ABSTRACT
Micro-credit has been
identified as a sustainable and effective poverty reduction strategy that can
be employed to reallocate resources to the rural active poor. The livelihood of
rural dwellers is usually characterized by low potentials. It is however
believed that their access to micro – credit may improve their livelihood
outcomes such as income, well-being, reduced vulnerability, food security,
access to social amenities, economic expansion and employment. Also, it brings
additional perspective to the national challenge of increasing agricultural
production through sustainable micro-credit schemes offered to the rural
households. Paucity of information on sources of micro-credit accessed by rural
households in Enugu State and the effects on their livelihood outcomes
necessitated this research. The broad objective of the study was therefore to
examine the effects of micro-credit on the livelihood of rural dwellers in
Enugu State, Nigeria. The specific objectives were to: (i) describe the
livelihood and socio-economic characteristics of the rural households, (ii)
describe the sources of micro-credit available and accessible to the rural
households, (iii) establish relationship between the socio-economic and
livelihood characteristics of the rural households and their access to
micro-credit categories, (iv) examine
the volume of micro-credit received and utilized for improvement of the rural
households’ livelihood outcomes and (v) examine the constraints that hinder
rural households’ access to micro-credit facilities in Enugu State. The study
was carried out in Enugu State, Nigeria. Sixty respondents were selected from
each of the three agricultural development zones in the state making a total of
180 respondents. Primary data were collected using a structured questionnaire.
Data generated were analyzed using descriptive statistics, multinomial logit
model and factor analysis. It was found out that a greater percentage (31.7%)
of the respondents were between 45 and 50 years of age while their computed
means was 57 years. Male dominated the rural household heads (68%). Greater
percentage of 58.4% of the household heads were married while 8.3%, 25% and
8.3% were single, widowed and divorced respectively. Thirty-six (36%) had
secondary education, 28% had primary, 19% had tertiary while 10% had no formal
education. About 40% of the respondents earned below N101, 000 per annum.
Majority of the respondents (763.7%) were engaged in farming, trading 13.3% and
services 10%. Micro credit was not available to about 30% of the rural
households while 70% had access to various kinds of micro credit. Eighty (80%)
of the accessed micro credit was short term, 16.7% medium term and 3.3% long
term. Age, group membership and farm size positively influenced access to the
combined informal and formal micro credit categories while income level and
savings negatively influenced access to the categories. Gender, marital status,
household size, group membership and farm size positively influenced access to
informal micro credit category while savings negatively influenced access to
the category. About 70% of the respondents accessed different categories of
micro credit. About 58% of them invested the entire amount borrowed but 42%
invested only part of the funds and diverted the rest. Among the borrowers, 81%
perceived some improvements on their livelihoods and socio-economic outcomes
after they invested in economic ventures but 19% did not agree to that. Major
constraints to micro credit access among the rural households include
inadequate information, lack of skills and infrastructure; lack of cooperative
membership and policy, poverty and illiteracy, and socio-personal. It was
therefore recommended that: there was need to understand that the major source
of livelihoods among the rural households is farming and thus, every rural
livelihood programme should first address their farming welfare and; proactive
regulatory micro credit acts capable of reaching out to the very active poor be
enacted to ensure that government’s microcredit schemes are not hijacked by
economic saboteurs.
CHAPTER ONE
INTRODUCTION
1.1 Background
of the Study
The
declaration of the Millennium Summit to halve extreme poverty by 2015 may not
be fully achieved unless sustainable livelihoods and effective poverty
reduction strategies are employed to reallocate resources to the rural sector
(International Fund for Agricultural Development, 2001). This rural sector is
dominantly agrarian (Olukosi and Ogungbule, 1991), and reviving agriculture is
only part of the answer to end poverty, which has to be accomplished by social
changes that can give the poor a greater power over some factors militating
against improved livelihoods and such changes may come through micro credit
schemes organized either by the government and/or non-governmental agencies at
all levels.
Also,
continued innovation and improvement of rural micro credit facilities can help
to promote livelihood diversity. Micro credit facilities (MCFs) are provided by
both formal and informal institutions but the formal providers avoid doing
business with the rural people and their micro enterprises because the
associated cost and risks are considered to be relatively higher.
The
unwillingness or inability of these commercial financial institutions to
provide financial services to urban and rural poor, coupled with the
unsustainability of government sponsored development financial schemes
contributed to the growth of private sector-led microfinance in Nigeria
(Anyanwu, 2004).
About 94.4%
of the farmers in Nigeria are small scale when judged by international
standards where all farms less than 10 hectares are classified as small scale
(Olukosi and Ogungbile, 1991) and most small scale farms are owned by the rural
people as sources of their livelihood. The major constraint to agricultural
development is insufficiency of credit facilities (Agu, 1998). Apart from the
need for credit for agricultural development, rural farmers may also require
credit to meet non-agricultural expenses like food, shelter, clothes,
education, litigation and traditional ceremonies and such credits do not
increase the farmers’ income or help in repayment of the credit when it falls
due. However, for outreach and repayment of micro credit to be successful,
farmers require that it should be adequate and be disbursed quickly when
needed.
However,
Ditcher (199) defined micro credit as the extension of very small loans to
those in poverty designed to spur entrepreneurship. Micro credit is
characterized by individuals who lack collateral, steady employment and
verifiable
Generally,
credits are classified into short term, medium term and long term, based on the
time of repayment. Short term credit is the type of credit available for only
one season or production cycle, usually one year. Medium term credit on the
other hand is for a period of two to five years while long term credit is
generally used for permanent improvement on the farm. Ugwuanyi and Ugwuanyi
(1999) opined that such long term credit may be amortized over a period of
fifteen to twenty years. Although farmers generally have need for the three
types of credit but in rural areas of developing countries like Nigeria,
emphasis is placed on short and medium term credits of which the sources are
classified into;
1.
The institutional or formal source
of credit including government lending agencies, farmer cooperative banks,
commercial banks, NGOs, multi-lateral agencies;
2.
The non-institutional or informal
source of credit including friends, relatives,
local
money lenders (merchants), the Isuzu, age-grade.
Informal
micro credit is provided by traditional groups that work together for the
mutual benefits of their members and operate under different names such as
‘esusu’ among the Yorubas of Western Nigeria, ‘etoto’ among the Igbos in the
East and ‘adashi’ among the Hausas (Anyanwu; 2004). The key features of these
informal schemes are savings and credit components, informality of operations
and higher interest rates in relation to the formal sector. He further noted
that the informal associations that operate traditional microfinance in various
forms are found in all the rural communities in Nigeria. They also operate in
the urban centers but size of activities covered under the scheme has not been
determined......
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