|Home Instructors Journals ContactUs|
LOAN REPAYMENT AMONG MICROFINANCE COOPERATORS OF THE NIGERIAN AGRICULTURAL COOPERATIVE AND RURAL DEVELOPMENT BANK (NACRDB) IN ANAMBRA STATE
Keywords: Microfinance, loan repayment, cooperators, NACRDB
Microfinance is acknowledged as one of the prime strategies to achieve the Millennium Development Goals (MDGs) (Iganga, 2007). It involves the supply of loans, savings and other basic financial services to the poor (Ehiagiamusoe, 2005; Iweala, 2005 and Kimotha, 2005). Over the years, in Nigeria, as classified by Olomola (2001); formal and informal institutions have been involved in the provision of micro credit.
One of the formal, government microfinance institutions playing active role in credits provision for poverty alleviation is the NACRDB. The bank is an amalgam of the former Peoples Bank of Nigeria, the Nigerian Agricultural and Cooperative bank (NACB) and the Family Economic Advancement Programme (FEAP). It was set up to finance agriculture as well as small and medium enterprises (Anyanwu, 2004). Since 2003, the bank’s focus has been on funding the development of micro enterprises through joint liability group lending or cooperative societies to increase participation of the poor and enhance repayment rates which may contribute to improving the sustainability of microfinance programmes (Akanyi, 2002; Anyanwu , 2004; Oke et al, 2007; Cassar et al, 2007; Cull et al, 2007).
Loan repayment is a necessary ingredient for sustaining the microfinance programme. Chiawa (1997) specified a Probit Model to assess the determinants of the
probability of credit repayment among small holders in Malawi. Only five factors (sales of crops, size of group, degree of diversification, income transfer and the quality of information) were consistently significant determinant of agricultural credit repayment. Four independent variables – gender, amount of loan, club experience and household size were not statistically significant in various specifications.
Oni (1999) studied the proportion of loan repayment by small holder farmers in Ogun State. His explanatory variables were: Amount of loan collected, expenditure on farm, interest rate, extent of farmers contact with bank, disbursement lag, cultivated land area and years of experience in farming. The result of linear and log form equations showed that the regression coefficients associated with amount of loan(+), disbursement lag (-) and extent of farmers contact with banks(-) had expected signs and were statistically significant at 5 percent.
Oke et al (2007) examined the factors that influenced micro credit repayment among members of microfinance non-governmental organizations (NGOs) in South Western Nigeria. Ten out of the twenty-three (23) variables that went into the multiple regression model were significant (p = 0.001 or p = 0.05). They are: income, distance between dwelling place and bank, amount of business investment, socio-cultural expenses, amount of loan borrowed, access to business information, penalty for lateness to group meetings, membership of cooperative society, number of days between loan application and disbursement and poverty indicator.
This study was undertaken to examine the influence of the ten significant variables mentioned in Oke et al (2007) on micro credit repayment among cooperators of a government owned bank, the NACRDB, in Anambra State.
Descriptive statistics were used to summarize socio-demographic variables of the respondents while multiple regression model adopted by Gujarati (1995) was used to determine the order of influence of the explanatory variables in explaining the variations observed in the dependent variable. The t – test was performed to test the significance of each of the explanatory variables at alpha levels of one, five and ten percent.
The model is specified thus: MRP = 0+ *1IHH + *2DDB + *3AB1 + *4SCE + *5ALB + *6AB1 + *7PLATE + *8MCB + *9D1SLAG + *10PI + e
DISLAG = Loan disbursement lag, defined as the number
Results and Discussion
All the cooperators had one form of formal education or the other meaning that they can readily adopt new technological packages in order to improve their businesses. Seventy percent of them were married with majority (61.7%) having between 0 – 7 children.
Table I: Business Enterprises of NACRDB Cooperators Business Type
Source: Field survey
Non-farming businesses of the cooperators ranged from Trading (16.2%), food processing (15.0%) to soap making (1.4%), while farming businesses ranged from Arable cropping (17.5%). Tree cropping (9.2%) to vegetable production (1.6%).
Loan Disbursement to Cooperators in 2006
Table 2: Borrowings of Cooperators
Source: Field survey
Members borrowed between N10,000.00 and N250,000.00 with majority (51%) falling within the range of N10,000.00 and N50,000.00 and only two applicants accessed N250,000.00 probably for livestock business.
Business Investment, Annual Income, Savings
Table 3: Annual Income of NACRDB Cooperators
Source: Field survey
Members invested between N12,500.00 and N250,000.00 with about 31% investing more than N50,000.00 in their businesses. This suggests that there was a low level of investment which Zeller, et al (2001) and Oke et al (207) identified as characterizing the rural economy.
The cooperators had no good saving culture as reflected in the mean saving figure of N8,750.00. This figure is too low compared to an average member’s investment of N31,000.00. On the other hand, consumption expenditure was high, averaging N101,620.00. A reflection of the increasing cost of living in the society. Low savings figure recorded by the cooperators could equally be attributed to high socio-cultural expenses with mean value of N24,650.00.
Microfinance Repayment of the Cooperators and Regression Results
Table 4: Regression Output of Micro credit Repayment Model
Results of the multiple regression analysis are shown in Table 4. The F – value was highly significant implying that the model is a good fit. The adjusted R2, 0.28, indicated that the variables in the model were able to explain 28 percent of the variability in percentage loan repayment (MRP). This R2 was lower than the 0.26 reported by Oke et al (2007) for loan repayment among members of microfinance NGOs in South Western Nigeria.
Eight out of the ten variables were statistically significant. They are: Income (1HH), amount of loan borrowed (ALB), distance between dwelling place and bank (DDB), amount of business investment (ABI), socio-cultural expenses (SCE), quality of business information (QBI), loan disbursement lag (DISLAG) and poverty indicator (PI). IHH is positively correlated with repayment implying that a N100,000.00 increment in income will increase repayment rate by 4.98%. Amount of loan borrowed (ALB) was positive and significant meaning that an additional naira of loan obtained will raise repayment rate by 1.24%. Thus, making more credits available to the cooperators will increase their productivity and consequently their income and repayment capacity.
The variable (DDB) was inversely related to repayment and as such 1km increase between dwelling place and bank will reduce repayment by 1.04%. The variables, SSE, QBI and ABI were significant and positively related to repayment meaning that spending on positive socio-cultural activities, having access to business related information and increasing the amount spent on business investment will increase repayment rate by 1.04%, 24.48% and 2.63% respectively.
Another two variables, DISLAG and PI had negative relationship with repayment though the negative sign of DISLAG did not conform to theoretical expectations. Consequently, an increase in the number of days between loan application and disbursement will reduce repayment. Likewise the poorer the cooperators, the more difficult it is to repay.
Conclusion and Recommendation
The cooperators invested their loans in various businesses, both farming (48%) and non-farming (52%). Membership of a society was a condition for bank’s approval of micro credit. Mean annual income, expenses and savings were N102,763.00, N101,620.00 and N8,750.00 respectively implying a poor savings culture. Seventy one percent of the cooperators repaid more than 67% of their loans as at when due.
Amount of loan borrowed was positively related to repayment such that a unit increase will increase repayment by 1.24%. similarly, a unit increase in income will increase repayment by 4.98%. Again, spending on positive socio-cultural activities, access to
business related information and membership of cooperative society will positively influence repayment. However, repayment was negatively influenced by distance between dwelling place and bank, increase in the number of days between loan application and disbursement as well as poverty level.
In order to improve the repayment rate of cooperators, the NACRDB should: continue to implement the group lending strategy which has been proved to enhance repayment and increase participation of the poor and vulnerable; improve on the loan sizes approved for cooperators to enable them to increase investment, income and thus savings; reduce administrative costs as well as time lag between loan application and disbursement; and improve on the provision of quality business information to the cooperators. On the other hand, the cooperators should scale down on deceitful socio-cultural expenses and embrace savings culture.
Akanji, O. O. (2002). Microfinance as a Strategy for Poverty Reduction. CBN Economic and Financial Review, Vol. 39, No. 4.
Anyanwu, C.M. (2004). Microfinance Institutions in Nigeria: Policy,Practice and Potentials. Paper presented at the G24 Workshop on Constraints to Growth in Sub-Saharan Africa. Pretoria, South Africa, No. 29 – 30.
Cassar, A.; Crowley, L. and Wydlick, B. (2007). The Effect of Social Capital on Group Loan Repayment: Evidence from field experiments. Economic Journal, Vol. 117 pp: 85 – 106.
Chiawa, E. A. (1997). An Economic Analysis of Determinant of Agricultural Credit Payment in Malawi, African Review of Money, Finance and Banking Vol. 1 -2: 107 – 122.
Cull, R.; Demirgy-Kunt, A. and Morduch, F. (2007). Financial Performance and Outreach: A Global Analysis of Leading Micro banks. Economic Journal, Vol. 117 pp: 107 – 1 – 333
Ehigiamusoe, G. (2005). Tested Institutional Practices for Effective Microfinance Service Delivery. Proceedings of Seminar on Microfinance Policy, Regulatory and Supervisory Framework in Nigeria.
Hermes, N.; Lensink, R. and Melitenb, H.J. (2005). Peer Monitoring, Social ties and Moral Hazard in Group Lending Programme. Evidence from Eritrea. World Development, Vol. 33 (1), pp: 149 – 169.
Iganga, B.O. (2007). An Evaluation of Microfinance Policies and Institutions in Nigeria. Department of Economics, Delta State University, Abraka.
Kimotha, M. (2005). National Microfinance Policy Framework and Expected Impact on the Microfinance Market in Nigeria. Proceedings of Seminar on Microfinance Policy, Regulatory and Supervisory Framework for Nigeria.
Oke, F.T.O.; Adeyemo. R and Agbonlahor, M.U. (2007). An Empirical Analysis of Micro credit Repayment in South Western Nigeria. Humanity and Social Sciences Journal 2 (1): 63 – 74.
Okonjo – Iweala, N. (2005). The Role of Government in Microfinance Development in Nigeria. Proceedings of Seminar on Microfinance Policy, Regulatory and Supervisory Framework for Nigeria.
Olomola, A.S. (2001). The Nature and Developments of Rural Loan Repayment Performance in Nigeria: The case of FADU’s Microcredit Programme. NISER Monograph series No. 3, NISER, Ibadan pp. 57.
Oni. T.K. (1999). Bank Credit Facilities for Smallholder Farmers: Implications for Food Security in Nigeria. In Fabiyi, Y.L. and E.O. Idowu (eds) Poverty Alleviation and Food Security in Nigeria, Ibadan, N.A.A.E, pp: 342.
Otu, M.F. (2003). Informal Credit Market and Monetary