Targeting Group Micro-Financing for Poverty Reduction and Quality of Life Improvement in Benue State, Nigeria

Transcription

1 Targeting Group Micro-Financing for Poverty Reduction and Quality of Life Improvement in Benue State, Nigeria Ater, P.I and Aye, G.C 1, (Department of Agricultural Economics, University of Agriculture Makurdi, Benue State, Nigeria) Abstract: This study analysed the effects of micro-financing on income generation, poverty reduction and quality of life improvement among targeted households in Benue State, Nigeria. This study also examined determinants of beneficiary s savings capacity and constraints to the speedy operations of the thrift agency. Gender and location disparity in loan disbursement was also analysed. Statewide cross sectional data of randomly selected 195 respondents were used. Data analysis employed both simple descriptive and inferential statistical techniques. Financial incomes of respondents recorded a significant shift from the initial N194, 000 to N 33, 400 after joining the Thrift. Quality of life also increased with about 7% respondents acquiring improved means of mobility like motor cycles and vehicles. About 60% of the respondents operated, businesses in cleaner, newer environments and about 74% acquired wealth creating assets to help reduce their poverty status. Identified constraints include high interest on loans (47.%), high application fees and short moratorium (100%) among others. Saving culture was significantly influenced by age income, gender; amount of loan borrowed and beneficiary s membership duration. However gender bias against females was established, in relation to quantum of granted loans. The study concluded that micro financing is an effective instrument for poverty reduction and improved quality of life. Policy recommendations are also provided. Keywords: micro-financing, poverty, life improvement, rural, urban, gender I. INTRODUCTION Micro-financing embraces a range of financial services including loans, savings, insurance and training with major emphasis on the rural part, to stimulate better incomes for improved consumption and better quality of life. Services often include credit for small scale production, savings, insurance and leasing, targeted to mostly non beneficiaries of formal financial institutions. The term is often associated with credit most times. The concept micro-financing though relatively new, its literal meaning credit is old and familiar in traditional societies for long. The Esu-sus and Ton-tines of West Africa have long being recorded as mobilizing and leasing informal financial assistance to members. Similarly the chit-funds in India, the Tandas of Mexico, the Bam and Adashi among Tiv in Benue State, Nigeria have long been reported as making available financial assistance to family and group members (Ijere, 1975; Ater, et al. 1991). Re-organization of the traditional credit concept took place in Europe in the late 19 th Century. Larger and various forms of formal savings and credit organizations emerged among the rural and urban poor. These include the people s banks, credit unions, credit cooperatives and community banks. Unfortunately ownership of these more organized institutions eluded the rural poor into the hands of agencies parastatals and government. The interests of most rural poor, were not represented. In Nigeria, it was in early 1970 s that there developed an interest in micro enterprises lending programmes. Emphasis was on credit provision to income generating activities only, with compulsory saving scheme for the very poor who were women borrowers exclusively. Gradually overtime, in 1980 s greater emphasis were laid on the provision of credit to the rural poor regardless of gender for small enterprises by successive governments in Nigeria. In 1990, the term micro-enterprise became replaced with micro-finance focusing on a variety of financial services to targeted beneficiaries. Following the global summit micro-financial summit in 1997, which deliberately highlighted success stories of the micro-financial institutions among numerous clients, there was a sharpened focus in Nigeria. Concerted efforts were made to adapt innovative lending methodologies to achieve micro-finance, institutional stability and sustainability of established dispensing agencies and organizations saddled with micro-financing responsibility. Amidst all these efforts, poverty rate has been reportedly high in Nigeria, with a little break in 199. Estimated poor rose from 18 million in 1980 to 35 million in 1985 and to 39 million in early 199. Rising again to 67 million in 1996 and at the end of 1999, population of the poor stood at 74. million giving a poverty level of 70.6%. About 68 and 84.5 percent of the population lives below $1.5 and $ a day poverty line, respectively, while the Gini index stands at 48.8 as at 010 (World Bank, 01). According to Alegieuno and Attah (005) and World Bank (001), only measures that encourage income growth and through targeted poverty reduction are effective under extreme conditions as evidenced in Nigeria. Thrift and loans dissemination Page 10

2 to targeted rural poor according to Coate et.al (000) as practiced in Benue State, Nigeria by Asenge, Thrift and Loans will likely reposition the rural poor always. This Non-Governmental Agency is an effort in the right direction, towards drastic poverty reduction and income growth. Established over twenty years ago, the institution has been operating through organized groups. Loans are granted to individual members of organized groups for payment at a later date. Loans have been granted to beneficiaries in the three zones of the state namely A, B and C to undertake different types of financial investments, in all parts of Benue State, Nigeria through a Non-Governmental Agency (NGO) executing public services in the entire state. It has persisted over years without a break in service rendering. There is need to document properly, what the agency has been able to achieve over time in the rural and peri-urban Benue State, Nigeria. The major aim of this research is to find out whether the Agency (Asenge Thrift, Loan and Cooperative Society) has been able to influence the rural and peri-urban poor in Benue State with resultant poverty reduction, income increase and improved quality of life among beneficiaries. Specifically, the research has the following objectives, to: i. delineate socio-economic characteristics of respondents in the research area; ii. list resulting achievements associated with the agency operations; iii. analyse the effect of thrift intervention on income of beneficiaries and assess gender and location differentials in loans granted; iv. establish the achievement or non-achievement of the poverty reduction initiatives among beneficiaries; v. examine the effect of socio-economic characteristics on beneficiaries savings capacity; vi. examine the relationship between total savings and loans received by beneficiaries; vii. analyse factors capable of impeding speedy realization of the agencies goals of micro-financing generally; viii. obtain empirical substance for articulating recommendations and policies for better success of microfinancing generally. The following hypotheses were tested: i. There is no gender discrimination in the granting of loans. ii. There is no difference between loans granted to typically rural and characteristically peri-urban beneficiaries. iii. There is no significant difference in income of beneficiaries before and after joining Asenge Thrift. iv. Socioeconomic characteristics of beneficiaries do not significantly affect their saving capacity. v. There is no significant relationship between total savings and loan granted to beneficiaries II. METHODOLOGY Study Area Benue State derives its name from River Benue, the second largest River in Nigeria, located in the Middle Belt region between latitudes 6½ and 8½N and longitude 7½ and 10⁰E. It has a total land area of 30,955 square kilometers, comprising 3 Local Government Areas which are divided into agricultural zones A, B and C. Benue State has 4,19,44 inhabitants (NPC, 006; BNARDA, 1998). Most inhabitants are rural small scale producers. The climate is tropical manifesting two distinct seasons. The rainy season is from April to October and the dry season is from November to March. Annual average rainfall varies from 1750 mm in the Southern part to the 1, 50 mm in the North. The State stretches across the transition belt between the forest and savanna vegetations. Benue State is the Food Basket of Nigeria because of the abundance of its agricultural resources, with 80% of the population deriving their livelihood from agriculture. Crops produced are cassava, yams, rice, benniseed and maize. Others include sweet potato, millet, soya beans, sugar cane, oil palm, mango, citrus and bananas. Population, Sampling Technique and Sample Size The total of 413,159 farm females constituted the study population. Multistage purposive sampling technique was used to select respondents. The first stage involved selecting the three agricultural zones A, B and C to embrace the entire farm families that constitute Benue State farming population. The second stage focused on 1950 beneficiaries. Two beneficiary communities typically rural and characteristically peri-urban in nature were purposively selected from each zone, making up 1 beneficiary communities. In each of the selected beneficiary communities, at least 16 with three additional respondents in zone A were selected based on population proportion to size of typically rural and characteristically peri-urban beneficiaries maintained by the thrift offices in Kwande, Makurdi and otukpo. Selected communities in Benue State were: Otobi, Adoka, Oju and Onyagedi in zone C. In zone B, Agan, Ikpayongo, Buruku and Aliade settlements were selected. Sampled respondents in zone A were drawn from User, Atser-Branch, Lessel and Ugba. Total sampled in the twelve settlements added up to 195 respondents, purposively drawn from 1950 beneficiaries. Page 11

3 Data Sources for the Research Data for the study were obtained from primary and secondary sources. Secondary sources comprised of records of savings and loans granted to beneficiaries. Primary data were obtained from analysed copies of structured questionnaires administered to 195 respondents, via trained enumerators of the research scheme, in the three agricultural zones of Benue State, Nigeria. Data Analysis Techniques/Model Specification Both descriptive and inferential statistics were used for data analysis. Descriptive statistics such as frequencies and percentages were used to realize objectives one, two, four and seven. Inferential statistics like multiple regression as well as Pearson Product Moment Correlation were used to realize objectives five and six respectively. Objective three was realized using t-test. Multiple Regression Model: The general model is given as: S X a where o i i S a = Savings capacity of beneficiary respondent. X = Respondents Socio-economic characteristics i = Constant o i = Regression coefficients = Error term The explicit equation is specified as: Sa o 1X1 X 3X3 4X4 5X5 6X6 7X7 8X8 S a = B o + B 1 X 1 +B X +B 3 X 3 + B 4 X 4 + B 5 X 5 +B 6 X 6 + B 7 X 7 + B 8 X 8 + E where X 1 = Beneficiaries Age in years X = Respondents Gender (1 for male; 0 otherwise) X = Respondents Marital Status (1 for married; 0 otherwise) 3 X = Credit / Amount borrowed in Naira 4 X = Respondents Annual Income in Naira 5 X = Respondents Family Size in Number 6 X = Years spent in Education 7 X = Formal Group Membership Duration in Years 8 Pearson Product Moment Correlation Coefficient: r where [ n T Test: t where: y n xy ( y) x ][ n x y ( x) r = Correlation Coefficient n = Number of Observations Σ = Summation sign y = Dependent Variable x = Independent Variable r 7.0 = Implies Significant Relationship as Decision Rule X n S X n S t = Calculated Student value X 1 & X are parameters of interest S 1 & S are variance for the parameters Σ = Summation sign n 1 & n : are sample sizes of relevant variables. ] Page 1

4 III. RESULTS AND DISCUSSION Socioeconomic Characteristics of Respondents Respondents socioeconomic characteristics analysis is presented in Table 1. Male respondents totaled 55.4 percent while females constituted 44.6 percent. The slight difference in the proportion to a large extent relates to the obvious fact that men have more responsibilities. They tend to save money to meet various needs. They were more suited in the scheme that emphasized good saving culture for participants. Majority of the sampled respondents (58.5%) fell within the age bracket of 1 40 years while 30.3 percent were members whose age ranged from years. This result shows that most members of Asenge Thrift were within the active age bracket for farming and were actively engaged in other financial investment activities. They therefore needed to save in order to have access to funds to mitigate their financial constraints. In relation to formal education, members of the Thrift were well educated. The total of 55.9 percent respondents had higher National diploma or Degrees. A few of them had Master s Degrees. Others had various academic qualifications. The educated are normally conscious of the obvious need to save for equity financing and unforeseen circumstances that would always arise during investments. Respondents responses show that members are engaged in various occupations, such as: farming (36.9%), politicians (3.8%) with petty trading accounting for 13%. The result shows that vast majority (3.8%) are involved in full fledged politics. This situation poses a threat to the agricultural industry as this could be a pointer that politics is becoming more remunerative than farming even in typically rural and characteristically peri-urban farming communities of Nigeria. Table1: Socioeconomic Characteristics of Respondents Variables Zonal Response State Level Frequency State Level Percentage A B C Sex Male Female Age > Marital Status Married Single Education Primary Secondary ND/NCE HND/Degree Master and above Major Occupation Civil Service Page 13

5 Farming Politics Trading Business contracts Source: Field Survey, 011 Respondents Assessment of Achievements by Asenge Thrift Loans Cooperative Society Beneficiary respondents were asked to evaluate activities of the thrift. Details are as presented in Table. Majority (83.1%) indicated that they had access to loan facility. Regular access to loan facilities could have facilitated economic growth and development as observed by earlier scholars like Ater., et al. (1991). Majority (64.1%) of the respondents in addition accepted that loanable funds released to them were sufficient for their investment purposes as suggested by Okwu, Abu and Ater (1998). This means that intending borrowers were given sufficient funds for investment to solve immediate economic problems. More than half of the respondents (54.4%) affirmed that their production/investment enthusiasm were investment benefits of the thrift derivable from the thrift financing over time. Slightly more than half of beneficiary respondents (50.3%) accepted their capacity to effectively manage credit facilities was poor and needed improvement. This revelation depicts the gap in capacity building of the NGO. It also brings out the need for the cooperative body to link up with existing extension delivery bodies or seek foreign aid for technical cooperation to bridge this gap. Table: Self assessment of major aims of asenge thrift, loans & cooperative society Variables Zonal Response State Level Frequency State Level Percentage A B C Adequacy of Access and Regularity of Loans Regular/Adequate Irregular Loanable fund sufficiency Yes No Savings Motivation High Low Capacity Building for credit Management Yes No Inculcation of investment culture Yes No Economic welfare and quality of life Yes No Effectively Inculcated Business plan development Yes No Satisfaction for interest on savings Yes No New assets acquisition impetus Yes No Source: Field survey, Page 14

6 An analysis of Cooperative Thrift Effects on Rural and Peri-urban Poverty in Benue State The analysis of cooperative thrift effects in rural and peri-urban is represented in Table 3. Thrift loans were used for different purposes, ranging from acquisition of business (60%) land rent payment (17.4%), payment of school fees (14.9%) and settlement of health bills (7.7%). Before the advent of the cooperatives thrift, only 11% respondents accepted they sought assistance from relations for the payment of children s school fees as documented in Asenge, Loans and Thrift Report 010. The major positive effect of the cooperative thrift as revealed by the research is acquisition of new capital assets like houses and improvement of existing businesses (87.%), as well as increasing business stock, expansion of business and farms (73.8%). Prior to Asenge Thrift intervention,, no respondent ever acquired loans for capital assets acquisition, as explained in Asenge, Thrift and Loans report (010). Other areas of positive effects by the Thrift and Loans cooperative were: mobility enhancement (71.8%), respondents transfer of children to better schools with higher school fees (6.1%). Most respondents averaging (73.7%) indicated that they had acquired wealth creating assets to reduce their poverty status. This shows that most respondents were experiencing poverty reduction, as only 11% had these assets earlier, (Asenge Thrift and Loans Disbursement Report, 010). Table3: Cooperative thrift poverty effects analysis. Variables Zonal Response State Level Frequency Utilization of loan Rent Payment School fees Health bill Farm business operation Exclusive farm business expansion Yes No Renovate Residency/ Acquire new houses Yes No A B C State Level Percenta ge Mobility Means Acquisition Yes No Transferred children to better schools Yes Maintained old schools More children sent to school Yes Change in children school sponsorship Better access to modern health facilities Yes No Access to better water quality Yes No Acquired at least one wealth creating asset Yes No Source: Field survey, 011. Existing Constraints in the Cooperative Thrift Management System Constraints assessment in the Thrift is presented in Table 4. Findings revealed that loans are not restricted to the size of respondent s equity or size of the farm as indicated by all (100.0%) of the respondents. Rather more than half (57.4%) of the respondents accepted that membership status also plays a role. This is an element of flexibility in financial management that hampers growth of small businesses. It is important that loans be restricted to the saving capacity of an intending borrower since this is the collateral that the thrift relies upon. Most respondents (58.%) disagreed that the interest rate charged on loans was too high. All the respondents (100.0%) were of the opinion that the application fee for loan is unnecessarily high and should Page 15

7 therefore be abolished. Also (100%) complained that the moratorium was too short and should be extended to pave way for full utilization of loan and adequate preparation for re-payment. All respondents (100%) accepted fair management of the Thrift in terms of required collateral, they judged it not prohibitive. Loan collateral is necessary so that debtors will be encouraged to pay back. However, all respondents (100.0%) complained that the dividend obtained at the end of every year was too small. Table4: Constraints analysis for thrift beneficiaries in Benue state. Variables Zonal Response State Level Frequency State Level Percentage A B C Loan restricted to beneficiary equity Disagree Loans restricted to equity plus interest on savings Agree Disagree 38 8 Interest on loan too high Agree Disagree Loan application fee unnecessarily high Agree Moratorium too short Agree Collateral Prohibitive Disagree Dividend too small Agree Source: Field survey, 011. Regression Analysis of Beneficiaries Socio-Economic Variables Contributing to Saving Capacity in Benue State Selected quantifiable socio-economic variables of beneficiaries were regressed on savings income as a regressand. Table 5 presents the summary effects of the selected independent variables. Age and annual income had positive coefficients and significant at 0.01 level of significance. This implies that increase in age and annual income lead to higher savings capacity of members. Advancement in age implies increased responsibility due to the extended family system in Nigeria. Therefore, the need to save against emergencies as well as the need to have quick access to saved funds similarly increases. This analysis agrees with the economic theory that income level is directly proportional to savings. The more money an individual has, the more he is willing to save Adepoju et al. (006). Gender had positive effect on savings capacity and significant at 10% level. This implies that, men saved more than women. In our society, men generally have better access to money than women and can save more than women. Credit or amount borrowed had a negative and significant effect on savings regardless of whether a typically rural or characteristically peri-urban borrower. However savings were more intensive in urban areas than rural areas. In cities respondents had more money and greater desire to save for future occurrences than in rural areas with meager incomes or money. The effect of formal group membership duration was negative and significant at 0.01 level of probability. This contrasted the expectation that those that benefited longer from the Thrift would have greater tendency to save than newer members. However, it is also possible that this deviation from a priori could be attributed to dissatisfaction with management in relation to paid low dividend as members overwhelmingly complained that management had exhibited the unhealthy culture of low dividend payment. The regression constant in the model is significant at 0.01 level of probability, implying linearity in the independent variables in the model. The R is also significantly high (0.80) implying that the independent variables were able to explain about eighty percent of the variations in the dependent variable (savings capacity). The F-statistic, which measures the joint effect of the independent variables on the dependent variable, is significant at 0.01 level of probability. It follows that the null hypothesis could be rejected and the alternative accepted, by implication, selected socioeconomic variables jointly have significant effect, on the savings capacity of members in the Benue State micro-financing strategy. Table5: Regression analysis of determinants of savings capacity in Benue state. Page Variables Coefficient Standard Error t-ratio Constant (β 0 ) ** Age (X 1 ) ** P-value

8 Gender (X ) * Marital status (X 3 ) Credit/Amount Borrowed in Naira ** Annual income ( 000) (X 5 ) ** Family size (X 6 ) Education (X 7 ) Formal Group membership Duration ** (X 8 ) R 0.80 F-statistic 94.37** Note: Dependent variable: is the total savings (N 000); * and ** indicate significance at 0.1 and 0.01 level of probability respectively. Source: Field Survey 011. Beneficiaries Loan Disparity by Gender/Typically Rural and Characteristically Peri-Urban Respondents Disparity in loan granted to men and women is presented in Table 6. Loan granted to men was N7, while that granted to women stood at N61, The mean difference (N11, ) depicts disparity against the female gender with men obtaining higher loans. The t-ratio of the means is statistically significant at 0.01 level of probability. Hence, the null hypothesis was rejected and the alternative hypothesis accepted. The implication is that there was gender discrimination in the granting of loans to female beneficiaries. The t-test comparison of loan difference between typically rural and characteristically peri-urban beneficiary members is presented in Table 6. The mean loans granted to urban and peri-urban were N50, and N70, respectively, with the difference of N9, 97.. The disparity in the loan was statistically significant at 10% level with a t-value The disparity could be greater savings by peri-urban members, as well as better loan repayment culture. Table6: Beneficiary loan difference by gender and location Granted loans by gender Mean Std. Deviation Std. Error mean Mean difference t-ratio Degree of freedom P- value Male 7, , , , * Female 61, , , Granted loans Mean Std. Std. Error Mean t-ratio Degree of P- by location Deviation mean difference freedom value Urban 70, , , , * Rural 60, , , *t-ratio is significant at 0.01 level of probability Source: Field survey, 011 Income Difference Before and after Thrift Intervention in Benue State The t-test for the difference in income before and after thrift intervention is presented in Table 7. The average income after the respondents joined the Thrift is (N ) while the average income before was (N19, ). The mean difference in income between these two periods is N Income after joining is greater than income before. The t-ratio (8.7) for the difference is significant at 0.01 level of probability. The null hypothesis is automatically rejected and the alternative hypothesis accepted. Thus, there is significant difference in income of beneficiaries before and after respondents joined the Thrift. By implication, the Thrift intervention has contributed significantly to poverty reduction in both rural and urban areas since its activity has yielded significant income increase regardless of whether typically rural and characteristically periurban borrowers. Table7: Income difference of beneficiaries before and after intervention. Samples Mean Std. Std. Error Mean t-ratio Degree of P-value (N 000) Deviation mean difference freedom After ** Before **t-ratio is significant at 0.01 level of probability Source: Field Survey, 011. Relationship between Total Savings and Loans The relationship between total savings and loans granted to members is presented in Table 8. The Pearson Product Moment Correlation Coefficient is low but positive and significant at 0.01 level of probability. This implies that as total saving increases, loan increases. This is appropriate because saving is the only source of capital as well as the collateral for loan in Asenge Thrift. The null hypothesis is rejected and the alternative hypothesis accepted, implying that there is significant relationship between total savings and loan. This Page 17

9 relationship should be enhanced by paying greater consideration to savings than other collaterals in form of immoveable assets like buildings, land, etc. Table8: Correlation between savings and loans Statistics Total savings Loan Pearson Correlation 0.3** Sig. (-tailed) 0.00 N 195 **Correlation is significant at the 0.01 level (-tailed). Source: Field Survey, 011. IV. CONCLUSION AND RECOMMENDATIONS Conclusion The study assessed the effects of Asenge Thrift, Loan and Cooperative Society on existing poverty in Benue State. The study found that membership of the Thrift embraced even highly educated as members. The Non Governmental Agency (NGO) had mechanism that makes funds readily available for investment thus facilitating economic growth and development. This has already led to significant increase in incomes of members with the mean of ( ). In conclusion, the NGO made significant impact on poverty reduction among respondent members. Members complained against low dividend and imposition of high loan application fee. Notable positive changes in capital assets acquisition, savings culture, poverty reduction and improved quality of life is established. Thus, it is regarded as an effective funding and financial agent in the rural and semi-urban dwellers in Benue State, Nigeria. Recommendations Empirical findings from this research have given rise to the following recommendations: 1. Gender friendly approach to granting of loans should be put in place for faster income growth, savings, poverty reduction and development in Nigeria.. Loan moratorium should be extended to pave way for full utilization of loans and subsequent repayment; 3. Dividend should be increased to sustain the interest of members; 4. Loan granted should not be restricted to savings alone but also consider respondents asset status to encourage faster growth of small business and small savers and investment. V. REFERENCES [1] Adepoju, S. O. Umar, A.G. and Agun, J.O. (006) An Appraisal of the Participation of Women in Kano Agricultural and Rural Development Authority (BNARDA) Extension Delivery Programmes, Proceedings of FAMAN, Jos, Alegieuno, J. and Attah, J. A.A. (005) Poverty Reduction through Micro-financing. The Case of Indonesia and Philippines, Central Bank of Nigeria, Bullion, 30 (3): [] Asenge Thrift and Loans Disbursement Report (010). [3] Ater, P.I, Agbo, C.I. and Barau, A.D. (1991) Loan Delinquency in Benue State Small- Scale Agricultural on lending Scheme. A Case Study, Nigeria, Journal of Rural Economy and Society,1 (1): [4] BNARDA (1998) Agricultural Production Recommendations for Benue State, Extension Bulletin, No. 3 September 000. [5] Ijere, M.O. (1975) New trends in African cooperatives: The Nigerian experience. Fourth Dimension Publishers, Enugu, Nigeria. [6] National Population Commission (NPC) (006) National Population and Housing Census report. [7] World Bank Development Report (001) The Potentials for Savings and Financial Innovation in Africa, Savings and Development (Mila), 7(4): [8] World Bank (01) Working for a World Free of Poverty, Data Base Page 18