Journal of Rural Res. & Information (Vol.5; No.

2:2011)

Adekunmi and Adisa

DETERMINING THE INFLUENCE OF CREDIT VARIABLE ON UTILIZATION OF UNITED NATIONS DEVELOPMENT PROGRAMMES MICROCREDIT SCHEME IN RURAL AREAS OF OSUN STATE, NIGERIA. ADEKUNMI A.O AND B.O ADISA Department of Agricultural Extension and Rural Development, Faculty of Agriculture, Obafemi Awolowo University, Ile-Ife. E-mail: Banjiolalere @yahoo.com. ABSTRACT The study was conducted to determine the influence of credit related variables of UNDP micro credit scheme on employment generation activities in rural areas of Osun State, Nigeria. A multistage sampling procedure was used to select the 88 beneficiaries involved in these studies. The data was collected through a pre-tested and validated structured interview schedule. The data collected were described using frequency count, percentages and mean while inferences were drawn using correlation analyses to draw inferences between dependent variable and independent variables. It was found that all the beneficiaries (100%) acquired loan from UNDP and personal saving was used to argument the major source. It was found also that the amount disbursed through the scheme was low with 93.2 percent obtained loan less than N80, 000. About 44.3 percent utilize the loan on form produce marketing while 19.3 percent used the loan on simple agro- processing. Also 38.6 percent each utilized the loan on small scale business and farming. Majority of the beneficiaries (47.7%, 33.%) were satisfied to agree extent, some extent, some extent monitoring strategies respectively There was significant relationship between the credit limit and effect of the scheme on employment generation at p < s 0.01 It was concluded that credit facility is very essential in enhancing employment generation. It was recommended that more funds should be released through the scheme to the beneficiaries to facilities employment generation. Adequate and appropriate training programmes should be organized to improve the skills of beneficiaries in different enterprises. All barriers hindering acquisition of micro loans should be removed. Keywords Influence, Micro credit, beneficiary, employment generation INTRODUCTION Micro-credit is the name given to small loans for poor people, who are regarded as bad financial risks by conventional banks. According to the Central Bank of Nigeria (2001) microcredit is the provision of credit services to those who are not traditionally served by the conventional financial institutions. It could thus be defined as the provision of small loans that are repaid within a short period of time to those that lack collaterals. The major purpose of micro-credit is to build up capacities for wealth creation among enterprising poor and to provide sustainable sources of livelihood to rural dwellers. It gives poor people access to credit from a diversity of micro financial institutions. They need to exploit income earning opportunities to meet necessities of life, cope with emergencies such as natural disasters and protect them from further impoverishment during economic stress. It has been observed by Rutherford in 2002 that the formal credit institutions, have not been supportive in meeting credit needs of self-employed persons due to their stringent loan terms and conditions, cum cumbersome loan application procedures. These formal institutional arrangements have constituted a major barrier to the growth of small scale enterprises which generate employment. Since they cannot meet the knife-edge conditions, they are often considered not credit-worthy.
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Journal of Rural Res. & Information (Vol.5; No.2:2011)

Adekunmi and Adisa

Consequently, successive Nigeria governments have evolved strategies to address the diverse need of the rural poor. One of the strategies is the practice of micro-credit which dated back several years in Nigeria. From time immemorial, there have been traditional micro-credit providers such as esusu ajo savings collection and traditional cooperative societies. These are informal self-help groups which provided credit to low income earners. In order to consolidate the efforts of such informal credit providers and also to enhance the flow of financial services to the rural areas, the government at various levels initiated series of credit programmes. Such efforts culminated into policies and programmes such as National Directorate of Employment (NDE), Directorate of Food Roads and Rural Infrastructure (DFRRI), Better Life for Rural Women / Family Support Programme and Family Economic Advancement Programme (FEAP) among others. Non - governmental Organizations (NGOs) and even International agencies in the same vein have designed policies/programme/scheme to assist the poor in developing countries like Nigeria. The United Nations Development Programmes micro-credit scheme was designed to help the under priviledged and marginalized poor to have access to credit to develop and finance productive income generating activities. Availability of micro-credit and the establishment of micro-finance institutions are on the increase in Nigeria (Anyanwu 2004). The beneficiaries of the United Nations Development Programmes micro-credit scheme have access to loan facilities through these micro-finance institutions. Anyanwu (2000) asserted that inadequate employment opportunities for the teeming population in spite of the available abundant resources has been a major problem in Nigeria. People dwelling in Nigeria rural areas have little access to credit as the financial institutions tightened up their conditions and this makes economic investment almost impossible. Traditionally financial institutions tend to medium and large scale enterprises which are judged to be creditworthy. In his own contribution, Khandker (1998) observed that the lack of savings and capital makes it difficult for many poor people to become self-employed and to undertake productive employment generating activities. consequently, the informal sectors contributions remain small due to inaccessibility to credit (Ademu, 2006). Lack of practical skills in trainings that could enhance self-employment by the vast majority of the Nigeria populace has also been identified as one of the causes of high level of unemployment in Nigeria. The Nigerian rural sector is characterized with low productivity, poor production techniques, low investment, infrastructural inadequacies (Rahji, 1990). In order to assist low income people in developing countries like Nigeria a number of development agencies have launched micro-credit programmes for the rural poor in Nigeria in general and Osun State in particular. The United Nations Development programme (UNDP) launched micro-credit programme in Osun State in 2003 as an international agency, UNDP is using its Credit Scheme as a poverty alleviation tool by providing small loans through microfinance institutions (MFIS) for employment generation, UNDP used group-based approach for delivering small loans. Loans were disbursed through groups to individuals members for productive purposes only. The credit programme of UNDP allows beneficiaries to access credit facility to meet their basic needs effectively. After operating to more than eight(8) years, the question that comes to mind is to what uses were the credit facilities given to the beneficiaries put? To answer the question, the present study was designed to determine the utilization of micro-credit provided by UNDP to the beneficiaries of Osun State, Nigeria. Also, to determine the amount and frequency of loan disbursed, as well the level of satisfaction of some UNDP micro-credit-related variables, analysed the relationship between UNDP micro-credit variables and employment generation. Hypothesis: There is no significant relationship between UNDP micro-credit-related variables and employment generation in the study area.
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Journal of Rural Res. & Information (Vol.5; No.2:2011)

Adekunmi and Adisa

METHODOLOGY The study was conducted in Osun State in South Western Nigeria. A multi-stage sampling procedures was used to select the respondents for the study. At the first stage, all the six administrative zones were selected for the study, at the second stage, one local government Area was randomly sampled from each of the six administrative zones and at the third stage, one group of beneficiaries of the scheme from each local government Area selected was randomly taken for the study. At the final stage, a systematic sampling technique was used to select 50 percent of UNDP micro-credit beneficiaries from each of the groups selected using group registers as sampling frame. In all eighty eight beneficiaries were involved in these theory. Data collection was done using pre-tested and validated interview schedule administered on the selected beneficiaries of the credit scheme. Data collected were analyzed using descriptive statistics such as frequency, percentage and mean scores while correlation analysis was used to make inferential deductions. RESULTS AND DISCUSSION Credit Variables i. Sources of credit: Distribution of respondents according to the sources of credit available to them are presented in Table I. it was found that all the beneficiaries of the scheme (100.0%) had their main source of credit from UNDP micro-credit scheme. Other sources of credit acquisition were not viable and regular as UNDP micro-credit loan. The other sources referred to here were: personal savings and credit facilities from friends and relatives as claimed by 99.6 percent and 40.9 percent respectively. It was found also that most of the respondents were favorably disposed to taking UNDP micro-credit loan facilities simply because the loan was devoid of stringent conditions. The procedure for loan acquisition was also not cumbersome compacted to other sources such as banks money lenders. This finding supports the findings of Bagachiva and Stewart, (1992) who asserted that Microfinance schemes with assistance from Non-government organizations and donors have proven useful in increasing access to credit. Amount of loans obtained: Distribution of respondents according to the amount of loan received is given in Table II. It was found that 35.2 percent of the beneficiaries took a loan of between N20,000 and N40,000 while 22.7 percent of the beneficiaries took a loan of between N41,000 and N60,000 between 2005 and 2008 which is the period review study. Only 31.8 percent of the beneficiaries took a loan of between N61,000 and N80,000. The findings suggest that beneficiaries were given small amount of loan. The smallness of loans obtained by the beneficiaries might be due to the fact that beneficiaries of the scheme were low income earners. Frequency of loan acquisition: Results in Table II show that slightly above half (51.1%) obtained loans in more than four times during the period under study. The differences in the number of times the beneficiaries had access to loans from UNDP micro-credit scheme might be due to difference in membership strengths of different UNDP micro-credit groups and probably delay in loan repayment by some beneficiaries of the scheme. Mode of loan disbursement: The main mode of loan disbursement of UNDP micro-credit loan as reveled in table 2 was through cash by the micro-finance institutions via group officers of each of the beneficiaries of the scheme. It was found that the difference in the mode of disbursement was due to differences in the leadership styles of these groups. Also the main mode of loan repayment was through cash to group officers as claimed by 99.3 percent of the beneficiaries.
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Journal of Rural Res. & Information (Vol.5; No.2:2011)

Adekunmi and Adisa

Membership requirement for loan acquisition: The strongest requirement for loan acquisition as reflected in Table III was credit worthiness. This implies that members who qualified for loans were those who were credits worthy. i.e. having financial capabilities to pay back loans obtained. Other major requirements are payment of precious loan as claimed by 79.5 percent and regular meeting attendance as claimed by 46.6 percent. Rate of defaults: Results in table III shows rates of defaults by the beneficiaries of the schemes. More than half of the beneficiaries (56.8%) did not default during the period under review while 40.9 percent defaulted just one time only 2.3 percent failed to pay back as scheduled twice.The findings show that the rates of defaults of the beneficiaries of the scheme were not high. This means that beneficiaries of the scheme were not high. This means that beneficiaries of the loans paid fairly as at when due probably through other source. This corroborates the finding of Rahman (1999) that the promote and regular repayment of loan installment has largely occurred through cross financing from other informal sources of credit. The reasons for defaults are also shown in Table III. About 15.9 percent advanced business failure as a reason while untimely disbursement of loan was the reason of 29.5 percent of the beneficiaries. Underpayment of loan repayment was the reason given by 34.1 percent of the beneficiation while 11.4 percent of the beneficiaries loan diversion for other social activities such as burial, ceremonies . The results in Table IV show the various monitoring strategies used on beneficiaries of UNP micro credit loans. More than half of the respondents (53.4%) indicated that visits to project sites was a strategy others are direct purchase needed items for of beneficiaries (10.2%), holding grantors responsible or reliable for defaults (13.6%), and regular meetings with Mf/s and group officers (13.6%) The findings agreed with madajec, (1999) who stressed that as the group members may incite the borrower to undergo a project similar to the members project such project would indeed be easier to monitor and limit deviation from the groups mean default probability. Results in Table IV show different economic activities embarked upon by the beneficiaries of UNDP micro credit loans. About 38.6percent used UNDP micro- credit loans on farming while 38.6 percent used UNDP micro- credit loans on farming while 38.6 percent used the loans on farming while 38.6 percent used the loans on trading /small scale business other uses to which the loans were put are simple agro- processing (19.3%) and marketing of farm produce (44.3%). The findings indicated that beneficiaries preferred to utilize loans given to them through UNDP to embark on economic activities that would UNDP to embark on economic activities includes simple agro-processing marketing of form produce, trading and small scale businesses. The results indicate that most of the credit was utilized for useful purpose by the respondents. On seminar /workshop programmes attended by the beneficiaries of the scheme.The result in table V indicated that majority (87.5%) attended training programme where they were taught ho to image credit. Other workshops attended by the beneficiaries were on crop processing (16.0%) entrepreneurship skill development (15.0%) small business enterprises skill development (15.0%), small business enterprises (53.4%) and leadership training programme (12.5%) small business enterprises (53.4%) and leadership training programme (12.5%). The finding shows that UNDP micro- credit scheme employed non-credit assistance in the administration of the scheme. Non credit assistance or credit plus approach means other assistance given to the beneficiaries others than credit that will facilities judicious use of the
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Journal of Rural Res. & Information (Vol.5; No.2:2011)

Adekunmi and Adisa

credit that will facilitate judicious use of the credit facilities given. Utilization of loan in different economic activities. Level of satisfaction of respondent on UNDP micro-credit related variable: The results in Table VI shows that many of the beneficiaries were satisfied with the loan monitoring strategies with 47.7 percent satisfied to a great extent and 33.0 percent to some extent. Large proportion of beneficiaries (48.9%) was not satisfied with the procedure for repayment of credit. This may be due to the short duration of the loan and the smallness of the amount granted as loan to beneficiaries. Considering the economic situation in the country, the amount of twenty to forty thousand can not do much in assisting people to set up their own business at sustainable level. It is worth noting that the loan were disbursed without much delay in order to encourage timely utilization of the credit facilities. Test of Hypothesis: There is no significant relationship between some selected credit-related variables and the effect of UNDP micro-credit scheme on employment generation. The result in Table VII show that the credit size or the amount of loan taken at a time by the beneficiaries had positive and significant relationship with the effect of the scheme on employment generation with (r=0.183) at P < 0.01. this may be interpreted to mean that the higher the amount and frequency of loans granted and taken at a time, the more positive the effect of the scheme on employment generation. Also, the use to which the loans were put had significant but negative relationship (r = -0.203) at P < 0.01 with the effect of the scheme on employment generation. This implies that the higher the amount of loan given to the beneficiaries, the more the number of uses to which these loans will be put. Conclusion and Recommendations From the results of this study, it can be concluded that credit facility is very essential in enhancing employment generation. It has a positive significant effect on the beneficiaries welfare. The beneficiaries of UNDP micro-credit scheme used the loans given to them to embark on income generating activities thereby providing additional employment opportunities through the provision of the revolving loan. It is therefore recommended that more funds should be released through the scheme to the beneficiaries to facilitate the enhancement of more employment opportunities, Adequate and appropriate training programmes should be organized for the beneficiaries and this will improve their skills in different enterprises. REFERENCES Ademu, W.A (2006) The informal sector and employment generation in Nigeria: The role of credit NES 2006 Annual conference. Anyanwu J.C. (2004). Poverty in Nigeria: concepts, Measurements and Determinants poverty alleviation in Nigeria. Selected Papers for the 2004 Annual conference of the Nigeria Economic Society pp. 93-120. Bagachwa, M. and T. Stewart (1992): Rural Industries and Rural linkages in Sub-Saharan Africa. A survey in F. Stewart, S. Lall and S. Wangwe. Eds. Alternative Development Strategies for Sub-Saharan Africa. London Macmillan. Buthe, T, 2000. Banker to the poor: Micro lending and the battle against world poverty. J. int. Affairs. 53:741. Columbia University of International Public Affairs.
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Journal of Rural Res. & Information (Vol.5; No.2:2011)

Adekunmi and Adisa

Central Bank of Nigeria (2001): Nigeria Agricultural Credit System. Analysis of operation and performance. Report of the National Agricultural Credit Study team Vol. 1: Macroeconomic analysis and Recommendations. Government of Pakistan, 2005. Economic Survey of Pakistan, Economic Wing Finance Division, Islamabad Pakistan. Khandker, SR (1998) Micro-credit programme evaluation. A critical review IDS Bulletin 29(4). Madajewicz, M. (1999). Capital for the poor: The effect of wealth on the optimal credit contact. Mimeo Columbia University, New York.. Rahji, M.A.Y. (1999) Dimensions of Rural Poverty and Food Self Sufficiency Gap in Nigeria in Fabiyi, Y.L. Food security in Nigeria NAAE, Ibadan NAAE, pp. 33-37. Rahman A. (1999). Micro-credit initiatives for equitable and sustainable development: World Development, 27 (1) January pp. 67 82. Rutherford S. (2002): The poor and their money, Oxford University Press, London, UK.

Table I: Distribution of respondents according to sources of credit acquisition n=88 Sources Frequency Percentage Personal savings 85 96.6 Banks 2 2.2 Money lenders 1 0.9 Esusu 15 17.0 Government 1 0.9 UNDPMCS 8 100.0 Other means 36 40.9 Multiple responses were given Sources: Field Survey, 2011.

Table II: Distribution of respondents according to amount of credit acquired frequency and mode of disbursement. n = 88 Amount acquired < N20,000 Between N20,000 N40,000 N41,000- N60,000 N61,000 N80,000 Frequency 3 31 20 28
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Percentage 3.4 35.2 22.7 31.8

Journal of Rural Res. & Information (Vol.5; No.2:2011) >N80,000 Total Frequency of credit acquired. Less than 2 times Between 2 and 4 times More than 4 times Total Mode of disbursement of UNDP micro-credit loan. Through cash Through cheque In kind (through direct purchase of items) Total Sources: Field Survey, 2011. 06 88 03 41 45 88 86 1 1 88

Adekunmi and Adisa 6.8 100.0 3.4 46.5 51.1 100.0 98.0 1.0 1.0 100.0

Table III: Distribution of respondents according to membership requirements for loan acquisition rate and reason for default. n = 88 Membership requirement Frequency Percentage Regularly meeting attendance 41 46.6 Complete payment of previous loans 70 79.5 Six months membership 09 10.2 Credit worthiness 79 89.8 Rates of defaults None 50 56.8 One time 36 40.9 Twice 02 2.3 Total 88 100.0 Reasons for defaults Business failure 14 15.9 Untimely disbursement of loan 26 29.5 Underpayment of loan 30 34.1 Loan diversion 10 11.4 Sickness and or unforeseen 8.0 9.1 circumstances Total 88 100.0 Multiple responses were given Sources: Field Survey, 2011. Table IV: Distribution of respondents according to their utilization of loan and loan monitoring strategies. n = 88 Economic activities Frequency Percentage Farming 34 38.6 Trading / small scale businesses 34 38.6 Simple agro-processing 17 19.3 Marketing of farm produce 39 44.3 Loan monitoring strategies
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Journal of Rural Res. & Information (Vol.5; No.2:2011) Keeping personal records of beneficiaries Visits the project sites before loans were granted Direct purchase of items Holding guarantors liable for defaults Regular meeting with MFIS and group officers Total Multiple responses were given Sources: Field Survey, 2011. 47 29 09 12 12 88

Adekunmi and Adisa 53.4 33.0 10.2 13.6 13.6 100.0

Table V: Distribution of respondents according to the seminar / workshop attended by the beneficiaries. n = 88 Membership requirement Frequency Percentage Crop/food processing 14 16.0 Entrepreneurship skill development 13 15.0 Credit management 77 87.4 Small scale business enterprises 47 53.4 Leadership training programme 11 12.5 Multiple responses were given Sources: Field Survey, 2011. Table VI: Distribution of respondents according to their level of satisfaction of some selected credit-related variables of UNDPMCS. n = 88 Variables Level of satisfaction To great extent To some extent Not at all No % No % No % Amount of loan 24 27.2 23 26.1 41 46.6 Frequency of loan disbursed 19 21.6 30 34.1 39 44.3 Loan monitoring strategies 42 47.7 29 33.0 17 19.3 Procedure for disbursement of credit 35 39.8 19 21.6 34 38.6 Procedure for repayment of credit 19 21.6 26 29.5 43 48.9 Seminar/training programme 29 33.0 28 31.8 31 35.2 organized Sources: Field Survey, 2011.

Table VII: Correlation analysis linear relationship between credit-related variables and effect of UNDP micro-credit scheme on employment generation. n = 88 Micro-credit variables Correlation coCo-efficient of efficient (r) determination (r2) Frequency of loan disbursement -0.023 0.0005 Size of credit (amount) 0.183** 0.0335 Cost of processing loan -0.003 0.000009
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Journal of Rural Res. & Information (Vol.5; No.2:2011) Number of loan usage Number of strategies for monitoring loan Training/seminar programmes organized ** Significant at P < 0.01 * Significant at P < 0.05 Sources: Field Survey, 2011. -0.203** 0.063 -0.018

Adekunmi and Adisa 0.0412 0.0039 0.00032

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