Cooperative societies effectiveness in credit delivery for agricultural enterprises in Ogun State, Southwest Nigeria

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1 Cooperative societies effectiveness in credit delivery for agricultural enterprises in Ogun State, Southwest Nigeria Awotide D.O Department of Agricultural Economics and Farm Management, Olabisi Onabanjo University, Yewa Campus, Ayetoro, Ogun State, Nigeria Corresponding author: Aihonsu J.O.Y. Department of Agricultural Economics and Farm Management, Olabisi Onabanjo University, Yewa Campus, Ayetoro, Ogun State, Nigeria Adekoya A.H Department of Agricultural Economics and Farm Management, Olabisi Onabanjo University, Yewa Campus, Ayetoro, Ogun State, Nigeria ABSTRACT The study assessed the effectiveness of cooperative societies in Yewa North Local Government in Ogun State, southwest Nigeria using approval rate, arrival rate, service rate traffic intensity and idle time. The study used a multi stage random sampling to select 10 cooperative societies in the Local Government Area. The list of all registered cooperative societies was obtained from the Ministry of Commerce and Industry. From the list, 10 cooperatives societies were randomly selected. The primary data for the study were collected in November 2011 using a well structured questionnaire. The data collected were analyzed using descriptive statistics and Queue Model. The overall results show that the cooperative societies had approval rate of 88.4% with an average traffic intensity of 1.05 and an idle time of This shows that the cooperative societies were not very efficient in the queue management because the idle time was not zero and were not very effective in credit delivery because the approval rate is less than 100%. Based on the evidence presented in this study, we conclude that the cooperative societies were not very effective and efficiency in credit delivery. Any policy geared towards improving the capital base of the societies and increase the managerial ability of the cooperative management staff will go a long way to increase the approval rate and the idle time. Keywords: cooperative societies, credit delivery, Queue model, agricultural enterprises 1.0 INTRODUCTION In most developing countries (Nigeria inclusive), agriculture dominates the nation s economy. It has been established that about 70 percent of Nigeria population is engaged in agriculture, Obasi and Agu (2000) while 90 percent of Nigeria total food production comes from small farms and 60 percent of the country population earn their living from these small farms Oluwatayo et. al. (2008). However, inadequate finance has remained the most limiting problem of agricultural production and credit has long been identified as a major input in the development of the agricultural sector (Balogun, 1990). In addition, one problem confronting small scale enterprise including that in agriculture is inadequate capital. Credit is considered as a catalyst that activates other factors of production and makes under-used capacities functional for increased production (Ijere, 1998). Ijaiya and Abdulraheem (2000) define credit as financial resources obtained at certain period of time with an obligation to repay at a subsequent period in accordance with the Society for Business Research Promotion 1

2 terms and condition of the credit obtained. Credit could come from banks, government, cooperatives, or individuals (Quresh et. al., 1996). Agriculture credits on the other hand, are loans extended to farmers for production, storage, processing, and marketing of farm products. Such credit can be short, medium or long term depending on its duration. Agricultural credit could have effect on agricultural output because it could have a secondary spillover effect on non-farm household via input labour and output linkages. When farmers face a credit constraint, additional credit supply can raise input use, investment and hence output, these they refer to as liquidity, better agricultural credit facilities can help farmers smooth out consumption and therefore, increase the willingness of risk adverse farmers to take risks as consumption smoothing effect. Hence, a better agriculture credit may lead to a higher volume of food output if the increased credit is use to increase fertilizer, private investment in machines and food crops. Agricultural credit could be obtained from either the formal sources which are the commercial banks and government owned institutions, or the informal sources which are the self-help-group (SHG) money lenders, cooperatives and Non-Governmental Organizations (NGOs). However, informal source of credit is more popular among small scale farmers which may be due to the relative ease in obtaining credit devoid of administrative delay, non-existence of security or collateral, flexibility built into repayment which is against what is obtained in the formal sources. Also, Aryeetey (1997) noted that the informal rural financial sources in Africa perform better than the formal system because the institutional lending system has failed to meet the objective for which they were set up. Following form the above, the small scale farmers are forced to source for capital from relations, moneylenders and group contribution. All of these are known to be ineffective in providing capital for substantial increase in agricultural production. The last hope for the small scale farmers then lies with the cooperative societies (Ijere, 1981). The cooperative societies have been identified to be a better channel of credit delivery to farmer in term of its ability to sustain the loan delivery function (Alufohai, 2006). ICA (1995) defined cooperative society as an autonomous association of persons who unite voluntarily to meet their common economic and social needs and aspiration through a jointly owned and democratically controlled enterprise. Cooperatives are established by like-minded persons to pursue mutually beneficial economic interest to provide services like provision of farm input, farm implements, farm mechanization, agricultural loans, agricultural extension, members education, marketing of members farm produce and other economic activities and services rendered to members. However, regular and optimal performance of these roles is crucial for the delivery of these services in order to accelerate the transformation of agriculture and rural economic development. Studies have shown that cooperative carry out the function of credit delivery to farmers but there is ample evidence that farmers face difficulties in obtaining credit and the problem of sourcing for capital still lingers and this may be unconnected to cooperative societies effectiveness in credit delivery. It is against this backdrop that this study aimed to assess cooperative societies effectiveness in agricultural credit delivery in Yewa North Local Government Ogun State, Nigeria. 2.0 METHODOLOGY 2.1 Area of Study The study area is Yewa North Local Government Area of Ogun state, Nigeria. Yewa North Local Government, formerly known as Egbado North Local Government came into existence through a local government Edict No. 9 of 13 th December, It covers a land mass area of 2,043.60sq. kilometer with a population of 228,970 based on the 1991 population census figure. The estimated population of the local government in 2009 is 277,474 using 2.75% growth rate. The local government headquarters is situated at Ayetoro. Their major occupation is farming and trading, consequent upon the large expanse of fertile land with a large deposit of mineral resources for industrial potentials. The local government is essentially a semi-savannah vegetation area endowed with conducive climatic conditions for agricultural pursuits throughout the year. Its tropical nature ensures that the raining Society for Business Research Promotion 2

3 season starts in March and ends in November and it naturally precedes a dry season. Consequent upon the large expanse of fertile land with large deposit of mineral resources for industrial potentials, agriculture remains the largest employer of labor with a few people engaged in mechanized farming while others engage in trading activities. 2.2 Sampling Procedure, Sources of Data Collection and Method of Data Analysis The study used a multi stage random sampling to select 10 cooperative societies in the LGA. The list of all registered cooperative societies was obtained from the Ministry of Commerce and Industry. From the list, 10 cooperatives societies were randomly selected. The primary data for the study were collected in 2011 from management staff members of the cooperative societies using a well structured questionnaire. The data collected were analyzed using descriptive statistics and Queue Model as given by Olayemi and Onyenwaku (1999) The queue theory A queue is a waiting line. It is an array of items waiting to be served. The queue model is usually employed to determine the effectiveness of the performance of an organization (Olayemi and Onyenwaku, 1999). The queue model was use to determine the arrival rate of loan request of the farmers, the service rate, the idle rate, and the traffic intensity of cooperative societies. These were computed using the formulae in equations 1-3 following Omotosho (2002), Alufohai and Ahmadu (2005) and Izekor and Alufohai (2010) For the purpose of this study arrival rate depicts the number of loan request per month, the service rate represents the number of application accepted, considered and loan actually provided. Idle time refers to the period when no application was attended to, even when they had been submitted. Efficiency in queue management is achieved when the traffic intensity is unity that is arrival rate is equal to service rate. In this case no idle time (idle time =0). 3.0 RESULTS AND DISCUSSION 3.1 Dominance factors for some cooperative society characteristics Table 1 revealed that the mean age of the cooperative societies was 5.9 years and 50% of them were more than 5 years. Average membership at inception was 20.3 and 80% of the cooperative societies had more than 18 members at inception. Interestingly, average membership presently has rose to 41 and 80% had 40 or more members. As expected, all cooperative societies had motivational packages or benefit that could entice more members. 2.2 Analysis of loan application and approval Table 2 presents the difference in loan applied for and approved. The table revealed that Ifekowapo had the least difference of average number of loan application and approval while Onward and Ifewasowapo had the highest of 3.4. The analysis further revealed that 60% of the cooperative societies had their mean difference close to overall mean value of 2.7. The quarter mean value shows no physical difference suggesting that loan application and approval is not seasonal. Table 3 presents the approval rate across the cooperative societies. Ifekowapo had the highest approval rate of 91.7% while Onward and Ifewasowapo had the least values of 84.9% each. The results show that the cooperative societies are Society for Business Research Promotion 3

4 effective in credit delivery for agricultural production. However, they were not very effective because the approval rate was less than 100% for all the cooperative societies. Figure 1 presents the graphical representation of average number of application and approval for the period under consideration. 2.3 Effectiveness of the Performance of the Cooperative Societies Table 4 shows that, on average, cooperative societies had an average arrival rate of 68 and service rate of 68 for the year 2008 depicting that all loan requests received were all considered and approved. This implies that loan is actually disbursed to all loan request approved. The year 2009 and 2010 had arrival rates of 70 and 69 and service rate of 68 and 62 respectively, indicating that the service rate was not in accordance with loan request and this shows that there is still need for improvement in credit delivery. The study further revealed a traffic intensity of 1.00 and idle time of 0.00 for the year 2008 suggesting efficiency in the queue management. Efficiency is achieved since the traffic intensity is unity and idle time is equal to zero, it shows improvement in performance of cooperative societies in carrying out their credit delivery function. While year 2009 and 2010 shows a traffic intensity of 1.03 and 1.11 and idle time of and respectively. The overall results show that the cooperative societies had approval rate of 88.4% with an average traffic intensity of 1.05 and an idle time of This is at variant with the results of Izekor and Alufohai (2010). Their result showed that cooperatives had overall approval rate of 99.16%, arrival rate of 43, service rate of 43 per month which resulted in a traffic intensity of 1.01 and Idle time of This current study shows that the cooperative societies were not very efficient in the queue management because the idle time was not zero and were not very effective in credit delivery because the approval rate is less than 100%. 4.0 CONCLUDING REMARKS The study assessed the effectiveness of 10 cooperative societies in Yewa North Local Government in Ogun State, southwest Nigeria using approval rate, arrival rate, service rate traffic intensity and idle time. Based on the evidence presented in this study, we conclude that the cooperative societies were not very effective and efficiency in credit delivery. However, there is room for improvement because the approval rate was less than 100% and the overall idle time was not zero. Any policy geared towards improving the capital base of the societies and increase the managerial ability of the cooperative management will go a long way to increase the approval rate and the idle time. REFERENCES Alufohai, G.O. (2006). Sustainability of Farm Credit delivery by Cooperatives and NGO s in Edo and Delta State, Nigeria. Educational Research and Reviews 1(8): Alufohai G.O., & Ahmadu J. (2005). Queue Management by Nigerian Agricultural Cooperative and Rural Development Bank (NACRDB) in Farm Credit delivery: The Case of Benin Branch, Edo State, Nigeria. Proceedings of the 39 th Conference of Agricultural Society of Nigeria (ASN) held at the University of Benin, Benin City, Nigeria, 9th 13 th October, pp Aryeetey, T. (1997). Rural Finance in Africa: Institutional Developments and Access for the poor. In: M Bruno, B Pleskovic (Eds) Programme of the Annual World Bank Conference on Development Economics. Washington DC. Balogun, E.D. (1990). Banking and Credit Facilities for integrated Rural Development; Paper presented at the National Seminar on Rural development Policy in Nigeria, Sheraton Hotel, Abuja. International Cooperative Alliance (ICA) (1995): Review of International Cooperatives, 4 : Ijaiya M.A., Abdulraheem A., & Bello A.T. (2009). Agricultural credit quaranttee scheme and food security in Nigeria. Journal of International Economic Review 2 (1-2): Ijere, M.O. (1981). The Prospect of employment creation through Cooperatives in Nigeria. Nigeria Journal of Rural Development and Cooperative studies, 2: Society for Business Research Promotion 4

5 Month/CTCS Ifekowajo Temidire Onward Success Mokantutu Ifelodu Itesiwaju Aanu Oluwapo Ifewasowapo Blessed Total Quarter mean Ijere, M.O. (1998). Agricultural Credit and Economic Development.In: Ijere M.O. and Okories A. (eds), Reading in Agricultural Finance, Longman, Lagos, pp 4 9. Izekor, O.B., & Alufohai, G.O. (2010). Assessment of cooperative societies effectiveness in agricultural credit delivery in Ikpoba Okha Local Government Area, Edo State, Nigeria. African Journal of General Agriculture 6(3): Obasi, F.C., & Agu, S.E. (2000). Economics of Small Scale Rice Farmers under Different Production systems in South Eastern Nigeria. Journal of Agriculture, Business and Rural Development, 1: 2. Olayemi, J.K. & Onyenwaku, C.E. (1999). Quantitative Methods for Business Decisions, Bosude Printers Ltd, Ibadan, pp Oluwatayo, A.B. Sekumade O., & Adesoji, S.A. (2008). Resource Use Efficiency of Maize farmers in Rural Nigeria: Evidence from Ekiti State, Nigeria. World Journal of Agricultural Science, 4(1): Omotosho, M.Y. (2002). Operation Research Project, Yosode publishers, Ibadan pp Qureshi, S., Nahi, T., & Faaruquee R. (1996). Rural finance for growth and poverty alleviation. World Bank Policy Research Working Paper. No Characteristics Mean Minimum Maximum Dominance factor Age of cooperative society % of the cooperative societies were more than 5 years old Membership at inception % of the cooperative societies had 18 or more members at inception Membership now % of the cooperative societies had 40 or more members presently Availability of motivational packages All cooperative societies had motivational packages or benefit that could entice more members Table 1: Dominance factor for some cooperative society characteristics October November December January February March April May June July August September Total Average Table 2: Difference of average number of loan application and approval Society for Business Research Promotion 5

6 Month/CTCS Ifekowajo Temidire Onward Success Mokantutu Ifelodu Itesiwaju Aanu Oluwapo Ifewasowapo Blessed Average Quarter mean Average Blessed Ifewasowapo Aanu Oluwapo Itesiwaju Ifelodun Mokantutu Success Onward Temidire Ifekowajo Average no. of approval Average no. of application Figure 1. Average number of application and approval October November December January February March April May June July August September Average Table 3: Approval rate across the cooperative societies Society for Business Research Promotion 6

7 Year Arrival rate Service rate Traffic intensity Idle time Total Average Table 4. Arrival rate, service rate, idle time and traffic intensity Society for Business Research Promotion 7