Revolving Loan Scheme (Esusu) and Socio-Economic Development of Rural Areas

Transcription

1 Vol. 3, No. 5, 2014, Revolving Loan Scheme (Esusu) and Socio-Economic Development of Rural Areas Ayodele Thomas D. 1 Abstract The study examined the contributions of Revolving Loan Scheme (Esusu)- RLS, to the socio-economic development of the rural economy focusing on some town and villages of Ondo State of Nigeria.Revolving loan scheme as a traditional financial institution, identified as a major thriving force behind the sustenance of the rural sector despite the growing influence of the formal financial institutions through the grassroot banking network, is indeed the basis of the now internationally accepted and practiced micro financing system.questionnaires were used to collect data from four local government areas of the state taking two local government councils from the North senatorial district and one each from the Central and the South senatorial district. Simple percentages and tables were used to analyse the data and formulated hypotheses were tested using the chi-square (x 2 ) analysis method. It was revealed from the analyzed data that the Esusu arrangement has been of immense significance to the socio-economic development of the rural sector despite its acute limitation in terms of inadequate funds and non-official recognition by the government. Its impact resulted from the gaps still created by the operations of the banks in meeting the need of the rural dwellers, especially in the area of funds and employment generation. It was therefore recommended that the monetary authorities should refashion the Nigerian financial system in order to give appropriate recognition to this traditional financial institution instead of devoting all attention to the western banking style of doing things by rule. Activities of this traditional financial institution should be regulated and harmonized to reduce the rate of default and mismanagement by the operators. Key Words:Esusu -This is an imposed (or the group influenced) savings on a regular basis, Rural Economy This comprises of villages (whether big or small), hamlets, farm settlements and rural towns where the duellers are predominantly farmers and petty traders. Micro Finance Banks These are banks licenced to provide short term funds to people especially of low income range and rural duellers and to provide other service like deposit acceptance etc.cooperative Society This is an organization comprising of people who voluntarily associate together on the basis of equity for the promotion of the economic interest of members. 1. Introduction Revolving Loan Scheme (Esusu) is a form of informal financial arrangement that is mostly found in the rural communities, though they can also be found in the urban centre on few cases. Their activities are outside the formalized financial regulatory framework, and have no legal recognition, though their operations cannot be regarded as illegal. In fact, this system can be viewed as an independent arrangement whose activities are quite independent of government s financial regulations and policies (Oloyede, 1999). The Esusu is a cooperative movement where the total money contributed by members goes to a member each on rotational basis, based on some mutual agreed pattern. Such bulk of money can be used by the collector for meaningful purposes like trading, farming, training of wards etc. However, in terms of mobilization of funds for development project or economic venture in Nigeria, attention is always focused on the banking institutions and other non-banking institutions like Insurance companies, Discount Houses etc. that are not traditional in nature. There has been no recognition of the 1 PhD. Ajayi Crowther University P.M.B. 1066, Oyo, Oyo State. Nigeria 2014 Research Academy of Social Sciences 266

2 traditional financial institutions in the scheme of development in our economy, despite the fact that they have greatly served as the media for mobilization of funds for economic project and development in the rural setting or communities The Nigerian governments have failed to realize that the banking institutions in most cases have their branches in the cities where they have high patronage to the detriment of the villages whoonly rely on the traditional financial institutions like the Esusu and the cooperative thrift and credit societies for the mobilization of funds in their domains. Unfortunately, no city can sustain its teaming population without the contributions, (one way or the other) by the villages surrounding it. As revealed by Akinnirun (1990), about 75 percent of Nigeria s population resided in the rural area as at He pointed out that this is a peculiar trait of developing nations. Hence, the rural economies deserve the necessary attention by all tiers of government. However, no spite of the neglect by the government, the rural areas have been self-sustaining with noticeable scattered development. The dwellers in this sector have been able to engage in different type of economic and social activities like farming, trading, cottage industry, education of their young ones selves, building houses and even buying motorcycles etc. All these determine the level of development of these areas. One may then wonder the source of fund to these rural areas outside the government little presence. This traditional arrangement attempts to fill the gaps created by the orthodox banks in the development of the rural areas. Adeusi, et al (2008) revealed that low income earner and small scale business men and women find the service rendering mechanism of the modern banks (microfinance banks inclusive) unsuitable and too formal for their peculiar needs. This is due to the rigidity of the banks operations, collateral security requirement, long waiting hours and excessive paper works.due to the gaps created, these rural dwellers have turned into the waiting embrace of the informal financial sector like Esusu that offers them personal service that can be adjudged to suit their peculiar needs. Therefore, the paper is out to examine the nature and operations of the Esusu ; their contributions to the socio-economic development of the rural dwellers, the challenges confronting the scheme and suggest the ways of improving their performances. 2. Conceptual Framework The Concept and Organisation of Esusu The Revolving Loan Scheme ( Esusu ) is described as a self imposed (or group influenced) saving arrangement on a regular basis. This scheme is called different names by the different groups in the country. Some of them are Esusu, among the Yorubas, Isusu, among the Igbos, Adashi among the Hausa, Osusu among the Edos, Dashi among the Nupes and Etibe among the Ibibios etc. Bascom (1952) noted that a unique attribute of the Esusu is that it follows the same principle or mode of operations all acrossthe different ethnic groups in Nigeria. He observed that there may not be a permanent leader or treasurer, although a permanent secretary may be appointed. The meeting place rotates among members and the host of a particular meeting automatically becomes the chairman of the meeting who collects the contributions for that particular day. Where the meeting place is stationed at a place, contributions are given on rotational basis. As highlighted by Bascom (1952) and echoed by Clifford (1962) in the olden days when most people are illiterates, members rely on their memories for record keeping of those who have collected the revolving contributions and those who have not. As literacy germinates in our society, some Esusu groups with one or more literate member(s) appointed such as permanent or occasional secretary. Fadipe (1970) on his own part noted that the Esusu is a revolving association where the services rendered also revolve. He pointed out that the treasury is also rotated among the members. Unlike the cooperative thrift and credit societies, there are no written laws, rules or regulations to guide the operations 267

3 A. Thomas D. of the Esusu, but the conventions are well known by members who usually keep to them and respect them like any written law (Ayodele et al, 2008). Management Procedure of Esusu Group According to Bascom (1952) and Fadipe (1970), the total contribution at each meeting goes the chairman or the host of that meeting, usually less by some specific amount which would be set aside for administrative purpose. Such little money is usually used to pay the hired secretary, weekly or monthly depending on the regular period agreed upon for the meetings. As noted by Isong (1968), membership is usually voluntary (but group influence is present), savings is on a regular and compulsory basis. Although membership is voluntary, each member is under the mandate to pay his or her own contribution when due. Famoriyo (1987) and Ayodele et al (2008) discovered that the savings must be equalunlike that of cooperative thrift and credit societies, where the total contributions dictate the amount of loan to be given to contributors. Due to the contribution equality in Esusu, defaults and lateness in the payment of contributions is usually frowned at and met with stern punishment. Such erring members may be denied the application for an earlier turn of collection, and even an outright expulsion in some cases. Such a defaulter will be held in contempt in the community. In terms of membership share, Fadipe (1970) and Ayodele (2012) found out that a simple individual is allowed to hold more than one membership, so that the number of membership need not be the same as the number of members. Also, a single membership share can be shared by two or more members who cannot afford a whole member s due separately. The contributions by the entire member is not always assigned rotationally to each member on a rigid basis, rather the assignment, in many cases, is based on some mutually agreed pattern. The purchase of a member s turn by another member and the sale of right of one s turn to another member are common features of the Revolving Loan Scheme (Esusu). 3. Methodology The research work was based on a survey method.primary data were gathered through the questionnaires served on Esusu members acrossondo State of Nigeria. The data were analysed through tables and simple percentages. The sampling method used in choosing Ondo State was the purposive sampling method because of proximity. The state has many rural communities where Esusu is very popular. Four local governments were chosen from the three senatorial districts of the State and each village/town selected from each local government areas. The local government areas are: Akoto South East, Ose, Akure North and Okitipupa.Out of 240 questionnaires distributed, 228 of them were filled and returned. This recovered number was used for the study s analysis. Data Analysis The paper adopts the descriptive analytical techniques in evaluating the impact of Revolving Loan Scheme (Esusu) on Economic Development of rural areas in the State. The Chi-squire (x 2 ) statistic was used to test the formulated hypotheses. 4. Result and Discussion Table 1: Socio-Economic Characteristic of Respondents Gender Frequency Valid Cumulative Male Valid Female

4 Valid Age group Frequency Valid Cumulative 10-20yrs yrs yrs yrs and aove Valid Educational background Frequency Valid Cumulative Primary 6 and below Secondary school Tertiary Institution Valid Marital status Frequency Valid Cumulative Single Married Widow/Widower Valid Local Govt Area Frequency Valid Cumulative Akoko South East Ose Akure North Okitipupa Occupational Distribution Frequency Valid Cumulative Farming Trading Valid Self employed Govt workers Total Source Field survey,

5 A. Thomas D. From the table 1 above, it is shown that out of the 228 respondents who returned their questionnaires, 43.9% were male while 56.1 were female, meaning there were more females from whom data were gathered. Also on the age bracket, majority falls within the age bracket of years, forming about 69% of the total respondents. Only about 17% of the respondents were above 50 years of age and 14% between years. Most of the respondents are also literates, as 192 out of 228 respondents read above pry level. About 60 per cent of the respondents indicated that they were married; about 33 per cent were single while the rest indicated that they were widows or widowers. The data also showed that all the questionnaires distributed in Akoko South East were recovered. This is because the researcheris an indigene of the village served in the local government area. Ose, Akure North and Okitipupa had 58, 58 and 52 questionnaires respectively returned. In terms of occupation, the total number in the table is more than the total number of questionnaires recovered. This happened because many of the respondents had more than one occupation, some of the self employed and government workers were involved in petty trading. So, majority of them are into trading (37.2%) followed by farming (34.7%). Table 2: Reasons for joining Esusu group Frequency Valid Cumulative Out of Friendship Family / Kingship tie Valid To identify with a group To save for a target Source Field survey, 2014 From Table 2. The data shows that about 70 per cent join the Esusu: group in order to enjoy bulk collections after saving some amounts regularly before their turn to collect. Such monies were used for meaningful projects. Only few respondents join Esusu through friendship, or family tie. Table 3: Preference of Esusu to Formal Banks Frequency Valid Cumulative Yes Valid No Indifferent Source Field survey, 2014 From the above table, it is obvious that the majority of those who filled the questionnaire (70.2%) preferred to deal with the Esusu groups in their localities than dealing with the formal banking institutions, including the Micro finance banks. Only about 25.4 per cent of the respondents preferred the banking financial institutions. The reasons for this result are not far-fetched. They opined that they were always discouraged by the formal nature of doing things in the banking institution and the inability to access Loans and high interest on loan from them even when you are a regular customer. Ten respondents were indifferent. 270

6 Table 4: Uses to which Esusu collections were put Frequency Valid Cumulative Farming Trading Cottage Industry Valid Education of Wards Ceremony Others Source Field survey, 2014 From table 4 above, the analysis shows that 31.1% and 35.5% of the respondents were into farming and trading respectively. 14.5% of the respondents said they had used money collections from Esusu for cottage businesses, while 12.3% used their Esusu collections to train their wards in schools. Only five respondents (2.2%) said they used their collections to settle other loans from other sources. It can be deduced from the analysis that the collections from the Esusu arrangement have been used for the socio-economic development of the communities concerned. Test of Hypotheses Having analysed the research data with the simple percentage analysis in the various tables, the chisquare (X 2 ) statisticwas used to test the formulated hypotheses below: Hypothesis 1 Ho : Rural dwellers do not prefer Esusu to the formal banking institutions. H1 : Rural dwellers do prefer Esusu to the formal banking institutions. Hypothesis Test Summary Null Hypothesis Test Sig. Decision 1 The categories of UsestowhichEsusu collectionswereput occur with equal probabilities. One-Sample Chi- Square Test Asymptotic significances are displayed. The significance level is Reject the null hypothesis. Variables Entered/Removed a Model Variables Entered Variables Method Removed 1 Agegroup b - Enter a. Dependent Variable: PreferenceforEsusu b. All requested variables entered. Model Summary Model R R Square Adjusted R Square Std. Error of the Estimate a a. Predictors: (Constant), Agegroup 271

7 A. Thomas D. ANOVA a Model Sum of Squares df Mean Square F Sig. Regression b 1 Residual Total a. Dependent Variable: PreferenceforEsusu b. Predictors: (Constant), Agegroup Coefficients Model Unstandardized Coefficients Standardized Coefficients t Sig. B Std. Error Beta 1 (Constant) Agegroup a. Dependent Variable: PreferenceforEsusu The model result shows that R =.780, R 2 =.609 and adjusted r =.607, F = , t = and p value =.000. The adjusted r depicts that rural people with various age groups could account for 60.7% preference for esusu while the remaining 39.3% is affected by other factors other than age distribution. The R 2 (60.9%) shows that the model has goodness of fit. The high f-stat and t-stat, shows that the test is significant and the p value which is less than 0.01 depicts that a null hypothesis should be rejected and alternative hypothesis is accepted. Thus, rural dwellers do prefer Esusu to the formal banking institutions Hypothesis 2 H O : Esusu has not made positive impact in the socio-economic development of rural areas. H1 : Esusu has made positive impact in the socio-economic development of rural areas. Variables Entered/Removed a Model Variables Entered Variables Removed Method 1 Marital status b - Enter a. Dependent Variable: Uses to which Esusu collections were put b. All requested variables entered. Model Summary Model R R Square Adjusted R Square Std. Error of the Estimate a a. Predictors: (Constant), Maritalstatus ANOVA a Model Sum of Squares df Mean Square F Sig. Regression b 1 Residual Total a. Dependent Variable: Uses to which Esusu collections were put b. Predictors: (Constant), Marital status 272

8 Coefficients a Model Unstandardized Coefficients Standardized Coefficients t Sig. B Std. Error Beta (Constant) Marital status a. Dependent Variable: Uses to which Esusu collections were put The model result shows that R =.835, R 2 =.696 and adjusted r =.695, F = 518.5, t = and p value =.000. The R 2 (69.5%) shows that the model has goodness of fit. The high f-stat, and t-stat, 22.7 shows that the test is significant and the p value which is less than 0.01 depicts that a null hypothesis should be rejected and alternative hypothesis is accepted. Thus, Esusu has made positive impact in the socioeconomic development of rural areas. Hypothesis Test Summary Null Hypothesis Test Sig. Decision 1 The categories of Preference for Esusu occur with equal probabilities. One-Sample Chi- Square Test.000 Reject the null hypothesis. Asymptotic significances are displayed. The significance level is.05. Source:Authors computation (SPSS.V20, 2014) 5. Conclusion and Recommendations The study primarily aims to show whether or not the existence and operators of the Esusu have contributed to the socio-economic development and advancement of rural communities in Nigeria. In the 273

9 A. Thomas D. context of the paper, development has been identified to include the development of education, farming, trade, infrastructure etc From table 3, it was discovered that people in the rural areas could not do without patronizing the Esusu arrangement because of easy way of contributing on collecting of agree amount of money (through on rotational basis. Majority (70.2%) preferred the Esusu arrangement to the banking financial institutions due to the strict and formal way of doing things in the banks, high interest payable on loans and time wasted in every contact with banking walls.. According to table 4, contributions obtained from the Esusu groups are directed towards these development activities in rural communities surveyed. However, it was discovered that the Esusu arrangement has access to limited funds but it was found out that the total money contribution is a function of the incomes of the contributor. So where incomes are high, there is the tendency of saving much. Finally, contrary to the general belief, that the traditional financial sector (within which the Esusu operates is not an organised sector, to a limited extent, the sector is an organised one. It has a definite structure and its operations and activities are coordinated, although not as formal as that of the banking sector. Also their activities cannot be said to be illegal since they contravene no existing law in their operations. The activities of the Esusu groups are so pronounced in every community due to the fact that the formal banking institutions are to some extent ineffective and inadequate in meeting the financial needs of their hosts. They have been failing customers without the customers knowing who to hold responsible among their numerous workers, thus creating financial gaps in the financial system of the nation for the traditional financial institutions to fill. Based on the findings therefore, the following are proffered by the researcher. 1. The monetary authority of the country should make more concession to the sociology of the African people and pay less attention to the Western style of doing things by rule all the time. The financial needs of the rural dwellers should be recognised and assist in modernising the existing indigenous ways of mobilizing funds in the rural communities. 2. The government should give recognition to the Esusu groups in Nigeria through registration (though with stipend) just as is given to the thrift and credit societies in Nigeria. This would totally eliminate the default tendencies among the groups. 3. The Esusu groups should be contributing some percentages of their money in form of long term deposit which may be serving as a cord tying the members together in order to reduce the collapse rate among the Esusus groups. 4. The monetary authorities should wake up from their slumber if they are really serious about the financial inclusion principle and strategy being canvassed. Every player in the financial system should be brought to the main stream under leakages of the CBN so as block some funds leakages in the economy. A board of traditional financial institutions is therefore suggested to regulate the activities of the various traditional financial institutions in the country. The board should serve as an appendage of the Central Bank of Nigeria (CBN). This would go a long way to assist the CBN in accurately defining to total volume of money in the economy. References Adensi, S.O OwolabiSegun and Ayodele T.D. (2008). Loan Administration in Nigeria cooperative Societies, Sahel Analyst Journal, University of Maiduguri vol.10, No 1. Akinnirin A.K (1990). A demographic study of Nigeria, Lagos: Longman press. Ayodele T.D (2012) Small Scale Industries and Financing Challenges in the Rural Areas India: Elixir Journal of Finance Management, (50) PP

10 Ayodele T.D and Adensi S.O (2008). Effects of cooperative societies on rural development Journal of Arid Zone Economy, university of Maiduguri, vol.9 No 2. Clifford G.A (1962). The Rotating Credit Association: A middle Ring in Development and Cultural changes, New York: Rinehart and Winson. Fadipe N.A (1970). The sociology of the Youba, Nigeria, university of Ibadan press. Isong C.N (1968). Modernization of Esusu Society Nigeria fpr social and Economic Research, Ibadan. Oloyede Bayo (1999). Principles of Money and Banking, Yaba-Lagos: Forthright Educational Publishes. 275