clear that the microfinance services from the banks cannot alleviate households from poverty. Instead, there is the need for them to be combined with complementary factors which are more innovative as substantiated by Sarma & Pais, 2011.
Despite that there is a lot of scepticism over the programs offered by the microfinance institutions, there are other scholars indicating that these services have proven to be successful in one of the major tasks of encouraging a consumption-smoothing behaviour. The success is attributed to the provision of a risk-coping safety net for shocks which are more vulnerable. The institutions have also assisted in the distribution of financial power far away from those considered as local loan sharks. They have empowered various groups which were neglected such as the women and youths, and this has helped in boosting the self-esteem of most of the client.
Sarma & Pais, 2011 argue that the borrowers who have the advantage of using these services are those who have certain business skills, education and other entrepreneurship abilities. These are the borrowers who have the likelihood to succeed and rise above the poverty line. There, loans should be geared towards the small enterprises and mostly those that are in the informal sector instead of having them directed to the people without assets or entrepreneurship abilities. Recommendations are that for the microfinance services to be effective in poverty reduction, and then public policies must focus on programs which have broad growth avenues and which have the intention of increasing the levels of employment and the overall productivity.
Development of a conceptual framework
To measure the level unto which poverty has been eradicated, the factors that will be considered is the microfinance in education, savings, health status and the real GDP. Therefore poverty becomes the dependent variable against education, health status, real GDP and savings which are the independent variable.
Research Gaps
Previous researchers have not put much emphasis on the role of commercial banks in the micro-finance services. There is much that needs to be done to understand the role played by commercial banks in providing microfinance services. Commercial banks will shape the next frontier of microfinance service offering, a subject that requires further research interest.
Conclusion
According to the literature reviewed, microfinance services play a vital role in incorporating the unbanked population into the financial system. With correct reinforcement and government support, poverty can be eliminated with the provision of microfinance services from various organizations. The next chapter describes the methodology used by the researcher with the aim of answering the research questions.
CHAPTER THREE
METHODOLOGY
Introduction
The chapter has set out a description of the research methodology. The chapter illustrates the methods followed in establishing the roles of commercial banks in providing microfinance services and their impacts in the reduction of poverty, improving social and financial inclusion, as well as creating jobs and promoting employment. Therefore, this section structure outlines the methods of data collection and analysis used to achieve in answering the research questions (Bryman and Bell, 2011).
Research Design
The research study adopted both qualitative and explanatory quantitative methods to investigate the possible impact of banking microfinance services to the reduction of poverty in the unbanked community. A conceptual framework has been developed that depicts the relationship between the dependent and the independent variables (Saunders, Lewis and Thornhill, 2012). The conceptual framework is displayed below:
Poverty: - as the dependent variable
Microfinance services in education and Health improvement (Social Inclusion) and savings and increase in Gross Domestic Product (GDP) (Financial inclusion) as the independent variable.
P= f (e,h,s,g)
Where,
e=education
h=health status improvement
s=savings
g=GDP
According to Bryman and Bell (2015), using a logical examination outline will attempt to examine gathered information from a given population with the intention of providing the current status for one or more variables in the study research. Therefore, this research set up a connection and a causal relationship between poverty and financial as well as social inclusion aspects that have been made available through microfinance services by commercial banks.
Research Study Population
There are numerous commercial banks in the UK that provide microfinance services to the community. The research study narrows down to three commercial banks for this research. These include HSBC, Barclays PLC, and Lloyds Bank. The criterion used is to identify and quantify the microfinance services that are offered by these banks.
Data Collection
The data was collected from the financial records by the respective banks. This consists of primary data. According to Bryman and Bell (2015), use of primary data provides the researcher with unique data that allows for the application of specific purpose for the study at hand.
Validity and Reliability
According to, validity gives the research study accuracy and significance of inferences which can be based on the research results. Therefore, true replication of the data variables brings concise and meaningful research conclusions. The secondary source of data was obtained from the banks’ websites where further examination of the financial statements was conducted (Home.barclays, 2018a, HSBC.com, 2018, Lloydsbankinggroup.com, 2018). Further comparison was conducted with the regulator's data to ascertain the validity of the data (Bankofengland.co.uk, 2018b). The three banks were selected from a pool of banks offering microfinance services in the UK as provided by the Bank of England (MFI List, 2018)
Data
In the study, a ten-year secondary data (2006 to 2015) drawn was used. The poverty level and its variability over the ten years were examined to elaborate or illustrate the change of the citizen’s wellness. Other factors which indicate the changes in the wellness of the citizens and which were examined in the study included the GDP, health status improvement and the changes seen in the savings for the ten years. The examined variability for the ten years was the social and financial inclusion.
Brief Overview of the Banks
HSBC Holdings Plc is a global banking and financial services provider which is headquartered in London, United Kingdom. HSBC has operations globally with presence in 67 countries and a global customer base of 38 million customers (About.hsbc.co.uk, 2018).
Barclays Bank Plc is also a global investment and financial services provider with headquarters in London. The bank has operations in over 40 countries.
Lloyds Bank is the largest bank in Britain providing retail banking services. As of 2012, the bank served 16 million personal customers and small business accounts.
Data Analysis and Presentation
The data was collected and analyzed by the use of descriptive statistics. The research instruments used include the ordinary least squares multiple regression analysis and the Granger causality test. The sample size of the three banks made it easier for analysis of the various variables selected in view of micro-financing services provided by Commercial banks. The analysis was conducted using the IBM SPSS statistics software (SPSS 20.0). To answer the research questions, a multiple regression analysis was used where independent variable was regressed against the dependent variables in order to establish the relationship between the variables. Therefore, the regression model is presented as follows:
P= f (e,h,s,g)
P= C + B1 e + B2 H + B3 S + Bg
Where,
C=constant
B-B3 = Regression coefficients
e=education
h=health status improvement
s=savings
g=GDP
Choice if Variables
The above variables have been selected because they form the central purpose if the role of microfinance services. According To Littlefield, Morduch, and Hashemi (2003), the poor and unbanked population access microfinance services from various providers effectively improving health, education status, and their financial status. The financial empowerment created by the banks through microfinance services, in turn, results in improved savings and investments that consequently leads to the growth of the GDP. Harnessing the microfinance services offered by the back creates an effect on the economy that generally alleviates the poor from poverty.
Ethical considerations
Ethics happens to be an accumulation of principles and values mostly addressing the question of what is deemed to be good and what is deemed bad in the human affairs. It mainly looks for reasons for refraining or acting in a certain direction. Findings and interpretation of this research were presented in a manner that it will depict honesty and will be objective. This will be to avoid any untrue deceptive or even doctored results. Any of the respondents involved in the study or any information presented was not disclosed to anyone. The information was used as per the intent of this study where the statistical procedures were applied without any bias.
Constraints
Despite that the impact of this study was underpinning, there were several constraints that the researcher went through. Some of these problems were problems with accessing data, and unfavourable respondents. These happened to be the main problems noting that to come to a credible and upheld conclusion, data used must be reliable. Other challenges included the access to financing noting that resources used were a bit expensive.
Conclusion
In the chapter above, the research mainly revisited on the traditional arguments on the tradeoffs between some of the banks in offering microfinance services and reaching people mostly those who are poor. The main contribution that the chapter has to the discourse is empirical which from several procedures including sampling, estimation and indicator measurement. The principal aim of the chapter is to offer insight into the variation that exists between the services rendered by various banking institutions and their effects on the clients targeted. Both primary and secondary data gathered and well edited and analyzed using the statistical measures will be interpreted in the next topic. The statically variables measured will be used to show the variation as per the intended hypothesis of the research.
CHAPTER FOUR
FINDINGS AND DISCUSSION
Analysis Background
This chapter presents the results and the discussions of the results with reference to our objectives and research questions. The presentation of the results and consequent discussion of the results is based on the set objectives of the research study. The chapter presents the analyzed data sourced from the three banks that form the research scope and population.
Quantitative Statistics
The below section involves the quantitative descriptive analysis of the selected firms. The study sought to establish the influence of the microfinance services role by the commercial banks used in the study. The alleviation of poverty is the main objective of the study. Variation in the poverty levels by the study independent variables will signify the role of commercial banks in offering microfinance services. The study variables are analyzed below:
Source: SPSS output
Table 1: Descriptive Statistics
A table basically used to offer a description the basic features of the data that has been used in the study. The table will provide summaries about the measures and samples and with simple graphic analysis; it will form the basis of the every quantitative analysis that is done on the used data.
Mean
Median
Maximum
Minimum
Std. Deviation
Obs. (n)
P(Poverty)
82.75
63.8
131
49.6
32.2
3
e
98.34
98.34
111.1
82.8
9.5
3
h
153.12
160.07
215.5
98.3
44.4
3
s
604.80
564.5
1206.8
160.6
427.6
3
g
-1.056
0
23.1
-33.80
16.5
3
Source: Author’s calculation
Table 1 presents the results of the descriptive statistics across variables. The variables were obtained from the three banks selected as explained earlier.
Table 2: Correlations Table
The correlation table below will outline the correlation coefficients which are set of each variable. The table will offer a chance to see the variables with the highest correlations.
p
e
h
s
g
P(Poverty)
1
0.669025350
0.409382260
0.030883700
-0.535414160
e
0.669025350
1
0.67371180
0.607326220
-0.162110490
h
0.409382260
0.67371180
1
0.774160
0.261007510
s
0.030883710
0.60732621
0.774163
1
0.173354670
g
-0.53541
-0.16211
0.261008
0.173360
1
Source: Author’s calculation
Table 2 above presents the correlation between the selected variables. These include poverty (p) and savings(s), poverty and GDP (g), Education and GDP (g) and lastly health improvement status (h) and GDP (g).
Table 3: Regression Table
This is the table that will generate the equation that will provide the statistical relationship between all the predictor variables which have been used and the responses.
Regression log
Dependent variable: log poverty
Method: least squares
C
Le
Lh
Ls
Lg
Variable Coefficient
-151.13
1.800471
0.621705
-0.065215
-1.019242
Standard error
41.88386
0.526959
0.136172
0.012087
0.228874
t-statistics
-3.608312
3.416721
4.565588
-5.395264
-4.453297
Probability (elasticity)
0.0226
0.0269
0.0103
0.0057
0.0112
Source: Author’s calculation
Model summary
R-squared
Adjusted R-squared
S-E of regression
Durbin-Watson statistic
0.960243
0.920485
9.086818
1.9545621
Source: Author’s calculation
Table 3 presents the regression analysis of the variables. The table shows that the coefficient of savings (elasticity) and the GDP have correct (negative) theoretical signs. The other variables have positive signs. Therefore, educations, health status improvement, savings, GDP have statistically significant coefficients. The coefficient of determination (R2) is high suggesting a multi-colinearity problem. The Durbin-Watson test shows that there is no problem of auto-correlation.
The coefficient of determination (R squared) in the regression model serves to explain the variation (percentage variation) of the dependent variable by the independent variables. R squared (R2) illustrates the degree of change on the dependent variable that can be explained by the changes in the independent variables.
The regression table is the most important aspect of the analysis as it shows us the direct relationship between dependent variable and independent variables. In our analysis, the independent variables used in this study [i.e. savings(s), poverty, GDP (g), Education, health improvement status (h)] indicate a contribution of 92.05% in the variation of poverty (dependent variable) as can be shown by the adjusted R2 of 0.920485 in table 3 above. The contribution of the independent variables used in the study constitutes to variation and alleviation of poverty by 92 per cent. Therefore, the microfinance role by the commercial banks is pivotal in eliminating poverty.
Table
4: Causality Test
The causality test is used to explain the relationship between two variables. Therefore, two variables are paid and tested using the pair-wise Granger Causality test.
s does not Granger Cause e
0.57800
0.48900
g does not Granger Cause s
0.00420
0.95130
e does not Granger Cause g
2.69950
0.16100
g does not Granger Cause e
1.87550
0.22900
g does not Granger Cause h
1.71200
0.24760
s does not Granger Cause h
2.63730
0.17970
s does not Granger Cause g
0.00050
0.98360
h does not Granger Cause g
0.39710
0.55630
e does not Granger Cause s
1.16040
0.34202
h does not Granger Cause s
0.39190
0.565330
h does not Granger Cause e
0.00990
0.92430
e does not Granger Cause h
0.62860
0.46390
g does not Granger Cause p
0.29330
0.61140
p does not Granger Cause s
3.60490
0.13040
p does not Granger Cause g
2.07521
0.20930
h does not Granger Cause p
0.72722
0.43270
s does not Granger Cause p
1.11491
0.35060
e does not Granger Cause p
0.19880
0.67430
p does not Granger Cause h
1.83590
0.23340
p does not Granger Cause e
1.04750
0.35302
Source: Author’s calculation
Table 4 provides a causality test. The causality test shows that all the cases failed to reject the null hypothesis. Given that the variable p does not affect variable q significantly.
P,q= poverty, education, GDP, health improvement status, savings such that p ‰ q.
Table 5: Regression Analysis
This table provides a summary of the statistical relationship that exists between the core variables that had been used in the study.
Regression log
Dependent variable: log poverty
Method: least squares
C
Le
Lh
Ls
Lg
Variable Coefficient
133.7120
-0.057120
0.024080
-0.141915
0.018590
t-statistics
15.835000
-0.373250
0.145560
-0.870543
3.4309000
Probability (slope)
0.0001
0.7280
0.8910
0.4331
0.0270
Source: Author’s calculation
Model summary
This table applies when indicating the variability of the response data that was used around its mean. The R-squared will indicates how close the data is to the fitted regression line.
R-squared
Adjusted R-squared
S-E of regression
Durbin-Watson statistic
0.208634
-0.384890
7.025310
1.743390
Source: Author’s calculation
Table 5 shows that the coefficient of education and savings show the correct theoretical signs. The others display wrong signs. Their coefficients are therefore statistically significant. The coefficient of determination (R2) he is low indicating that there is no problem of multicollinearity. The Durbin Watson test shows that the problem of auto-correlation does not exist.
The research findings indicate a positive correlation between reduced poverty and increased levels of health status, education and savings and GDP. The coefficient of determination (R2) indicator shows a positive relationship between poverty alleviation and the studied independent variables to a tune of 92 per cent. The role of commercial banks in providing microfinance services such as micro insurance to boost health care access, microloans to boost access to quality education, sa
