contribution of microfinance banks to agricultural development: a case study of chanchaga local...
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A final year Bachelor of Agrucultural Technology project.TRANSCRIPT
CONTRIBUTION OF MICROFINANCE BANKS TO AGRICULTURAL
DEVELOPMENT IN CHANCHAGA LOCAL GOVERNMENT AREA OF
NIGER STATE
BY
IBRAHIM ALHAJI IBRAHIM
2001/11286AE
DEPARTMENT OF AGRICULTURAL ECONOMICS AND EXTENSION
TECHNOLOGY, SCHOOL OF AGRICULTURE AND AGRICULTURAL
TECHNOLOGY; FEDERAL UNIVERSITY OF TECHNOLOGY, MINNA,
NIGERIA
February, 2010.
ii
CONTRIBUTION OF MICROFINANCE BANKS TO AGRICULTURAL
DEVELOPMENT IN CHANCHAGA LOCAL GOVERNMENT AREA OF
NIGER STATE
BY
IBRAHIM ALHAJI IBRAHIM
2001/11286AE
PROJECT SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR
THE AWARD OF BACHELOR OF TECHNOLOGY (B. Tech) DEGREE IN AGRICULTURE
IN THE DEPARTMENT OF AGRICULTURAL ECONOMICS AND EXTENSION
TECHNOLOGY SCHOOL OF AGRICULTURE AND AGRICULTURAL TECHNOLOGY,
FEDERAL UNIVERSITY OF TECHNOLOGY, MINNA, NIGERIA
February, 2010.
iii
DECLARATION
I, Ibrahim Alhaji Ibrahim (2001/11286AE), declare that this project is independently
initiated, executed and completed by me. That the findings emanating from this research work to
the best of my knowledge have not been accepted in substance for the award of any other degree
or programme of this University or any other institution.
………………………………. ………………………….
Ibrahim Alhaji Ibrahim Date
2001/11286AE
iv
CERTIFICATION
This project is original work, approved, supervised and carried out by Ibrahim Alhaji
Ibrahim (2001/11286AE) in partial fulfillment of the requirements for the award of Bachelor of
Technology (B. Tech) Degree in Agriculture.
………. ……………………………
(Project Supervisor) Signature & Date
_______________
(Head of Department) Signature & Date
_______________
(External Supervisor) Signature & Date
Mrs. F. D. Ibrahim
Dr. J. N. Madu
Prof. S. A. Rahman
v
DEDICATION
This project is dedicated to my parents, Alhaji Gimba and Habibat Gimba. May Allah
reward and guide them. Ameen.
vi
ACKNOWLEDGEMENT
Praise be to Allah, the Beneficent, the Merciful. My gratitude goes to my parents: Alhaji
Ibrahim and Hajiya Fatima (Yawo) and others members of my family like Aliyu, Tanimu, Mal.
Yas and others for their moral and financial support. Special thanks go to all my friends and
especially Muhammad Imran, who has been taking me tutorials from 100 levels to date.
My sincere gratitude goes to my supervisor, Mrs. F.D. Ibrahim for all her support despite
her PhD studies. I wish her success and hope to attend her convocation, the day she will start
using the title “Doctor”- Insha Allah. To Mal. Shaba, Mr. Ezekiel and Mr. Ajayi, I say thank you
very much for your patience and support.
vii
ABSTRACT
The contribution of microfinance banks to agricultural production in Chanchaga Local
Government Area of Niger State was examined in this study. Eighty respondents were randomly
selected from a list of agricultural microcredit beneficiaries obtained from Nexus Microfinance
Bank, Minna. Structured questionnaires were used to collect the primary data. Descriptive
statistics and ordinary least square multiple regression analysis was used to analyse the data
collected. Results showed that majority of the farmers (65.3%) were within their economically
active years of their lives i.e. between 21 and 40 years. Almost all the beneficiaries have one
form of education or the other with only about 6.9% reporting that they do not have any form of
education at all. The linear regression function was the lead equation. It reveals that amount of
loan received and farm sizes were significant at 1% and cost of labour was negatively significant
at 10%. The R2 value was 0.835 indicating that about 83.5% of the variation in the value of
output (y) was explained by the five independent variables included in the model. Furthermore,
the null hypothesis which states that there is no statistical relationship between amount of loan
received and the output of farmers was rejected because the coefficient of loan (3.204) was
positive and statistically significant at 1%. Problems faced by beneficiaries include poor
marketing system (16.7%) and inadequate extension services (19.8%) among others. It was
therefore recommended that the Agricultural Credit Guarantee Scheme of the government should
be revived and made more functional and Microfinance banks should disburse loans not only in
cash but also in kind in order to check diversion of the funds for unproductive purposes.
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TABLE OF CONTENT
Cover Page i
Title Page ii
Declaration iii
Certification iv
Dedication v
Acknowledgement vi
Abstract vii
Table of Content viii
List of Tables x
CHAPTER ONE: INTRODUCTION
1.1 Background of the Study 1
1.2 Problem Statement 3
1.3 Objective of the Study 4
1.4 Justification for the Study 5
1.5 Research hypothesis 5
CHAPTER TWO: LITERATURE REVIEW
2.1 Concept of Rural Finance 6
2.2 Concept of Microfinance 7
2.3 History of Microcredit 8
2.4 Microfinance and Women 10
2.5 Microfinance and Poverty Reduction 10
2.6 Interest Rates of Microfinance Institutions 13
2.7 Microfinance Banks in Nigeria 14
ix
2.8 Commercial Banks and Microfinance 17
2.9 Government Participation in Microfinance 18
2.10 The Global Financial Crisis and its Impact on Microfinance 19
CHAPTER THREE: METHODOLOGY
3.1 Study Area 22
3.2 Method of Data Collection 22
3.3 Sampling Technique and Sample Size 23
3.4 Methods of Data Analysis 23
CHAPTER FOUR: PRESENTATION AND DISCUSSION OF RESULTS
4.1 Socio-economic Characteristics 24
4.2 Mode of Disbursement and Repayment 31
4.3 Number of Farmers that have benefited from the Banks 33
4.4 Effect of Loan Disbursement on Output 34
4.5 Problems Faced by the Beneficiaries 38
CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATION
5.1 Summary 39
5.2 Conclusion 40
5.3 Recommendation 41
REFERENCE 42
APPENDIX 45
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LIST OF TABLES
Table 1: Distribution of Respondents by Age 24
Table 2: Distribution of Respondents According to Sex 25
Table 3: Distribution of Respondents by Marital Status 26
Table 4: Distribution of Respondents by Educational Level 27
Table 5: Distribution of Respondents by Household Size 28
Table 6: Distribution of Respondents by Years of Farming Experience 29
Table 7: Distribution of Respondents by Source of Labour 30
Table 8: Distribution of Respondents Based on Customer ship of Microfinance Bank 31
Table 9: Mode of Disbursement Distribution of Respondents 32
Table 10: Distribution of Respondents by Repayment Plan 33
Table 11: Micro-credit Beneficiaries Based on Categories 34
Table 12: Ordinary Least Squares Estimates of Factors Affecting the Output of Beneficiaries 36
Table 13: Production Problems Distribution of Respondents 38
1
CHAPTER ONE
1.0 INTRODUCTION
1.1 Background to the Study
Lack of access to credit has negatively affected poor farmers and rural dwellers for many
years. Rural people need credit to allow investment in their farms and small businesses, to
smooth consumption and to reduce their vulnerability to weather and economic shocks. Because
they have little access to formal financing institutions poor rural people follow sub optional risk
management and consumption strategies and rely on costly informal credit sources (FAO, 2000).
To this end, Eluhaiwe (2008) noted that microfinance banks were established in Nigeria in 2005
for the purpose of providing economically active poor and low income earners financial services,
to help them engage in income generating activities or expand their businesses.
By definition microfinance refers to the provision of financial services to poor or low
income clients including consumers and the self employed (Ledgerwood, 2000). According to
Robert et al (2004), microfinance refers to a movement that envisions a world in which as many
poor and near poor households as possible have permanent access to an appropriate range of high
quality financial services including not just credit but also savings, insurance and fund transfers.
In addition, Eluhaiwe (2008) states that microfinance is about providing financial services to the
poor who are traditionally not served by the conventional financial institutions. Three features
distinguish microfinance from other formal financial products. These are:
i. The smallness of loans advanced and or savings collected
ii. The absence of asset based collateral and
iii. Simplicity of operations
2
Brigit (2006) distinguishes between four general categories of microfinance providers.
They are: informal financial service providers, member-owned organizations, Non-
Governmental Organization (NGOS) and formal financial institutions. The informal financial
service providers include money lenders, savings collectors, money guards, Rotating Savings and
Credit Associations (ROSCAS) and input supply shops. For the fact that they know each other
well and live in the same community, they understand each other’s financial circumstances and
can offer very flexible, convenient and fast services. Member-owned organizations include self
help groups and credit unions. Like the informal financial service providers, they are generally
small and local though they may have little financial skill.
According to Brigit (2006), NGOS involved in microfinance like Grameen bank of
Bangladesh and Prodem in Bolivia have proven to be very innovative, pioneering banking
techniques like solidarity lending, village banking and mobile banking that have overcome
barriers to serving poor populations. Lastly, formal financial institutions engaged in
microfinance are state banks, agricultural development banks, savings banks, rural banks and
non bank financial institutions. They are regulated and supervised, offer a wide range of financial
service and control a branch network that can extend across the country and internationally.
Modern microfinance emerged in the 1970s with a strong orientation towards private
sector solutions. This resulted from evidence that state owned agricultural development banks in
developing countries had been a monumental failure, actually undermining the development
goals they were intended to serve (Adams et al, 1984). The practice of microfinance in Nigeria is
culturally rooted and dates back several centuries. The traditional microfinance institutions
provide access to credit for the rural and urban, low income earners. They are mainly of the Self
Help Groups (SHGs) and Rotating Saving and Credit Associations (ROSCAs) types.
3
Furthermore, microfinance services particularly those sponsored by government, have adopted
the traditional supply-led subsidized credit approach mainly directed to the agricultural sector
and non-farm activities such as trading, tailoring, weaving, blacksmithing, agro processing and
transportation (Central Bank of Nigeria (CBN) 2005).
Cheryl (2001) asserted that micro financial services are needed everywhere, including the
developed world. However, in developed economies intense competition within the financial
sector, combined with a diverse mix of different types of financial institutions with different
missions, ensures that most people have access to some financial services. Efforts to transfer
microfinance innovations such as solidarity lending from developing countries to developed ones
have met with little success. However, microfinance has been growing rapidly with $25billion
currently at work in microfinance loans. It is estimated that the industry needs $250billion to get
capital to all the poor people who need it (Deutsche bank, 2007)
1.2 Problem Statement
As business enterprises, microfinance banks aim at making profit. Hence they prefer to
give credit to those engaged in less risky businesses. More or less agriculture does not fall into
this category of businesses due to several risks and uncertainties associated with it ranging from
unpredictability of weather, possible outbreak of pests and diseases, instability of market prices
and so on. To further worsen the situation collateral security is not a precondition for granting of
credit by microfinance banks.
Another problem is the attitude of some beneficiaries who divert the loans given to them
to non farm activities such has marrying more wives, buying motorcycles and cars, renovating
their houses etc. The general belief is that this is their portion of the “national cake” which they
4
do not need to refund thereby resulting in high default rate. Furthermore, the high illiteracy rate
especially among farmers coupled with the stress of securing loans from banks like filing of
forms, submissions of passports, and so on discourage farmers from approaching microfinance
banks for credits but rather patronize money lenders who will give them quick loans. All these
factors hinder the contribution microfinance bank try to make in developing agriculture in
Chanchaga Local Government Area of Niger state.
The study will attempt to answer the following research questions:
1. How many microfinance banks are in Niger state as a whole and Chanchaga local
government council in particular?
2. What criteria are used by these banks to disburse micro credit to farmers?
3. What is the interest rate charged by microfinance banks?
1.3 Objectives of the Study
The broad objective of this study is to examine the contribution of microfinance banks to
the agricultural development of Chanchaga Local Government Area. The specific objectives are
to:
1. Determine the socio economic characteristics of farmers that benefitted from credit
facilities of microfinance banks.
2. Evaluate the mode of disbursement and repayment structures of the banks.
3. Identify the number of farmers who have benefitted from the banks.
4. Determine the effect of loan collected on farmers output.
5. Examine the problems facing the farmers proffer solutions to the identified problems.
5
1.4 Justification for the Study
Prior to the oil boom, agriculture was the mainstay of the Nigerian economy. In the
recent past, even though oil was and is still the single major revenue earner to the government,
agriculture contributes significantly to the country’s Gross Domestic Product (GDP). It employs
70 to 80 percent of the population in most sub-Saharan African countries and contributes
between 40 to 60 percent of the GDP (Eluhaiwe, 2008). Yet one major problem faced by farmers
especially in the rural areas is inadequate finance; and this is where microfinance banks come in.
According to Robert et al (2004), in the developing world, there were 665 million client
accounts at over 3,000 institutions that serve people who are poorer than those served by the
commercial banks as at 2004. Of these accounts, 20 million were with institutions normally
understood to practice microfinance. Likewise Justus (2009) reported that the Central Bank of
Nigeria (CBN) has licensed a total of 840 microfinance banks which are distributed in various
parts of the country as at December 31, 2008. This study is therefore justified in that it intends to
examine the contribution of microfinance banks to the development of rural enterprises but with
specific emphasis on agriculture in Chanchaga Local Government Area of Niger state.
1.5 Research Hypothesis
Null Hypothesis: There is no significant relationship between the amount of loan
received by farmers and their output.
Alternative Hypothesis: There is a significant Statistical relationship between the
amount of loan received by farmers and their output.
6
CHAPTER TWO
2.0 LITERATURE REVIEW
2.1 Concept of Rural Finance
Rural finance encompasses the range of financial services offered and used in rural areas
by people of all income levels. It includes Agricultural Finance, which is dedicated to financing
agricultural related activities such as input supply, production, distribution, wholesale,
processing and marketing; and Microfinance which provides financial services for poor and low
income people by offering smaller loans and saving services, while accepting a wider variety of
assets are collateral (FAO, 2009).
According to Eluhaiwe (2008), rural finance services in a comprehensive term refer to the
provision of credit, savings mobilization insurance coverage and payment system for transfer of
funds to and away from the rural sector. In view of low income and high risks in the rural areas,
effective provision of these services serves important goals of accelerated growth, poverty
alleviation and reduced exposure to vulnerability. Also, rural finance does not only mean
agriculture credit or savings but includes:
i. Saving mobilization
ii. Rural credit
iii. Insurance services
iv. Payment system
The Central Bank of Nigeria (2005) noted that in order to enhance the flow of financial
services to Nigerian rural areas, government has in the past, initiated a series of publicity
financed micro/rural credit programmes and policies targeted at the poor. Notable among such
7
programmes were the Rural Banking Programme, sectoral allocation of credits, a concessionary
interest rate, and the Agricultural Credit Guarantee Scheme (ACGS). Other institutional
arrangements were the establishment of the Nigerian Agricultural and Co-operative Bank
(NACB) the National Directorate of Employment (NDE), the Nigeria Agricultural Insurance
Corporation (NAIC), the People Bank of Nigeria (PBN) , the Community Bank (CBS) and the
Family Economic Advancement Programme (FEAP).
In 2000, Government merged the NACB with the PBN to form the Nigerian Agricultural
Co-operative and Rural Development Bank Limited (NACRDB) to enhance the provision of
finance to the agricultural sector. It also created the National Poverty Eradication Programme
(NAPEP) with the mandate of providing financial services to alleviate poverty.
2.2 Concept of Microfinance
Microfinance is often defined as financial services for poor and low income clients. In
practice, the term is often used more narrowly to refer to loans and other services from providers
that identify themselves as Microfinance Institutions (MFIs).
These institutions commonly tend to use new methods developed over the past 30 years
to deliver very small loans to unsalaried borrowers, taking little or no collateral. These methods
include group lending and liability, pre-loan savings requirements, gradually increasing loan
sizes, and an implicit guarantee of ready access to future loans if present loans are repaid fully
and promptly (Microfinance Gateway, 2009).
Microfinance programmes provide financial services such as credit, deposit and savings
to the entrepreneurial poor that are tailored to their needs. Fruman and Goldberg (1997) stated
that good microfinance programmes are characterized by:
i. Small, usually short term loans, and secure savings products.
ii. Streamlined, simple borrower and investment appraisal.
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iii. Alternative approaches to collateral.
iv. Quick disbursement of repeat loans after timely repayment.
v. Above-market interest rate to cover the high transaction cost inherent in microfinance.
vi. High repayment rates.
vii. Convenient location and timing of services.
2.2.1 Microfinance Clients
Typical microfinance clients are poor and low income people that do not have access to
other formal financial institutions. Microfinance clients are usually self employed, household
based entrepreneurs. Their diverse “microenterprises” include small retail shops, street vending,
artisanal manufacture and service provision. In rural areas, micro entrepreneurs often have small
income generating activities such as food processing and trade, some but far from all are farmers.
Hard data on the poverty status of clients is limited, but tend to suggest that most microfinance
clients fall near the poverty line, both above and below (Microfinance Gateway, 2009).
2.2.2 Differences between Microfinance and Microcredit
Microcredit refers to very small loans for unsalaried borrowers with little or no collateral
while microfinance refers to microcredit, savings, insurance, money transfers and other financial
products targeted at poor and low income people (Microfinance Gateway 2009).
2.3 History of Microcredit
According to FAO (2000), in 1976, Muhammad Yunus founded the Grameen bank, the
world’s best known provider of microcredit. Some trace the origins of micro credit in its recent
form to this event. Through the Grameen Bank, Yunus was able to institutionalize features that
9
provide a model for many (although not all) microcredit providers today. Microfinance
Organization (MFOs) and programmes have since flourished, including “Grameen replications”
in 45 countries. Today there are more than 1,200 institutions providing microcredit at a national
level, 26 major institutions leading international microcredit programmes and 7,000 to 10,0000
local and regional organizations providing microcredit as all or part of their development efforts.
2.3.1 How Microcredit Works
The provision of a typical microcredit would involve the following steps:
1. Eligible poor borrowers are identified according to the target criteria and procedures.
2. A small group (five to eight people of common gender) of eligible borrowers is formed
and rules are explained and agreed to.
3. Each member carries out compulsory saving.
4. One or two group members borrow the initial maximum amount.
5. The group meets weekly with other groups to discuss business and make installment
payments.
6. Financial management and other training are provided on a voluntary or mandatory basis
to all members of the group.
7. When the initial loans are repaid, the next members of the group may borrow.
8. If a loan is not repaid on schedule, no member of the group may borrow until the loan is
repaid by the borrower, or by other members of the group.
9. Eventually the repaid loans and group savings provide sufficient capital to maintain the
revolving loan pool of all members (FAO, 2000).
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2.3.2 Unfavourable Microcredit Clients
The Microfinance Gateway (2009) noted that households in the poorest 10% of the
population including the destitute are not traditional microcredit clients because they lack stable
cash flow to repay loans. Likewise, Sirajul (2006) indicated that entrepreneurial skills and ability
are necessary to run a successful microenterprise and not all potential customers are equally able
to take on debt. Thus the sick, mentally ill, destitute, etc who form a minority of those living
below the poverty line are typically not good people for microfinance but rather better candidates
for safety-net programmes or grants recipients (of direct basic assistance).
2.4 Microfinance and Women
Microfinance experts generally agree that women should be the primary focus of service
delivery. Evidence shows that they are less likely to default on their loans then men. Industry
data from 2006 for 704 MFIs reaching 52 million borrowers includes MFIs using the solidarity
lending methodology (99.3% female clients) and MFIs using individual lending (51% female
clients). The default rate for solidarity lending was 0.9% after 30days and 3.1% for individual
lending (Wikipedia, 2009).
2.5 Microfinance and Poverty Reduction
According to Brandsma and Chaouali (not dated), giving the poor access to financial
services can help reduce poverty, at least among the entrepreneurial poor. It can also ease the
burden on public funds by cutting subsidies and allocating spending to more productive sectors
of the economy. And given that they are labour intensive, microenterprises can absorb a large
portion of excess labour.
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Furthermore, Women’s World Banking (1995) argues that providing the poor with access
to financial services may be the single most effective means to address poverty and create broad
based economic growth. Finance and enterprise systems that serve the majority can be the
pivotal links and the levers, enabling the poor to share in economic growth and giving poor
people the means to use social services.
Microfinance has the possibility to have an instant impact on a wide range of poverty
alleviation targets, such as income, health, nutrition and education. This will go a long way in
achieving the number 1 Millennium Development Goal (MDG) of reducing those living on less
than $1 per day (Siragul, 2006). The Microfinance Gateway (2009) stated that microcredit can
provide a range of benefits that poor households highly value including long term increases in
income and consumption. A harsh aspect of poverty is that income is often irregular and
undependable. Access of credit helps the poor to smooth cash flows and avoid periods where
access to food, clothing, shelter or education is lost. Credit can make it easier to manage shocks
like sickness of a wage earner, theft or natural disasters. The poor use credit to build assets such
as buying land, which gives them future security.
Providing financial services to the entrepreneurial poor increases household income,
reduces unemployment and creates demand for other goods and services especially nutrition,
education and health services. Thus microenterprises play an important role in alleviating
poverty (Brendsma and Chaouali, not dated).
2.5.1 When Will Microfinance Benefit the Poor?
Sirajul (2006) indicated that a well designed microfinance programme is unlikely to have
a positive impact on the poorest unless it purposely seeks to serve them through appropriate
12
product design and targeting. Experience shows that if not there is a targeting tool, the very poor
will either be missed or they will be likely to exclude themselves because they do not see the
programmes as being for them. There is also a strong liking of the MFI officials to move to the
top of the customers group, and to give little consideration to the needs of the very poor, with the
end result that their percentage reduce over time. Hence, only MFIs that design programmes
around the needs of the extreme poor are likely to retain them as clients.
2.5.2 Measurement of Impact of Microcredit
FAO (2000) revealed that different measures are used to assess the impact of microcredit.
The most common indicator is change in household income. Also important are changes in
assets, net worth, labour and household consumptions. Studies have measured changes in total
household consumption, change in food consumption and timing of consumption. Others are
change in school enrolment rates, health, empowerment and effects on women.
The results of a survey regarding the impact of three major microcredit programmes in
Bangladesh showed on 18% increase in household consumption from microcredit borrowing by
women and an 11% increase in consumption when men are the borrowers. Other impacts are
consumption smoothing, labor supply smoothing and improved child nutrition especially for girls
(Khandker, 1998). Moreover, 5% of participating families can escape poverty each year because
of the increased consumption resulting from microcredit.
A major impact of microcredit is increased savings either through forced savings or
diversion from increased income. This allows borrowers to smooth consumption, invest in
earning activities and prepare for emergencies. Research shows that microcredit loans are used
13
largely for investment purposes, such as investing in housing and other productive assets
(Zaman, 1999).
However, Mayoux (1999) suggested that microcredit results in woman empowerment.
This is because MFI give more emphasis to women clients. The reasons are that women have
higher payback rates and are reputed to be better credit risks, easier to discipline and more
inclined to use the income they control for improving children nutrition and education.
Some evidence also suggests that microcredit programmes may reduce fertility rates
(Schuler et al, 1997). This not surprising because given the higher opportunity cost of bearing
children for a successful female entrepreneur, relative to a woman employed only in household
or farm activities and where the child may be a more important source of labor. It may be that
economic power, new information or new support system has allowed women to take more
control over child bearing decisions. Also as women’s income rises, child mortality rates usually
fall, lessening the need or desire to bear many children.
2.6 Interest Rates of Microfinance Institutions
It is no secret that the interest rates charged by microfinance institutions are higher than
those charged by commercial banks. This, according to the Microfinance Gateway (2009) is
because the administrative cost of marketing loans is much higher in percentage terms then the
cost of making a large loan. It takes a lot less staff time to make a single loan of $100,000 than
1,000 loans of $100 each. Besides loan size, other factors are credit decision for borrowers who
have neither collateral nor a salary cannot be based on automated scoring. These decisions
require substantial intervention of a loan officer in judging the risk of each loan. Also, MFIs may
operate in areas that are remote or have low population density; making lending more expensive.
14
This is often why traditional banks tend to stay away from such areas. Thus, if a MFI wants to
operate sustainably, it has to price its loan high enough to cover all its costs.
FAO (2000) reported that many microcredit programmes sometimes provide training and
technical advice to borrowers in an effort to increase their incomes. These include literacy
programmes, enterprise management and education in family planning and nutrition. These “full
service” programmes try to increase the skills and capacity of their borrowers. This results in
high operational cost which must be supported by high interest rates payed by borrowers.
2.7 Microfinance Banks in Nigeria
2.7.1 Justification for Establishment
CBN (2005) noted that the following facts justify the establishment of microfinance
banks in Nigeria. They are:
1. Weak institutional capacity: - The prolonged sub optima performance of many existing
community banks due to incompetent management, weak internal controls, lack of
deposit insurance schemes, poor corporate governance, lack of well defined operations
and restrictive regulatory /supervisory requirements.
2. Weak capital base: - The weak capital base of existing institutions, particularly the then
community banks could not adequately provide a cushion for the risk of lending to micro
entrepreneurs without collateral.
3. The existence of huge unserved market: - The average banking density in Nigeria is one
financial institution outlet to 32,700 inhabitants. In the rural areas, it is 1:57,000 that are
less than 2% of rural households have access to financial services.
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4. Economic empowerment of the poor, employment generation and poverty reduction: -
The baseline economic survey of Small and Medium Industries (SMIs) in Nigeria
conducted in 2004, indicated that the 6, 498 industries covered employed a little over one
million workers. Considering the fact that about 18.5 million (28% of the available work
force) of Nigeria are unemployed, the employment objective/role of SMIs is far from
being reached. Hence, the establishment of microfinance banks would assist the SMIs in
raising their productive capacity and level of employment generation.
5. The need for increased savings opportunity: - As at end-December 2004, the total
currency in circulation stood at N585.8 billion, out of which N458.6billion or 84.12%
was outside the banking system. Poor people can and do save, contrary to general
misconceptions. However, due to inadequacy of appropriate saving opportunities and
products, savings have continued to grow at as very low rate particularly in the rural
areas.
6. The interest of local and international communities in micro financing: - Many
international investors have expressed interest in investing in the microfinance sector.
2.7.2 Goals of Microfinance Banks
The microfinance banks were intended to serve the following purposes:-
i. Provide diversified, affordable and dependable financial services to the active poor, in a
timely and competitive manner that would enable them to undertake and develop long
term sustainable entrepreneurial activities.
ii. Mobilize savings for intermediation.
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iii. Create employment opportunities and increase the productivity of the active poor in the
country.
iv. Enhance organized, systematic and focused participation of the poor in the socio
economic development and resource allocation process.
v. Provide avenues for the administration of the micro credit programmes of government
and high net worth individuals on a non recourse case basis.
vi. Render payment services such as salaries gratuities and pension for various tiers of
government (CBN, 2005).
Eluhaiwe (2008) listed the benefits that can be derived from micro finance banks to include:
i. Saving money in the bank as an account holder.
ii. Borrowing from MFB to start or expand your business.
iii. Transferring money from one part of the country to another.
iv. Enjoying micro leasing, micro insurance, advisory services, etc.
2.7.3 Categories of Microfinance Banks
CBN (2005) categorized microfinance banks into two based on establishment. They are:
i. Micro Finance Banks (MFBs) licensed to operate as a unit bank, and
ii. Micro Finance Banks (MFBs) licensed to operate in a state.
MFBs licensed to operate as unit banks shall be community-based banks. Such banks can
operate branches and/or cash centers subject to meeting the prescribed prudential requirements
and availability of free funds for opening branches/cash centers. The minimum paid up capital
for this category of banks is N20million for each branch.
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MFBs licensed to operate in a state on the other hand shall be authorized to operate in all
parts of the state (or the Federal Capital Territory) in which they are registered, subject to
meeting the prescribed prudential requirements and availability of free funds for opening
branches. The minimum paid up capital for this category of banks is N1 billion.
2.7.4 Ownership of Microfinance Banks
CBN (2005) noted that microfinance banks can be established by individuals, groups of
individuals, community development associations, private corporate entities or foreign investors.
But no individual, group of individuals, their proxies or corporate entities and/or their
subsidiaries shall establish more than one MFB under a different or disguised name.
Universal (commercial) banks that intends to set up any of the two categories of MFB as
subsidiaries are required to deposit the appropriate minimum paid up capital and meet the
prescribed prudential requirements. Likewise, existing Non-Governmental Organizations
providing microfinance which intends to operate a MFB can either incorporate a subsidiary MFB
while still carrying out its NGO operations or fully convert into a MFB. In this case, they have to
obtain an operating license.
2.8 Commercial Banks and Microfinance
Some commercial banks in Nigeria today have gone into the microfinance subsector.
Brandsma and Chaouali (not dated) advised that banks should be encouraged to engage in
microfinance for several reasons:
1. Microfinance can be profitable for banks especially those that are strong in retail banking
or customer lending.
18
2. Banks have a large outreach potential through their extensive branch networks. This
gives them large economies of scale relative to NGOS or MFIs, which would have to
make major investments in infrastructure to reach the same number of borrowers or
savers.
3. Banks have the most accessible source of funds for on lending - their deposit base. For
instance, in the Middle East and North Africa total funding needs for microfinance
account for less than 1% of deposits in the banking system.
4. Banks can offer deposit and savings services to the poor, a financial service often more
needed then credit.
2.9 Government Participation in Microfinance
A vast majority of government microfinance programmes do a poor job of delivering
retail credit because they are usually subject to political influence, high default, continuing drain
on national treasuries, and sometimes lending based more on the borrowers influence than their
actual qualification. Among government programmes reporting to international data bases only
1/8 of clients are being served sustainably (Microfinance Gateway, 2009).
The structural dynamics that make it hard for governments to deliver good retail credit
are that sound credit administration requires screening out borrowers who are not likely to repay,
and responding vigorously to late payments. These requirements usually run counter to the
practical incentives and imperatives of even the sincerest working politician. Thus, government-
run MFIs that deliver good microcredit tend to be insulated from politics, managed by
technocrats, and strongly and explicitly focus on sustainability (Microfinance Gateway, 2009).
19
2.10 The Global Financial Crisis and Its Impact on Microfinance
Compared with other financial institutions, Microfinance Institutions (MFIs) have
emerged relatively unscathed from the financial crisis of the past few decades. During the
currency crisis in East Asia and the banking crisis in Latin America in the 1990s, institutions
serving poor customers generally performed better financially than mainstream banks. But
microfinance now has many more links to domestic and international financial market, and as a
result today’s financial crisis is more likely to affect it. (Littlefield and Kneiding, 2009).
2.10.1 Changes in Income Sources and Expenses
It is not easy to separate the effects directly related to the financial crisis from pre-
existing condition like the food crisis. But reports do suggest that the dual forces of increased
prices and an economic slowdown are leading to a squeeze on household income. While food
prices have come down in recent months, they remain very high in many places, and low income
people have been struggling to adjust ( Duflos and Gaehwiler, 2008).
Zaidi et al (2008) indicated that recent research in Pakistan shows an inflation rate of
nearly 25% has surprisingly not had a damaging effect on microfinance clients as at of late 2008.
On the contrary, those clients producing food crops and agricultural commodities have actually
benefitted from higher market price (Littlefield and kneiding, 2009).
According to World Bank predictions, growth of remittance flows from developed
countries to developing countries will reach their lowest point in 2009, but they will bounce
back to reach solid growth rate as early as 2010. Remittance inflow in US dollars are expected to
20
decreases during 2009-10, with sharp declines compared with recent years (Ratha et al, 2008).
This is basically due to job losses in the United States and Europe.
2.10.2 Stability of Deposits
In a world where communications are global and news travels fast, bank failures in the
United States and Europe could potentially lead to a loss of confidence in local banks.
Microfinance banks in Eastern Europe and Central Asia, like other banks in the region, saw a
steady withdrawal of deposits for several weeks following the announcement of the Lehman
Brothers collapse. In Russia, monthly deposit withdrawals in the banking sector peaked in
October 2008 at about 5-7% of the total deposit base, but the problem subsided soon afterwards
(Littlefield and Kneiding, 2009).
2.10.3 Microfinance in 2009: The Road Ahead
Littlefield and Kneiding (2009) noted that MFIs will want to increase reserves and adjust
growth plans to be more conservative in light of tighter credit. But they must honor their implicit
contract to grant prompt follow-on loans to existing borrowers who have repaid faithfully. If they
fail to do this, repayment motivation almost always suffers, and default rate grows fast.
2.10.4 Opportunity amid the Crisis
Some microfinance markets had become overheated in recent years with sensational
growth rates, deteriorating underwriting standards and crumbling risk-return tradeoffs. Hence,
slower growth, scarcer credit, more conservative policies, better products and even consolidation
of weaker institutions into stronger ones may be beneficial in the long run. The crisis may
21
accelerate long overdue consumer protection measures that are part of responsible lending
(Littlefield and Kneiding, 2008).
22
CHAPTER THREE
3.0 METHODOLOGY
3.1 Study Area
Chanchaga is one of the 25 Local Government Areas of Niger state. It lies on latitude
9037’N and longitude 6033’E. It is found in the southern guinea savannah vegetation zone of
Nigeria with a population of 201,429 according to 2006 population census (Federal Government
of Nigeria official gazette, 2007). Chanchaga has a mean annual rainfall of 1330mm with the
highest monthly rainfall of about 300mm in September. The rainy season is normally between
April and October. Temperature rarely falls below 220C. The peaks are 400C (February –March)
and 350C (November –December).
The soil type of Chanchaga range from any sandy-loam to clay-loam, hence food crops
such as yam, rice, maize, groundnut and vegetables like spinach, okra, tomato, pepper etc are
widely cultivated. The major occupation of the inhabitants is agriculture either in full time or part
time bases.
3.2 Method of Data Collection
The primary data for this study were collected using structured questionnaires and
personal observation while the secondary data was obtained from text books, journals, seminar
papers, proceedings and the internet. The internet provided access to relevant websites and
WebPages.
23
3.3 Sampling Technique and Sample Size
A list containing names and addresses of beneficiaries of agricultural micro-credit was
obtained from Nexus Micro finance bank located along Tunga Low cost road Minna from which
80 beneficiaries were randomly selected. The respondents were traced through their addresses
and each was issued a questionnaire to fill.
3.4 Methods of Data Analysis
The data were analyzed using descriptive statistics and multiple regression analysis. The
descriptive statistics include mean, percentage and frequency tables. Multiple regression analysis
will be used to determine the contribution of Microfinance Banks to Agricultural development in
the study area. One dependent variable and five independent variables were employed with the
following relationship:
Y = f (X1, X2, X3, X4, X5, e)
Where Y = value of output in Naira (N) of maize, rice and yam.
X1 = Amount of loan received Naira (N).
X2 = Interest rate on borrowed capital Naira (N).
X3 = Technical assistance from Microfinance Bank (Dummy variable 1 yes or 0
otherwise).
X4= Farm size in hectares
X5= Labour in Naira (N)
e = Error Term
24
CHAPTER FOUR
4.0 PRESENTATION AND DISCUSSION OF RESULTS
This chapter deals with the results obtained from the field and their analysis. A total of 80
questionnaires were administrated but only 72 were returned and thus analysed.
4.1 Socio-Economic Characteristics
4.1.1 Age of Respondents
Age is the number of years a person has lived. The age distribution of respondent is
presented in the table below.
Table 1: Distribution of Respondents by Age
Age Frequency Percentage
Below 20
21 – 40
41 – 60
61 and above
0
47
25
0
0
65.3
34.7
0
Total 72 100
Source: Field Survey, 2009
Mean age =37
Table 1 above indicates that none of the beneficiaries is below 20years and above 61years
of age respectively. 34.7% of the beneficiaries reported that they are between the ages of 41 and
60 while 65.3% of them indicated that they are between 21 and 40 years old. The high
25
percentage of this category of beneficiaries is that they are within economically active years of
their lives and can take the risk of taking loans for production purposes.
4.1.2 Sex Distribution of Respondents
Sex or gender is the quality of being a male or female. The sex distribution of
respondents is presented in the table below.
Table 2: Distribution of Respondents According to Sex
Sex Frequency Percentage
Male
Female
45
27
62.5
37.5
Total 72 100
Source: Field Survey, 2009
The above table indicates that about 62.5% of the respondents are male while 37.5% of
them are female. The higher percentage of the male beneficiaries of agricultural microfinance
may be attributed to the fact that female beneficiaries are prone to go into female oriented
businesses or trades like tailoring, sewing, soap making and so on.
4.1.3 Marital Status of Respondents
Marital status of respondents single, married, divorced, widowed or separated. Table 3
below shows the marital status distribution of the respondent.
26
Table 3: Distribution of Respondents by Marital Status
Marital Status Frequency Percentage
Single
Married
Divorced
Widow/widower
13
58
0
1
18.1
80.6
0
1.3
Total 72 100
Source: Field Survey, 2009
The table above signifies that none of the beneficiaries is divorced while 18.1% and
80.6% of them are single and married respectively, marriage is regarded as a noble institution
that uplifts the status of an individual whether male or female, that is why majority of the
respondents are married.
Adegeye et al (1985) reported that consumption credit to small farmers helps to make
farmers more productive, because of the fact that the farm is a social, political and economic
entity and hence credit required for other purpose, such as marrying a wife.
4.1.4 Educational Level of Respondents
Education can be acquired formally i.e. with the four walls of the school in a structured
manner or informally outside the school in an unstructured manner.
27
Table 4: Distribution of Respondents by Educational Level
Educational Level Frequency Percentage
Primary
Secondary
Tertiary
Arabic
Adult
None
20
17
12
11
7
5
27.8
23.6
16.7
15.3
9.7
6.9
Total 72 100
Source: Field Survey, 2009
Table 4 above indicates that about 16.7% of beneficiaries have tertiary education while majority
(about 27.8%) have attended primary school. This can be attributed to the metropolitan nature of
Chanchaga Local Government Area where western education is regarded as a necessary tool for
survival in today world. Lack of education do not motivate people to approach financial
institutions for loans due to the protocols involved like filling of forms that is why most of the
beneficiaries are educated.
Adegeye et al (1985) also indicated that credit to small farmers in the absence of knowledge and
use capability of technology can even prove harmful since the farmers can become hearty
indebted and be unable to pay back.
28
4.1.5 Household Size Distribution of Respondents.
Household size is the number of people living in a particular household. It’s a
determinant of many things like adoption of innovation, availability of family, labour, etc. The
household size distribution of respondents is as follows:
Table 5: Distribution of Respondents by Household Size
Household size Frequency Percentage
1 – 5
6 – 10
11 – 15
16 – 20
21 and above
21
25
12
10
4
29.2
34.7
16.7
13.9
5.5
Total 72 100
Source: Field Survey, 2009
Mean household size = 12 persons
About 29.2% and 5.5% of the agricultural microfinance beneficiaries reported that they
have household sizes of between 1 and 5 and at least 21 respectively as indicated in table 5
above. Similarly majority of the respondents (about 34.7%) stated that they have household size
of between 6 and 10.
29
Educational enlightenment, availability of hired labour and bad state of the economy are
some factors that may be responsible for most couples not wanting to have very large household
size.
4.1.6 Years of Farming Experience
This is the length of time usually in years which an individual have been engaged in
farming ranging from crop production, animal rearing, fishery etc. below is the distribution of
respondents according to years of farming experience.
Table 6: Distribution of Respondents by Years of Farming Experience
Years of Farming
Experience Frequency Percentage
Below 5
5 – 10
11 – 15
16 – 20
21 above
14
23
17
15
3
19.4
31.9
23.6
20.9
4.2
Total 72 100
Source: Field Survey, 2009
Table 6 above shows that only about 4.2% of the respondents have farming experience
above 20years while 20.9% of them have farming experience of between 16 and 20 years. But
31.9% of the beneficiaries reported that they had been farming for the past 6 to 10years the low
30
percentage of those with lots of farming experience (16years and above) may be because they are
already customers and have taken loans from other financial institutions like the Nigerian
Agricultural Co-operative and Rural Development Bank (NACRDB), hence they do not deem it
necessary to approach Microfinance Banks for loans again.
Bede (1985) confirmed that in traditional agric, farm sizes ranges on averages of 0.10 to
5.0 ha per farm family.
4.1.7 Source of Labour of Respondents
Source of labour can be family, hired, communal or combination of some or all of these.
It is a very important factor of production which is paid for by wages or salaries. Below is the
distribution of respondents based on labour source.
Table 7: Distribution of Respondents by Source of Labour
Source of Labour Frequency Percentage
Family only
Hired only
Family and hired
27
15
30
37.5
20.8
41.7
Total 72 100
Source: Field Survey, 2009
According to table 7 above, only about 20.8% of the respondents reported that they use
hired labour exclusively while 41.7% of them claimed that they used a combination of family
and hired labour. The use of hired labour only is quite expensive hence increasing the cost of
31
production, that is why most people do not take that option therefore majority of farmer will
prefer a combination of family and hired labour.
CBN (1985) stated that family labour is probably still very important in agric but it is
increasingly being supplemented by hired labour as a result of a variety of factors such as net
emigration of youths.
4.2 Mode of Disbursement and Repayment
4.2.1 Customer of Microfinance Bank
Being a customer of a bank entitles an individual to benefit from loans disbursement by it
and at reasonable interest rate that may be lower than that of non-customers.
Table 8: Distribution of Respondents Based on Customership of Microfinance Bank
Customer of Microfinance
Bank Frequency Percentage
Yes
No
57
15
79.19
20.83
Total 72 100
Source: Field Survey, 2009
Table 8 above indicates that 79.17% of the respondents stated that they were customer of
microfinance bank while the remaining 20.83% responded otherwise. A bank has more confident
and finds it safe to grant a loan to its customer than a non-customer due to ease of recovery of the
32
loan incase of default. Hence little wonder why majority of the respondents were customers of
the bank.
4.2.2 Mode of Disbursement of the Loan
Mode of disbursement is the way and manner a financial institution in this case
microfinance bank grants loans to the qualified beneficiaries. Below is the distribution of
respondents based on mode of loan disbursement.
Table 9: Mode of Disbursement Distribution of Respondents
Mode of disbursement Frequency Percentage
Individual
Co-operative
32
40
44.4
55.6
Total 72 100
Source: Field Survey, 2009
According to table 9 above 44.4% of the respondents reported that they were given the
loans on individual basis while the remaining 55.6% stated that they got the loans through their
various co-operatives. That is to say, for increased security, banks may decide to give preference
to co-operatives than individuals. In addition this save the bank transaction cost and lowers
default rate.
4.2.3 Repayment Plan
Loans can be paid back either in full or installmentally i.e. in bits. Installmental
repayments give more flexibility to the beneficiary and lowers default rate.
33
Table 10: Distribution of Respondents by Repayment Plan
Repayment Plan Frequency Percentage
In full
Installmentally
0
72
0
100
Total 72 100
Source: Field Survey, 2009
Table 10 above indicates that all the beneficiaries agreed that the loans are paid back in
installments. Microfinance banks are meant to serve the poor and the less privileged in the
society. For this reason, they normally demand for installmental repayment of loans since their
beneficiaries may not be able to pay in full.
4.3 Number of Farmers that have Benefited from the Banks
Based on the information gathered from Nexus Microfinance Bank Minna, micro credits
are disbursed in four major areas, namely: commerce, small and medium scale enterprises,
communication and agriculture. The table below shows the break down.
34
Table 11: Micro-credit Beneficiaries Based on Categories
Repayment Plan Frequency Percentage
Commerce
Small/Medium Enterprise
Communication
Agriculture
115
205
37
138
23.23
41.41
7.48
27.88
Total 495 100
Source: Nexus Microfinance Bank, Minna, 2009
Table 11 above reveals that majority of the loans given out by microfinance banks are in
favour of small and medium scale enterprises like tailoring, hair dressing and the like followed
by agriculture. This implies that about 28% of loans disbursed by microfinance bank are for
various agriculture purposes like crop production, fishery, animal husbandry and so on. Also,
about 23.33% and 7.48% of beneficiaries were granted with loans in commerce and
communication categories respectively.
4.4 Effect of Loan Disbursement on Output
The effect of loan disbursement on the output realized by farmers was examined using
ordinary least square (OLS) multiple regression analysis. Various functional forms were fitted to
the data and the lead equation (equation of best fit) was chosen based on.
35
i. The explanatory power of the model
ii. Number of statistically significant explanatory variables.
iii. Magnitudes of estimates regression coefficient.
iv. Conformity of signs of estimated regression.
v. Coefficients with a prior expectation as well as
vi. F statistic
A summary of the estimated regression parameters and the tried functional forms is
presented in Table 12.
36
Table 12: Ordinary Least Squares Estimates of Factors Affecting the Output of
Beneficiaries
Variable Linear Double Log Semi log Exponential
Constant
Loan
Interest
Technical Assistance
Form size
Labour
R2
R2 Adjusted
F Statistic
-145920.0
(-3.533)
3.204
(13.985)***
-0.413
(-0.831)
24538.772
(0.769)
16647.808
(1.708)*
-0.585
(-2.955)***
0.835
0.822
66.800***
-0.675
(-0.668)
1.124
(2.062)***
-0.102
(-0.662)
-
-
0.258
(3.934)***
0.070
(1.287)
0.959
0.951
112.262***
-3827830
(-5.101)
735722.76
(6.223)***
-465915.4
(-4.086)***
-
-
163404.59
(3.355)***
-15725.144
(-0.388)
0.874
0.847
32.825***
11.602
(77.522)
6.601E.6
(7.236)***
8.93E.007
(0.497)
0.075
(0.651)
0.027
(0.773)
-3.89E.007
(-0.543)
0.588
0.557
18.872***
Source: Computed From Survey Data, 2009
*** Implies statistically significant at 1%
** Implies statistically significant at 5%
* Implies statistically significant at 10%
Note: Figures in parenthesis are the respective T-ratios. Also note that the technical
assistance variable is a constant after logarithmic transformation and was therefore deleted.
37
Results in table 12 indicate that the lead equation is the linear functional form. It has an
R2 value of 0.835. This implies that about 83.5% of the variation in the value of output (Y) is
explained by variables (X1 – X5) included in the model. The remaining 16.5% is as a result of
non-inclusion of some important explanatory variables as well as errors in estimation. The F-
statistic (66.800) is also significant at 1% level. This indicates that the variables adequately
explained the model.
Out of the five variables modeled only three, namely: loan, farm size and labour input
had significant effect on value of output. The estimated regression coefficient for loan is 3.204%
which is positive as expected and significant at 1%. This implies that amount of loan received by
beneficiaries had significant effect on the total value of output. It also indicates that as the
amount of loan received increases, the output also increases.
The same can also be said of farm size which is significant at 10% with a positive
regression coefficient of 16647.808. This shows that as the farm size of beneficiaries increases,
their output also increases. But even though labour was significant at 1% it had a negative
regression coefficient of -0.585, meaning that as the cost of labour decreases the value of output
increases. In addition interest rate charged by microfinance banks and technical assistance
provided by them does not in anyway affect the value of output obtained by beneficiaries
(according to the lead equation).
4.4.1 Test of Hypothesis
The null hypothesis states that there is no significant relationship between amount of loan
collected by beneficiaries and their output result in table 12 indicates that the estimated
regression coefficient for loan is 3.204 which is positive and statistically significant at 1%. We
38
thereby reject the null hypothesis and accept the alternative which states that there is statistical
significant relationship between amount of loan received and the output of farmers.
4.5 Problems Faced by the Beneficiaries
The agricultural microcredit beneficiaries in Chanchaga Local Government Area are
faced with a lot of problems that hinder their production. Below is the distribution of respondents
based on their production constraints.
Table 13: Production Problems Distribution of Respondents
Problems Facing Farmers Frequency Percentage
Inadequate credit facilities
High interest rate
Pest and disease
In inadequate extension services
Lack of storage and processing facilities
Poor marketing systems
Others
41
31
28
28
20
32
2
21.4
16.1
14.6
19.8
10.4
16.7
1.0
Total 192 100
Source: Field Survey, 2009
Table 13 above shows that poor marketing systems and inadequate extension service are
the main problems facing 16.7% and 19.8% of the respondents respectively. But about 41% of
the respondents reported that inadequate credit facilities is the major production constraint they
are facing are available but they are quite expensive not to adopt them hence continuing with
their old methods.
39
CHAPTER FIVE
5.0 SUMMARY, CONCLUSION, AND RECOMMENDATIONS
5.1 Summary
This study aims at assessing the contributions of microfinance banks to agricultural
development in Chanchaga Local Government Area of Niger State. The objectives are to
determine the socio economic characteristic of farmers that benefited from credit facilities of
microfinance banks, evaluate the mode of disbursement and repayment structures of the banks,
identify the number of farmers who have benefited from the banks, determine the effect of loan
collected on farmers’ output and examine the problems facing the farmers. It was hypothesized
that there is no significant relationship between the amount of loan received by farmers and their
output.
Random sampling technique was used to select 80 agricultural micro credit beneficiaries
from list of beneficiaries obtained from Nexus Microfinance Bank, Minna. Structured
questionnaires were used to collect the primary data which were analyzed using descriptive
statistics and ordinary least square multiple regression analysis. Results showed that about 65.3%
of the respondents were between the ages of 21 and 40 while the remaining 34.7% are within 41
and 60years of age. Also majority of the respondents (62.2%) were male. This indicated that
female beneficiaries are likely to go into female oriented businesses like sewing. Furthermore,
most of the farmers had one form of education or another with only about 6.9% of them
reporting that they have none at all. A combination of family and hired labour is used by 41.7%
of the respondents with 37.5% reporting that they use family labour only. In addition 79.17% of
40
the farmers indicated that they were customers of microfinance bank and all of the respondents
agreed that they were to repay the loans installmentally.
Results of the multiple regression analysis indicated that the linear function was the lead
equation with amounts of loan received and labour being statistically significant at 1% and farm
size 10% cost of labour was negatively significant, meaning that the lower the cost of labour the
higher will be the value of output. The R2 value was 0.835 indicating that about 83.5% of the
variation in the value of output (Y) was explained by the five independent variables included in
the model.
For the fact that the coefficient of loan (3.204) was positive and statistically significant at
1% the null hypothesis was rejected. This implies that there is a statistical relationship between
amount of loan received and the output of farmers, problems faced by the beneficiaries includes
inadequate credit facilities (21.4%), inadequate extension services (19.82) and poor marketing
system (16.7%) among others.
5.2 Conclusion
Microfinance banks contribute positively to agricultural development in Chanchaga Local
Government Area of Niger State. This is because there is a positive and relationship between the
amount of loan received and the output of farmers as indicated by the regression analysis results.
41
5.3 Recommendations
The findings and results of this study have led to the following recommendation.
1. Farmers should organize themselves into co-operatives so as to easily access credit
facilities from microfinance banks. This gives the bank more confidence to disburse
agricultural micro-credit and also reduce default rate.
2. The Agricultural Credit Guarantee Scheme of the government should be reviewed and
made more functional. This will motivate microfinance banks to give out agricultural
microfinance with minimal consideration of the risk involved.
3. Storage and processing facilities should be made available to farmers at subsidized rate
by the government through collaboration with the manufacture of such equipment. This
will ensure that farmers get maximum benefit from their product and not sell them at
farm gate price immediately after harvest.
4. Extension service to farmers should be improved by motivating extension workers
through better condition of service and increased salary/allowances.
5. Government in conjunction with the private sector and relevant partners should provide
all sorts of agro-chemicals like herbicides pesticides and so on at subsidized rate. This
will go a long way in increasing the output of farmers and ensuring food security in the
nation.
6. To reduce the incidences of loan diversion by beneficiaries for purposes other than which
they were collected, microfinance banks should disburse agricultural loans not only in
cash but also in kind.
42
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Sirajul, I ( 2006). Can microfinance “halve” poverty by 2015: A review. Retrieved from
www.countercurrents.org
Women’s World Banking (1995). “The missing links: Financial systems that work
for the majority. Paper prepared for the Global Policy Forum. New York.
Zaman, H (1999). Assessing the poverty and vulnerability impact of microcredit in
Bangladesh: A case study of BRAC. Background paper for the WDR 2000/2001
Washington D.C. World Bank.
Zaidi, S., Farooqui, M. and Naseem, A (2008). The impact of inflation on microfinance
clients and its implications for microfinance practitioners. Micronote No.4
Pakistan Microfinance Network.
45
APPENDIX
QUESTIONNAIRE
FEDERAL UNIVERSITY OF TECHNOLOGY, MINNA
DEPARTMENT OF AGRICULTURAL ECONOMICS AND EXTENSION
TECHNOLOGY
PROJECT TOPIC: Contribution of Microfinance Banks to Agricultural Development in
Chanchaga Local Government Area of Niger State
Dear Respondent,
You are requested to kindly answer the questions below as objectively as possible by
ticking the appropriate options or by writing short and direct answers as the case may be.
Any information you give will be treated confidentially as they will be used strictly for this
research purpose.
SECTION A
1. AGE………………………………………………………………………………………
2. SEX:
(a) Male [ ] (b) Female [ ]
3. Marital Status:
(a) Single [ ] (b) Married [ ] (c) Divorced [ ] (d) Widow/widower [ ]
4. Highest Level of Education:
(a) Primary [ ] (b) Secondary [ ] (c) Tertiary [ ] (d) Arabic [ ] (e) Adult [ ]
46
(f) None [ ]
5. Years of Farming Experience:
(a) <= 5 [ ] (b) 6 to 10 [ ] (c) 11 to 15 [ ] (d) 16 to 20 [ ] (e) >= 21 [ ]
6. Household Size:
(a) <= 5 [ ] (b) 6 to 10 [ ] (c) 11 to 15 [ ] (d) 16 to 20 [ ] (e) >= 21 [ ]
7. Source of Labour:
(a) Family only [ ] (b) Hired only [ ] (c) Family and hired [ ]
8. Are you a member of co-operative farmers association?
(a) Yes [ ] (b) No [ ]
9. Are you a customer of any commercial bank?
(a) Yes [ ] (b) No [ ]
10. Are you a customer of microfinance bank?
(a) Yes [ ] (b) No [ ]
11. For how long have you being in operating with them?
(a) 1 year [ ] (b) 2 years [ ] (c) 3 years [ ] (d) 4 years [ ]
47
(e) >= 5 years [ ]
SECTION B: MODE OF DISBURSEMENT AND REPAYMENT STRUCTURE OF
BANKS
12. What was the amount of loan you applied from the bank?....................................................
13. How much was giving to you?...............................................................................................
14. Was interest charged?
(a) Yes [ ] (b) No [ ]
15. What was the interest rate?....................................................................................................
16. Which crops did you take loan for?.......................................................................................
17. How much loan did you take for
(a) Maize?..........................................................................................................
(b) Rice?.............................................................................................................
(c) Yam?............................................................................................................
18. Total farm size in hectares
Crops Size
Yam
Maize
Rice
19. Did you applied for the loan directly as an individual or through a cooperative?
(a) Individual [ ] (b) Cooperative [ ]
20. How are going to payback the loan?
(a) In full [ ] (b) Installment ally [ ]
48
21. How long will it take you to fully repay the loan?
(a) 1 year [ ] (b) 2 years [ ] (c) 3 years [ ] (d) 4 years [ ] (e) >= 5 years [ ]
22. Which of the following technical assistance did you get from the bank?
(a) Information on the source of input [ ] (b) Extension services [ ] (c) Marketing [ ] (d) All of the above [ ] (e) Others:…………………………………………………………………
49
23. Please kindly complete the table below, the number people employed and the total number
of Man-day or Man-hours spent in each for operation.
Note: AM=Adult Male, AF=Adult Female, CH= Child
Table: How much did you pay on Labour for Maize Production?
S/NO
.
OPERATION
AM
FAMIL
Y
HIRED
AF
FAMIL
Y
HIRED
CH
FAMIL
Y
HIRED
TOTAL
FAMIL
Y
TOTAL
HIRED
(=N=) (=N=) (=N=) (=N=) (=N=) (=N=) (=N=) (=N=)
1. Land clearing
2. Ploughing
3. Ridging
4. Planting
5. First fertilizer application
6. Second fertilizer application
7. First weeding
8. Second weeding
9. Hand weeding
10. Harvesting
11.
Processing threshing
winnowing bagging
12. Transportation
50
24. Please kindly complete the table below, the number people employed and the total
number of Man-day or Man-hours spent in each for operation.
Note: AM=Adult Male, AF=Adult Female, CH= Child
Table: How much did you pay on Labour for Rice Production?
S/NO.
OPERATION
AM
FAMIL
Y
HIRED
AF
FAMIL
Y
HIRED
CH
FAMIL
Y
HIRED
TOTAL
FAMIL
Y
TOTAL
HIRED
(=N=) (=N=) (=N=) (=N=) (=N=) (=N=) (=N=) (=N=)
1. Land clearing
2. Ploughing
3. Ridging
4. Planting
5. First fertilizer application
6. Second fertilizer application
7. First weeding
8. Second weeding
9. Hand weeding
10. Harvesting
11. Processing threshing
winnowing bagging
12. Transportation
51
25 Please kindly complete the table below, the number people employed and the total
number of Man-day or Man-hours spent in each for operation.
Note: AM=Adult Male, AF=Adult Female, CH= Child
Table: How much did you pay on Labour for Yam Production?
S/NO.
OPERATION
AM
FAMIL
Y
HIRED
AF
FAMIL
Y
HIRED
CH
FAMIL
Y
HIRED
TOTAL
FAMIL
Y
TOTAL
HIRED
(=N=) (=N=) (=N=) (=N=) (=N=) (=N=) (=N=) (=N=)
1. Land clearing
2. Ploughing
3. Ridging
4. Planting
5. Stalking
6. First fertilizer application
7. Second fertilizer application
8. First weeding
9. Second weeding
10. Hand weeding
11. Harvesting
12.
Processing threshing
winnowing bagging
13. Transportation
52
26 Wage table for yam
27 Wage table for rice
28 Wage table for maize
29 The output of maize/rice
S/NO. Items Maize Rice
1. How many bags did you realized
after production?
2. How much did you sell a bag?
3. How many bags did you sell?
30. The output of yam
S/NO. Items Yam
1. How many tubers did you realize after harvest?
2. How much did you realize from the sale of 100 (1 korya”)?
3. How many “korya” did you sell?
53
SECTION C: Problem Facing Farmers
31. Which of the following do you think are the major problems facing Agricultural
Acquisition of loan in Chanchaga Local Government Area? (you can thick more than
one).
(a) Inadequate credit facilities [ ]
(b) High interest rate [ ]
(c) Pest and diseases [ ]
(d) Inadequate extension services [ ]
(e) Lack of storage and processing facilities [ ]
(f) Poor marketing systems [ ]
(g) Others …………………………………………………………………………..
…………………………………………………………………………
SECTION D: Solution to Problems
32. What solution will you recommend to tackle the problems identified above?
(a) …………………………………………………………………………………..
(b) …………………………………………………………………………………..
…………………………