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How to cite this thesis Surname, Initial(s). (2012) Title of the thesis or dissertation. [Unpublished]: University of Johannesburg. The effect of microloans on the subjective well-being of the poor in Gauteng by MMAPHEFO CHRISTINAH LEGODI A dissertation submitted in fulfilment for the degree of M in Commerce in Development Economics at the College of Business and Economics UNIVERSITY OF JOHANNESBURG Supervisor: Dr T Greyling 2017 Acknowledgement The Almighty, Jesus Christ made it possible for me to complete my research study despite all the challenges faced.
This minor dissertation marks the end of a long and eventful journey, during which I have learned so much and met so many wonderful people who in different ways contributed not only to my work but also to my personal growth. I would like to express my sincerest gratitude to my supervisor Dr. Talita Greyling, whose expertise, understanding, calmness and patience added considerably to my graduate experience. I am very thankful to you for always having time for me, your quick and insightful comments on my research Thank you to my mentee Lesley Mogano for convincing me to start my postgraduate journey when I had given up hope to further my studies.
Thank you to my academic friends for your words of encouragement and guidance. Finally I would like to thank my parents, Israel Marumo Legodi (Papa) and Mokgadi Mary Legodi (Mama), to whom I dedicate this research. They always motivated and supported me to go for the highest possible education. I would also like to acknowledge the support of my brother Itumeleng Legodi and sister Caroline Legodi-Mahahle.
I cannot thank enough my fiancé Tshililo Muedi and my daughter Omolemo for their patience, support and motivation for me to complete this research. i Declaration I certify that the minor diss M C (Development Economics) at the University of Johannesburg is my independent work and has not been submitted by me for a degree at another university. MMAPHEFO CHRISTINAH LEGODI ii Abstract Worldwide, poverty remains to be an obstacle to achieve sustainable development and improve the well-being of people. Microloans have become a popular policy tool for poverty alleviation and is part of the larger microfinance industry.
It is used in many developing countries as one of the approaches in their poverty alleviation programs. Microloans are based on the principle that poor people can initiate their own development out of poverty, given they have the starting capital to do so. The capital can be invested in income-generating activities which, it is assumed, will lead to a higher income and additional positive effects, like an increase in well-being. However, others argue that the focus on income is only one aspect of poverty.
Other forms of deprivation, such as education, health and a lack of subjective well- being should also be considered. The main and primary research aim of this minor dissertation is to investigate how access to microloans is related to the subjective well-being of the poor and, secondly, to investigate if the relationship with microloans is the same for both male and female borrowers. To analyse these research questions we make use of a data set collected by the Gauteng City-Region Observatory (GCRO) in 2015 on the quality of life of the people in the province. The results from our analysis show that microloans are negatively related to the subjective well-being of the poor, meaning that the subjective well-being of the poor in Gauteng does not improve though access to microloans.
This finding contravenes the notion of microloans being a policy measure to address poverty through the alleviation of poverty and improving subjective well-being. For further analysis we added an interaction variable, where the microloan variable is multiplied by the gender variable. We found positive and significant results which indicate that males and females who have a microloan might have different experiences regarding their subjective well-being. Pursuing this matter further, we analysed and compared the results of a male and a female subsample.
We found that although the microloan variable is only statistically significant in the female sample, the direction of the relationship in the two subsamples differs. In the male subsample the relationship between microloan and subjective well-being is positive, but the opposite was found in the female sample, thus emphasising that gender matters when analysing the relationship between microloans and subjective well-being. Furthermore, the results show that the standard factors found to explain the subjective well-being of people are also relevant for the poor in Gauteng, the economic centre of South Africa. This shows that there iii s policy intervention to improve the subjective well-being of the poor.
Instead, to find ways to increase the well-being of the poor, policy makers should adapt policy to fit the specific circumstances in South Africa and not blindly pursue policy measures used in other regions and countries. The South African government should first understand which factors are relevant to subjective well-being and how it affects different demographic groups such as males and females within a region. With this knowledge policy makers will be better equipped to take efficient policy decisions to not only improve the economic well-being, but also the subjective well-being of the poor. Keywords: Subjective well-being, microloan, poverty alleviation iv Table of Contents Acknowledgement.
iii List of tables. vii List of figures. viii List of abbreviations/acronyms. ix CHAPTER 1: INTRODUCTION AND OVERVIEW OF THE STUDY.4 Contribution of the Study.5 Significance of the Study .6 Structure of the Minor Dissertation .1 Profile of the Research Area.
7 CHAPTER 3: LITERATURE REVIEW .2 The concept of microfinance and microloans .3 The concept of subjective well- 10 3.3 Microloans, Poverty Reduction and Subjective Well-being .1 Microloans and subjective well-being .2 Microloans and subjective well-being of males and females .3 The impact of microloans programmes on alleviating poverty .4 Questioning the Ability of Microloans for Poverty Alleviation and improving subjective well-being .5 The Role of Microloans in Poverty Reduction. 21 CHAPTER 4: METHODOLOGY AND DATA .2 Model Specification and Estimation Techniques .1 Data and selection of variables .2 Selection of variables. 29 CHAPTER 5: ESTIMATION RESULTS AND DISCUSSION .2 Assessing the Reliability of the Sample .3 Results of the Whole Sample Estimated on OLS and Ordered Probit .4 Results per Gender. 50 APPENDIX A: ESTIMATION RESULTS.
63 APPENDIX B: DIAGNOSTIC TEST .2 Over Identification Test. 65 vi List of Tables Table 1: D .26 Table 2: Explanation of the dependent and independent variable expected signs 29 Table 3: C 37 Table 4: C .39 Table 6: H 40 Table 7: Estimation results for subjective well-being (w .42 Table 8: Gender differences in subjective well-bei .46 vii List of Figures Figure 1: Microloan P ‘ C 22 Figure 2: L “ .29 Figure 3: Microloan 31 viii List of Abbreviations/Acronyms ATM Automated Teller Machine DFID Department For International Development GCR Gauteng City Region GCRO Gauteng City-Region Observatory GCRO Gauteng City-‘ O “ GDP Gross Domestic Product HSRC Human Sciences Research Council IGAs Income Generation Activities ILO International Labour Organisation MFRC Micro Finance Regulatory Council MDGs Millennium Development Goals NCA National Credit Act NCR National Credit Regulator NGO Non-governmental Organization OWB Objective Well-being OLS Ordinary Least Squares QoL Quality of Life SASAS South African Social Attitude Survey SWB Subjective Well-being VIF Variance Inflation Factor ix CHAPTER 1 INTRODUCTION AND OVERVIEW OF THE STUDY 1.1 Introduction and Background Poverty is an undesirable and unsustainable state of affairs which is considered to be a social, economic, political or psychological problem. In recent years poverty has been seen unmanageable. The well-being of many populations have been jeopardised by it (Mosley, 2004).
The South African government has created strategies and policies that have concentrated on poverty alleviation. The social security system has been expanded in the course of the years, especially to children and the disability sectors. However, the social security system may wind up noticeably unsustainable later on in the future. Van der Berg, Burger, Burger, Louw and Yu (2005) propose that social assistance is nearing the limits of its capacity to alleviate poverty.
Poverty is apparent to the human eye and is profiled by shacks, homelessness, unemployment, casual labour, poor infrastructure and lack of access to basic services. It is recorded that before 1994 the majority of South Africans were denied political rights and prohibited from taking an interest in the political process (Lund, 2008). African, Coloured and Indian individuals were rejected from taking part not just in the political existence of South Africa, yet in addition in the economic mainstream, bringing about extraordinary inequalities. Inequality before to 1994 is shown through a two-layered educational system, a dual health system, and other socio-economic dimensions.
Amid the apartheid era, exclusion was depended on race and class. Most of the energy of the liberation movement pre-1994 was devoted to eliminating the common enemy of racial exclusion. The issue of class, with its dimension of inequality, did not feature as prominently. However in post-1994, inequality now includes different classes of individuals who are excluded, and the shift profiles new zones of exclusion (Seekings & Nattrass, 2005).
1 Regardless of the political and economic advances since 1994, South Africa continues to be tormented by poverty and unemployment. Almost half of the population continues to live under a poverty datum line (Adelzadeh, 2006). There are estimates that just over twenty two million people in South Africa live in poverty (DBSA, 2005a). In 2010, 20% of South A lower poverty line of R466 and were deemed poor (Statistics South Africa, 2017).
In this regard the 2005 South African Social Attitude Survey (SASAS) conducted by the Human Sciences Research Council (HSRC) found that, following 10 years of democracy, the larger part of South Africans still see themselves as sufficiently lacking enough food for sustenance and income to meet all their household needs. However these measures of poverty all refer to objective monetary measures. Lately the validity of these measures has been questioned and researchers have been increasingly adopting subjective measures of well-being to complement objective measures of well-being. Subjective measures refer to perceptions of their own well-being.
They are obtained through self-reports: people are asked to evaluate their lives as a whole or some aspect of it and respondents will then (to a set of open-ended survey questions) place themselves on a scale to indicate a measure of their well-being (Waldron, 2010). Increasingly, there has been solid support in record of subjective well-being in assessments done through objective indicators. It is acknowledged that individuals do not only base their behaviour with respect to what is accessible to them, yet on what they feel about the distinctive choices or limitation that they are confronting (Frey & Luechinger, 2007). However poverty is often measured by making use of objective monetary measures.
Objective well-being (OWB) is based on hard data, i. it represents an external view of well- being and is measured by statistical indicators usually obtained from official statistical sources. The objective well-being of a society assumes achieving and sustaining economic development (Boarini et al., 2006), while subjective well-being (SWB) theories base their idea of well-being on the fact that people are figured to be the best judges of their general quality of life (Frey & Sutzter, 2002:405). SWB can be characterised as individual multidimensional assessment of their lives, including cognitive judgments of life satisfaction and additionally affective assessment of states of mind and feelings (Eid & Diener, 2004:65).