Abstract:

The study examines the relationship between poverty and finance so as to ascertain if poverty has an impact on the quality of financial decision taken by the poor and financially vulnerable individuals. The study utilised a unique methodology (truncated regression) and applied a survey data to investigate the quality of loan usage among the extreme poor in Nigeria. We allowed for the inclusion of other policy relevant variables that may likely inform the direction of new generation poverty alleviation policies like gender, education and age of the individuals. We find that the extreme poor use more of the loans for other non-developmental issues like funeral and marriage celebrations than for productive and poverty alleviating ventures. However, the younger males engage more in this act than the females. Also, as the poor become more educated, they are able to use more of the loan for development-oriented investments like purchase of assets, building houses and even furthering their education. A major policy implication of this result is that loans should be directed towards younger individuals, and education should be a focal priority in selecting who to fund.