ASSESSING THE IMPACT OF SAVINGS AND ...

Oluyombo, O. O. (2010) Assessing the Impact of Savings and Credit Cooperatives Among Monthly Income Earners. Journal of Research in National Development, Vol. 8, No 2b, pp 407-415

ASSESSING THE IMPACT OF SAVINGS AND CREDIT COOPERATIVE AMONG MONTHLY INCOME EARNERS

OLUYOMBO, Onafowokan O Department of Financial Studies Redeemer’s University Km. 46, Lagos – Ibadan Expressway Redemption Camp, Ogun State Nigeria [email protected]

Abstract The availability of microfinance providers is important for some business growth and improvement in the socio economic well being of the participants. However, the ability to determine the benefits or otherwise of such microfinance providers relied majorly on the responses of beneficiaries and/or clients of the microfinance institution. Data for this study were gathered through the use of survey questionnaire administered to 126 respondents who belong to the same category of financial cooperatives operating savings and credit microfinance scheme for her members alone. The questionnaire data were analysed quantitatively using Pearson correlation coefficient and t – calculated for test of significance. The findings show that participation in savings and credit cooperative organized by monthly income earners increase their purchasing power and thus assisted them to purchase household equipments and properties. Participants were also able to take advantage of loan facility to engage in direct and indirect investment in business activities while still retaining their jobs.

Key words: Credit, Employee, Microfinance, Saving, Cooperative

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INTRODUCTION Microfinance has become a factor in finance, economic and other social science disciplines to the extent that over the years, local and international organizations are exploring the modalities of deriving the best in the application of this concept to almost every area of economic needs of individuals and organizations. This development necessitates the declaration of year 2003 as international year of microcredit by the United Nations General Assembly. As a result, Annan (2003) noted that the great challenge before us is to address the constraints that exclude people from full participation in the financial sector. Together, we can and must build inclusive financial sectors that help people improve their lives.

Microfinance is a word that is common among the poor, researchers,

development practitioners, donors, government and their agencies across the world because microfinance is seen as a better and reliable means of providing financial services to poor people in developing nations in Africa, Asia, Latin America and other continents of the world. Microfinance is not a new concept in finance, business, economics but in practice a lot is yet to be known as to it effects and impact among monthly income earners since most researchers have focused on business owners and the poor as their target respondents in assessing impact of microfinance programs both in the rural and urban centers. The ability of microfinance programs to reach the target users is very critical in assessing the impact of any microfinance initiatives. Shaw (2004) observed that impact monitoring is important in other to find out the efficacy of microenterprise lending at the low end of the income spectrum. It therefore means that the usefulness of any microfinance program and/or institution 2


cannot be effectively determined without an appropriate measurement of its impact among the beneficiaries of its services. The impact assessment of microfinance using either microfinance program beneficiaries, users, non-participants and/or providers can be seen as fulfilling one of the management theories of SWOT analysis. The SWOT which represents the strength, weakness, opportunities and threats tries to proffer a need for evaluating microfinance programs because it is in the impact assessment that the SWOT of any microfinance can be determined. Although, this may entails the comparison of the results of impact assessment with the objectives of such microfinance program. Where the objectives of any microfinance are achieved, it suggests that it has a positive impact. Despite this, there are numerous issues to be considered when impact assessment is to be carried out on microfinance programs. These include the ownership, purpose, participants, locations, management and financial resources available to the microfinance provider. Montgomery and Weiss (2005) contributed to the argument, supporting the need for microfinance impact evaluation as they stated that the academic community may know much less about the impact of microfinance program than might be expected. The overriding objective of this research is to find out if participation in savings and credit microfinance by monthly income earners in form of membership of financial cooperatives has had any socio economic advantage on them and thereby affect their economic wellbeing. To achieve this objective, three critical issues that have to do with the respondents’ purchasing power, investment opportunities and 3


economic

advancement

were

identified and

properly captured within the

questionnaire. Furthermore, three hypotheses were developed and accepted to be tested in this study in other to be able to answer either positively or otherwise on the impact of microfinance on salary earners. The hypotheses are: that participation in financial cooperative does not increase the purchasing power of their members, that participation in financial cooperative does not enable members to enjoy direct and indirect investment opportunities and that cooperative societies do not impact the social and economic wellbeing of their members.

LITERATURE REVIEW Robinson (2001) examines microfinance as small-scale financial servicesprimarily credit and savings-provided to people who farm or fish or herd; who operate small enterprises or micro enterprises where goods are produced, recycled, repaired or sold; who provide services; who work for wages or commissions; who gain income from renting out small amounts of land, vehicles, draft animals, or machinery and tools; and to other individuals and groups at the local levels of developing countries both rural and urban. This definition is encompassing as it tries to state those who may benefit from microfinance institutions and also inform that developing countries need microfinance institutions more than developed countries and especially, that microfinance is meant for those operating small and micro enterprises which can be found in urban and rural areas. Microfinance programs that lay emphasis only on lending will likely be unable to serve or benefit the teeming poor who may wish to save but do not necessarily 4


wish to borrow (Buckley, 1997). This is what co-operative societies do by encouraging members to first cultivate a regular saving habit whether the member intends to borrow in future or not. Members must save regularly over a stated period of time before credit or loan is given based on the amount of saving the member has with the co-operative. Larocque et al (2002) opined that savings deposits window made available to microfinance participant which is often neglected by some microcredit programme providers add an important dimension of risk to community finance institutions which truly play the role of financial intermediation. It means that financial intermediation is not complete with availability of credit without the platform to mobilize savings from the poor. Whereas some studies on the impact of microfinance in Nigeria (Anyanwu 2004, Elumilade et al 2006 and Ifeanyi 2008) focused on the use of secondary data made available by formal microfinance institutions and/or government anti poverty agencies to the regulatory authorities. These reports may have been manipulated to impress the authorities and therefore cannot be relied upon as been true and fair. However, a primary data gathering research by Oke et al (2001) result shows that savings is not a new thing to microfinance participants in south western Nigeria. The ability of any microfinance program to survive requires that members should participate in regular savings and that loan procurement should not be the main attraction for joining microfinance program. Although loan is essential for the poor, but it can also be argued that availability of loan without regular financial commitment by the loan receiver in form of savings will hamper the sustainability of such program

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and also encourage loan defaults since the member will not have sense of belonging because their money is not part of the loan given to members. Huppi and Feder (1990) reported that the failure of co-operative society in countries like India, Philippines and Thailand is due to absence of sense of ownership among the members. This has been an issue of discussion for some times. The contrast seems to be the case in the rural areas of Nigeria because the members have a sense of ownership (Oke et al, 2007). They see the co-operative as their own which must be protected and preserved for posterity. However, the absence of sense of ownership is the major cause of the failure of government sponsored rural finance agencies like Peoples Bank, Family Economy and Advancement Programme etc in Nigeria. Many of the beneficiaries of these agencies see the money they received as a grant rather than a loan; and it was utilized as part of their share of the national cake. But this hardly occurs among co-operative societies, especially those located in the rural areas. Microfinance programs are encouraged to strive for financial sustenance so that the program can pay for themselves (Park and Ren, 2001). Any microfinance program that is self financing can easily reach the poor and affect their socioeconomic well-being positively. The sustainability issue concerns the ability of the MFIs to sustain their operations without undue reliance on donor funds which are not sustainable (Nathan et al, 2004) To this extent, it means that the microfinance institutions (MFI) must have adequate and sufficient capital to run the microfinance program without depending on the government and/or donors and this can be

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achieved by MFI through the introduction of sources of income like entrance fee, regular and compulsory savings as a perquisite for accessing loan from the MFI. In Nigeria, most cooperative societies are financially sustainable because of their ownership base which is restricted to cooperative members alone and the operational modality is approved by the cooperative members. Interest rate on loan are jointly agreed upon by the members and implemented by their executives elected by members at their annual meetings. Huppi and Feder (1990) argued that credit cooperative were designed to serve as comprehensive financial intermediaries offering credit and deposit services, but they have often pursued cheap credit policies at the expense of the depositors. The main aim of any good co-operative society is that each depositor who needs credit will borrow from the co-operative on the strength of the balance on his or her savings account. This study is of the opinion that pursuit of cheap credit policies at the expense of depositors as put forward by Huppi and Feder may not hold because every depositor is a potential borrower. In most co-operative societies, what determines the amount of loan given to members is the borrowers’ deposit balance upon which a maximum multiple of the deposit is given as loan. If a members deposit is N20,000 he may be entitled to a double of his deposit as loan, meaning that the maximum loan to that member is N40,000. It therefore stands to reason that the interest of the members is equal in co-operative societies. Larocque et al (2002) found out in urban areas of Burkina Faso that government employees do closed their bank accounts in other to belong to financial cooperative where they could have access to loans as salaried employees. 7


METHODOLOGY The population for this study is monthly income earners of one of the higher institutions of learning in Ogun State, Nigeria who are members of the institution’s cooperative society. The research was conducted between October and December 2009 among teaching and non teaching staff by distributing one hundred and seventy six questionnaires to all members of the cooperative, while 132 was returned. However, six of the questionnaires returned were found to be invalid and therefore discarded. This leaves us with 126 respondents comprising of 75 male and 51 female members. The data were analyzed using the Pearson Coefficient of Correlation (r) in order to test the hypotheses formulated for the study. Correlation was used to test the hypotheses using the data provided by the likert scales included in the questionnaire. Five statements were put forward to the respondents to elicit information on a likert scale, three of which are directly related to the study were used for analysis. The points on the scale were allocated as follows; Strongly Agree (SA) 5 points, Agree (A) 4 points, Undecided (U) 3, Disagree (D) 2 and Strongly Disagree (SD) 1.

DATA ANALYSIS AND DISCUSSION The Pearson correlation coefficient (r) was given as

r=

n ∑xy - ∑x ∑y √ {n∑x 2 – (∑x) 2} {n∑y2 – (∑y) 2}

Where X and Y are the variables being considered.

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In interpreting the result, when r = 0, there is no correlation between the variables tested. When 0 < r < 0.5, there is weak correlation between the variables and when r ≥ 0.5 there is a strong correlation between the variables. However when’ r’ is negative (-) the variables are inversely related and if positive (+) the variables are directly related. According to Avwokeni (2007), a correlation coefficient that is less than 0.4 is not important. A correlation coefficient of between 0.4 and 0.7 is important and very important if above 0.7. The decision rule therefore is that when r is < 0.4 H0 is accepted and H1 rejected and when r ≥ 0.4 H0 is rejected and H1 is accepted. On the other hand, though a correlation coefficient does suggest a relationship between two variables, it has been argued that it does not mean that a change in the value of one variable causes a change in the other. Therefore we conduct a test of significance using T calculated (t cal) =

r √ n – 2/ 1 – (r)

2

The test of significance is done in order to determine the reliability of our findings and further justify the result of the correlation test. The decision rule is that once the t cal is greater than the t tabulated value at a chosen significance level and at a given degree of freedom. We simply reject H0 and accept H1 otherwise we accept H0 and reject H1 95% confidence interval which is equivalent to 5% significance level is chosen (P value = 0.05) and the degree of freedom (d.f) is given as d.f = (n-2) = (5-2) = 3, therefore the degree of freedom (d.f) is 3 Where H0: Stands for Null Hypothesis and H1: Stands for Alternative Hypothesis. 9


H0: Participation in financial cooperative does not increase the purchasing power of their members. To test this hypothesis, the responses to the question – “cooperative society has improved my ability to purchase some household /basic equipment like refrigerator, land, house, car, computer etc” was used Response

Frequency

Percentage

Strongly agree

68

53.96

Agree

37

29.34

Undecided

11

8.80

Disagree

5

3.95

Strongly disagree 5

3.95

Total

100

126

Source: Field survey 2009 Calculation of correlation X Y OPTIONS Points Responses SA 5 68 A 4 37 U 3 11 D 2 5 SD 1 5 Σ 15 126 Source: Field Survey, 2009

(X)2 25 16 9 4 1 55

XY 340 148 33 10 5 536

r=

n∑xy - ∑x ∑y √ {n∑x – (∑x) 2} {n∑y2 – (∑y) 2}

r=

5(536) – 15(126) √ {(5x55) – (15) 2} {(5x6164) – (126) 2}

2

10

(Y)2 4624 1369 121 25 25 6164


r=

790 √ 747200

r = 0.9139 Since r is 0.9139 and it is greater than 0.4 we reject H0 and accept H1. This means that participation in financial cooperative by monthly income earners increase their purchasing power. A test of significance is conducted to find out if the above is actually correct or not using T calculated

=

r √ n – 2/ 1 – (r) 2

T cal = 0.9139 √ 5 – 2 1-(0.9139)2 =

3.8994

Since the t calculated of 3.8994 is greater than the t tabulated of 2.32 at 95% significant level where degree of freedom is 3. Therefore we simply reject H0 and accept H1 and we conclude that those that participate in financial cooperative are able to increases their purchasing power by acquiring household equipment and properties.

H0: Participation in financial cooperative does not enable members to enjoy direct and indirect investment opportunities. To test this hypothesis, the responses to the question – participating in financial cooperative has been an avenue through which I have increase/improve my investment opportunity over time was used as presented below.

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Response

Frequency

Percentage

Strongly agree

54

42.86

Agree

47

37.30

Undecided

9

7.14

Disagree

10

7.94

Strongly disagree 6

4.76

Total

100

126

CALCULATION OF CORRELATION X Y OPTIONS Points Responses XY SA 5 54 270 A 4 47 188 U 3 9 27 D 2 10 20 SD 1 6 6 Σ 15 126 511 Source: Field Survey, 2009

(X)2 25 16 9 4 1 55

r=

n∑xy - ∑x ∑y √ {n∑x 2 – (∑x) 2} {n∑y2 – (∑y) 2}

r=

5(511) – 15(126) √ {(5x55) – (15) 2} {(5x5342) – (126) 2}

r=

665 √ 541700

(Y)2 2916 2209 81 100 36 5342

r = 0.9035 Since r is 0.9035 and it is greater than 0.4 we reject H0 and accept H1. This means participation in cooperative societies enable their members to enjoy direct and

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indirect investment opportunities. However, to further justify this result we conduct a test of significance as follows using T calculated

r√n–2 1 – (r)

=

2

T cal = 0.9035 √ 5 – 2 1-(0.9035)2

= 3.6513

Since the t calculated of 3.6513 is greater than the t tabulated of 2.32 at 95% significant level where degree of freedom is 3. Therefore we simply reject H0 and accept H1 and we conclude that cooperative societies enable their members to enjoy available investment opportunities either directly or indirectly.

H0: Cooperative societies for monthly income earners do not impact the social and economic wellbeing of their members. To test this hypothesis, the responses to the question that seek to find out from the respondents if their membership of cooperative societies has positively impact on their social and economic wellbeing is used. Response

Frequency

Percentage

Strongly agree

72

57.14

Agree

39

30.95

Undecided

8

6.35

Disagree

5

3.97

13


Strongly disagree 2

1.59

Total

100

126

CALCULATION OF CORRELATION X Y OPTIONS Points Responses XY SA 5 72 360 A 4 39 156 U 3 8 24 D 2 5 10 SD 1 2 2 Σ 15 126 552 Source: Field Survey, 2009

(X)2 25 16 9 4 1 55

r=

n∑xy - ∑x ∑y √ {n∑x 2 – (∑x) 2} {n∑y2 – (∑y) 2}

r=

5(552) – 15(126) √ {(5x55) – (15) 2} {(5x6798) – (126) 2}

r=

870 √ 905700

(Y)2 5184 1521 64 25 4 6798

r = 0.9142

Since r is 0.9142 and it is greater than 0.4 we reject H0 and accept H1. This means cooperative societies positively impact the social and economic wellbeing of their members. However, to further justify this result we conduct a test of significance using T calculated

=

r√n–2 1 – (r)

2

14


T cal = 0.9142 √ 5 – 2 1-(0.9142)2

= 3.9072 Since the t calculated of 3.9072 is greater than the t tabulated of 2.32 at 95% significant level where degree of freedom is 3. Therefore we simply reject H0 and accept H1 and we conclude that cooperative societies positively impact the social and economic wellbeing of their members.

CONCLUDING REMARK In a simple term, the findings indicate a positive improvement in the socio economic well being of participants in financial cooperative who uses saving and credit platform among monthly income earners. This is further buttress by the numbers of participants that acquired major household and business equipments as a result of their membership which is shown in the table below. Items

Numbers

Land/House

49

Motor Vehicle

18

Share/bond/debentures

15

Cooking Gas/stove

8

Refrigerator

34

Television Set

26

Tape/DVD/VCD

15

Motor cycle

4 15


Washing Machine

4

Sewing Machine

2

Household Furniture

5

Foam/Mattress

4

Source: Field Survey, 2009 The above table shows that 49 of the respondents have acquired a landed property and/or build their personal houses, 18 and 4 respondents acquired motor vehicles and motor cycles respectively either for private or commercial use through the cooperative, 15 of the respondents became shareholders and/or investors of companies by buying shares, debentures and bond. Other respondents were able to purchase household items such as cooking utensils, refrigerators, television sets, DVD players, household furniture washing and sewing machines through the cooperative funds made available to them in form of loans and credit. The above thus lend credence to the fact that participation in savings and credit microfinance program by monthly income earners has led to positive economic well being of the participants. References Annan, K. (2003) General Assembly Green lights Programme for the International Year of Microcredit. Press Release reference Dev/2452 of December 29 Anyanwu, C. M. (2004). Microfinance Institutions in Nigeria: Policy, Practice and Potentials. Paper Presented at the G24 Workshop on Constraints to Growth in Sub Saharan Africa, Pretoria, South Africa, November 29-30.

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Buckley, G (1997) Microfinance in Africa: Is it either the Problem or the Solution? World Development, Vol. 25, No. 7, pp 1081-1093 Elumilade, D. O; Asaolu, T. O and Adereti, S. A. (2006). Appraising the Institutional Framework for Poverty Alleviation Programmes in Nigeria. International Research Journal of Finance and Economics. Issue 3. Huppi, M. And Feder, G. (1990) The Role of Groups and Credit Cooperatives in Rural Lending. The World Bank Research Observer, Vol. 5, No. 2, pp. 187204 Ifeanyi, O (2008). Impact of Microfinance Institutions in Rural Development in Nigeria.

University

of

Nigeria,

Enugu

Campus.

Unpublished.

M.Sc

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Park, A. and Ren, C (2001) “Microfinance with Chinese Characteristics”. World Development. Vol. 29, No. 1, pp 39-62 Robinson, M. S. (2001). The Microfinance Revolution: Sustainable Finance for the Poor. USA: IBRD Shaw, J (2004) Microenterprise Occupation and Poverty Reduction in Microfinance Programs: Evidence from Sri Lanka. World Development Vol. 32, No 7, pp 1247-1264 Larocque, P., Kalala, J and Gaboury, A. (2002) The Impact of Savings and Credit Cooperatives in Burkina Faso, Notebook 19. Ottawa: Developpement International Desjardins.

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