ABSTRACT
The study was conducted in nine
Local Government Areas selected from Enugu State. Six five micro Credit Groups
from each Area were randomly selected. This gave a total of forty-five (45)
micro-credit groups. This was done using multi-stage sampling techniques.
Sources of data were primary and secondary. Structured questioners were used to
interview respondents to generate primary data while secondary data were
sourced from relevant publications. Descriptive statistics and Ordinary Least
Square Econometric techniques were used in data analysis. Majority of the group
members, 31.4% belong to the age bracket of 40 – 49 years (middle age).
Majority of the groups, 40% were composed of 10–15 individuals. Majority of the
respondents, 64.4% travel about 200 meters to attend meetings. Factors
determining repayment were homogeneity in gender, occupation, distance and
residency as well as social cohesion. Based on the findings, it was recommended
that micro credit groups should be homogenous with respect to gender, members
should be encouraged to attend group meetings which should be made to be
regular in order to build strong social cohesion, and groups should be composed
of individuals living close to each other in order to enjoy information
advantage.
CHAPTER ONE
INTRODUCTION
1.1 Background
Information
Agriculture
in Nigeria, a developing economy, has suffered serious setbacks due to: under
capitalization, poor credit disbursement procedures, inadequacy of credit
institutions to cater for the needs of the teaming population of farmers and
poor loan repayment possibilities among farmers (Ugo 1973, Oshontongun 1973).
Micro credit
is about providing services to the poor who are traditionally not served by the
conventional financial institutions (Upton, 1997). Credit agencies are
frequently classified into two groups: formal and informal (Upton, 1997).
Formal institutions include banks and co-operative credit unions, while the
informal agencies include non-governmental organizations (NGOs), money lenders,
friends, relatives and micro credit unions.
The formal
financial system in Nigeria traditionally lend to medium and large
entrepreneurs, which are judged to be creditworthy, and who can provide
tangible collateral. They avoid doing business with the micro entrepreneurs and
their micro enterprises because the associated cost and risk due to inability
to provide collateral are considered to be relatively high (Anyanwu, 2004).
Informal
credit institutions are characterized by flexible small operations and they
operate mostly in a circumscribed area or a specific niche of the market. They
tend to deliver personal services very close to the location of the borrower.
They also tend to be non-bureaucratic and much more flexible in respect of loan
purpose interest rates, collateral requirements, maturity periods and debt
rescheduling (Ghatak and Guinnane, 1999).
Formal
financial system in Nigeria despite the government intervention by providing a
multiplicity of credit institutions over the years, have proven to be
inefficient and costly in the provision of financial services to the micro
entrepreneurs. However, several types of informal institutions have efficiently
serviced a wide variety of micro credit entrepreneurs. Micro credit
institutions are mainly, Self-Help-Group (SHGs) Rotating Savings and Credit
Associations (ROSCAs) and Savings/Thrift Co-operative societies (Olomola,
2000).
Micro credit is one of the major tools used to extend credit
with a view to alleviating poverty of many entrepreneurs in low-income
countries. In an era of global economic liberalization, micro credit is widely viewed as an
intervention that address important deficiencies of financial markets in terms of
serving specific needs of the poor, by providing them with credit without collateral
(Stigliz and Weiss, 1981). The provision of micro credit services improves the latent
capacity of the poor for entrepreneurship, which enables them to be more
self-reliant, increase in employment opportunities,
enhance household income and create wealth.
Many micro
credit agencies have sought borrowers to work together in small peer groups and
these peer groups are also required by the lenders to assume responsibility for
the repayment of their members loan in time of default, consequently, future
credits to all member (Soren, 2002). The joint liability systems employed by
peer groups can improve financial sustainability, by inducing group members to
use their mutual interest, familiarity and understanding in performing the following
roles: screening of fellow borrowers to retain creditworthiness, monitoring
their use of borrowed funds and pressuring them to repay as well as providing
mutual insurance (Ghatak, 1999).
The formal
credit lending institutions always insist on collateral for the disbursement of
loans. However, the German Bank experience demonstrated that collateral
requirement should not be a limiting factor to accessing credit by small holder
farmers. Instead, substitutes such as group lending can be used (Hossain, 1988).
Group lending involves administration of credit among group whose individuals
differ in character and reaction, but possess a common interest of benefiting
from the group (Hulme and Mosley, 1996). In countries such as Bangladesh,
Thailand and Malawi, where groups lending thrived very well, the key
determinants of the success were homogeneity especially with respect to group
social cohesion, intra-group risk pooling and repayment performance (Huppi and
Feder, 1989).
The nature
of membership composition is thus important for improved performance of groups,
not only in terms of repayment, but also in terms of savings mobilization and
building up social cohesion through attendance at regular meeting (Mkpado,
2006).....
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