The study was conducted in nine Local Government Areas selected from  Enugu State. Six five micro Credit Groups from each Area were randomly selected. This gave a total of forty-five (45) micro-credit groups. This was done using multi-stage sampling techniques. Sources of data were primary and secondary. Structured questioners were used to interview respondents to generate primary data while secondary data were sourced from relevant publications. Descriptive statistics and Ordinary Least Square Econometric techniques were used in data analysis. Majority of the group members, 31.4% belong to the age bracket of 40 – 49 years (middle age). Majority of the groups, 40% were composed of 10–15 individuals. Majority of the respondents, 64.4% travel about 200 meters to attend meetings. Factors determining repayment were homogeneity in gender, occupation, distance and residency as well as social cohesion. Based on the findings,  it was recommended that micro credit groups should be homogenous with respect to gender, members should be encouraged to attend group meetings which should be made to be regular in order to build strong social cohesion, and groups should be composed of individuals living close to each other in order to enjoy information advantage.


           Title page…    …    ……    …    ……    ……    …    …    …          ii

           Certification   page…    ……    …    …    ……    …    ……      iii

            Dedication page…    ……    …    ……    …    ……    …    ……      iv

           Acknowledgement …    …    ……    ……    …    …    ….          v

            Table of Content …    …    ……    …    …   …    …    …        ...           vi

            List of tables …    …    ……    …    ……    …    …         …         vii       

            Abstract   …    …    ……    …    ……    …    …      …         …        viii

CHAPTER ONE: INTRODUCTION ..    …    …    …    …    …       1   

    1.1    Background Information ...    …    …    …    …    …       …       3

    1.2    Statement of Problem      ...    …    …    …    …    …    …       3

    1.3    Objectives of the Study ...    …    …    …    …    …    …          5

    1.4    Study Hypotheses  ...    …    …    …    …    …    …           5

    1.5    Justification of the Study  ...    …    …    …    …       …       5   

CHAPTER TWO: LITERATURE REVIEW ...    …    …    …        …       7   

    2.1    Concept of Micro Credit ...    …    …    …    …    …    …       7

    2.2    Micro Credit Administration in Nigerian ...    …    …    …       9   

    2.3    Credit Arrangements – Group Lending ...    …    …    …             11

    2.3.1    Rotating Savings and Credit Associations ...    …    …    …      11   

    2.3.2    Group Based Micro Finance Programme ...    …    …    …       12

    2.4    Membership Homogeneity Concept ...    …    …    …                15

    2.5    Group Performance Indicators ...    …    …    …    …             18

    2.5.1    Meeting Regulating-Social Cohesion ...    …    …    …              19

    2.5.2    Savings Mobilization – Intra-group Risking Pooling ...    …              20

    2.5.3    Loan Repayment ...    …    …    …    …    …    …          21

    2.6    Conceptual and Theoretical Frame work ...…    …    …          22   

    2.7    The Model ...    …    …    …    …    …    …    …         25


    3.1     The Study Area ...    …    …    …    …    …    …        27

    3.2    Sampling Procedure …  ,…    …    …    …    …        28

    3.3    Data Collection ...    …    …    …    …    …    …        28

    3.4    Data Analysis ...    …    …    …    …    …    …        29

    3.4.1    Measurement of variables ...    …    …    …    …        29

CHAPTER FOUR : RESULTS AND DISCUSSION  …    …    …     …           32

4.1 Socio – Economic Characteristics of Group Members …               …               32

4.1.1    Age of Group Members …    …    …   …    …          ……       …        32

4.1.2    Gender…    …    …   …   …   …    …   …    …    …   …    …        32

4.1.3    Marital Status…    …    …   …    …          …   …    …        …        33

4.1.4    Education Qualification…    …   …    …          …   …    …  …    …        34

4.1.5    Occupation of Group Members…    …   …    …          …   ……    …        35

4.1.6    Family size…    …    …   …    …     …          …   …    …          …        35

4.2    GROUP FEATURES…    …    …   …    …          …   …     …        36

4.2.1    4.2.1 Age of Micro-credit groups…    ……   …    …          …   … …        36

4.2.2    Membership size of the group………   …    …          …   …    …            37

4.2.3    Gender Factor of the Groups……   …    …          …   …    .       ……        37

4.2.4    Mileage…   …    …          …   …    …          …   …    …       …               38

4.2.5    Social Cohesion…    …    …   …    …          …   …    …         …        38

4.2.6    Loan Repayment Rate…    …   …    …          …   …             …  …        39

4.2.7    Risk Pooling…     …   …    …          …   …    …          …        …  …         39

4.3.0    Homogeneity of Group Features …    …    …

4.4.1 Major Problems Encountered in Repayment of Group Loans                   …        43

Chapter Five  Summary and Comprehension        …   …    …      …          …            45

REFERENCES ...    …    …    …    …    …    …    …    …        48

APPENDIX       …                …                …                    …         …               51

List of tables

4.1    Frequency Distribution of Group Members Based on Age    32

4.2    Frequency Distribution of Group Members based on        Gender.    32

4.3    Frequency Distribution of Respondents According to their                    Marital Status    34

4.4     Frequency Distribution of Group Members According to their                    Educational Qualification    43

f 4.5     Distribution of Group Members According to their Occupation    35

4.6     Frequency Distribution of Respondents According to Family                      Size    35

4.7    Distribution of Micro-credit Groups Based on Age    36

4.8    Distribution of the Groups According to Size    37

4.9    Frequency Distribution of the Percentage of Women in the                   Groups    37

4.10    Distribution Of The Groups According To Mileage    38

4.11    Distribution Of The Groups According to their Social Cohesions     38

4.12    Distribution Of The Groups According to loan Repayment    39

4.13    Distribution Of The Groups According to their Risk Pooling    39

4.14    Distribution Of The Groups based on Certain Homogeneity Factors    40

4.15    Estimation of Effect of Membership Homogeneity on Social Cohesion     40

4.16    Estimation of Effect of Membership Homogeneity on Intra Risk Pooling    41

4.17    Estimation of Effect of Membership Homogeneity on Social Cohesion and Intra Risk pooling      42

4.18    Estimation of Effect of Membership Homogeneity on Loan Repayment    42

4.19    Problems of the Groups    44



1.1    Background Information

Agriculture in Nigeria, a developing economy, has suffered serious setbacks due to: under capitalization, poor credit disbursement procedures, inadequacy of credit institutions to cater for the needs of the teaming population of farmers and poor loan repayment possibilities among farmers (Ugo 1973, Oshontongun 1973).

Micro credit is about providing services to the poor who are traditionally not served by the conventional financial institutions (Upton, 1997). Credit agencies are frequently classified into two groups: formal and informal (Upton, 1997). Formal institutions include banks and co-operative credit unions, while the informal agencies include non-governmental organizations (NGOs), money lenders, friends, relatives and micro credit unions.

The formal financial system in Nigeria traditionally lend to medium and large entrepreneurs, which are judged to be creditworthy, and who can provide tangible collateral. They avoid doing business with the micro entrepreneurs and their micro enterprises because the associated cost and risk due to inability to provide collateral are considered to be relatively high (Anyanwu, 2004).

Informal credit institutions are characterized by flexible small operations and they operate mostly in a circumscribed area or a specific niche of the market. They tend to deliver personal services very close to the location of the borrower. They also tend to be non-bureaucratic and much more flexible in respect of loan purpose interest rates, collateral requirements, maturity periods and debt rescheduling (Ghatak and Guinnane, 1999).

Formal financial system in Nigeria despite the government intervention by providing a multiplicity of credit institutions over the years, have proven to be inefficient and costly in the provision of financial services to the micro entrepreneurs. However, several types of informal institutions have efficiently serviced a wide variety of micro credit entrepreneurs. Micro credit institutions are mainly, Self-Help-Group (SHGs) Rotating Savings and Credit Associations (ROSCAs) and Savings/Thrift Co-operative societies (Olomola, 2000).

Micro credit is one of the major tools used to extend credit with a view to alleviating poverty of many entrepreneurs in low-income countries. In an era of global economic liberalization, micro credit is widely viewed as an intervention that address important deficiencies of financial markets in terms of serving specific needs of the poor, by providing them with credit without collateral (Stigliz and Weiss, 1981). The provision of micro credit services improves the latent capacity of the poor for entrepreneurship, which enables them to be more self-reliant, increase in employment opportunities, enhance household income and create wealth.  

Many micro credit agencies have sought borrowers to work together in small peer groups and these peer groups are also required by the lenders to assume responsibility for the repayment of their members loan in time of default, consequently, future credits to all member (Soren, 2002). The joint liability systems employed by peer groups can improve financial sustainability, by inducing group members to use their mutual interest, familiarity and understanding in performing the following roles: screening of fellow borrowers to retain creditworthiness, monitoring their use of borrowed funds and pressuring them to repay as well as providing mutual insurance (Ghatak, 1999).

The formal credit lending institutions always insist on collateral for the disbursement of loans. However, the German Bank experience demonstrated that collateral requirement should not be a limiting factor to accessing credit by small holder farmers. Instead, substitutes such as group lending can be used (Hossain, 1988). Group lending involves administration of credit among group whose individuals differ in character and reaction, but possess a common interest of benefiting from the group (Hulme and Mosley, 1996). In countries such as Bangladesh, Thailand and Malawi, where groups lending thrived very well, the key determinants of the success were homogeneity especially with respect to group social cohesion, intra-group risk pooling and repayment performance (Huppi and Feder, 1989).

The nature of membership composition is thus important for improved performance of groups, not only in terms of repayment, but also in terms of savings mobilization and building up social cohesion through attendance at regular meeting (Mkpado, 2006).

Group(s) tend to be more successful when members share one or several socio-economic conditions, and are therefore relatively homogenous. Devereux and Fishe (1993) wrote that in the formation of membership group, some members may misrepresent their economic status, claiming what they are not, thereby resulting in the formation of a group with non-homogenous members. Consequently, the potential for default or delinquency is high and the chance that the group will remain together over time becomes remote. Group homogeneity is therefore a group quality, highly valued by members themselves (Mahmud, 2001). Consequently, group homogeneity has the greatest potential for influencing outcome at the individual member level. This makes sense because the probability of members behaving in conformity with group objectives is likely to be greater in a homogenous group where individual members have similar interests and share similar problems.

1.2    Statement of the Problem

    In Nigeria, Government interventions through a multiplicity of credit institutions over the years has not resulted in significant improvement in rural financial intermediation. Loan able funds from government sources, have dwindled considerably. The cost of borrowing has increased tremendously and the financial outlay for business enterprises has multiplied several folds irrespective of the scale of operation due to inflation bites. The private sector, consequently is bracing up for the challenges through the formation of finance groups (FGs) and the participation of Non-Governmental Organizations (NGOs) including donor agencies (Olomola, 2002).

    Over the years, government have attempted to circumvent the inadequacies of the informal sources of fund to small scale entrepreneurs, especially the farmers who are the primary producers in every economy, by creating certain formal financial institutions. Though these institutions have been blamed and accused of inefficiency in meeting up with  the demand of the small holders, some of the factors that has hindered the financial institutions from performing up to expectation, have been emphasized by Ohaka (2005),  in his observation he lamented over the attitude of local farmers to institutional credit as one of the factors. He remarked that they regard such credit as a share of the ‘National cake/Bounties”.

    Organizations are recently placing much emphasis on the group approach in extending credit to the low-income producers, (Olomola, 2002). Nevertheless, the expectation that the approach will eliminate or mitigate the problems of loan delinquency/default has not materialized, and to date a large number of small scale entrepreneurs have no access to credit. This raises the question as to whether the existing finance group (FGs) holds some potential in terms of engendering improved repayment performance. Specifically, to what extent does this potential depend on homogeneity of micro credit groups?

    The inability of some loan beneficiaries to repay their loan makes it impossible for the lenders to meet the demands of their clients that are genuinely in need. So for efficient working of the credit system it is important that default in repayment is as low as possible, because viability of the agencies is highly dependent on the amount of loan recovered. Thus the main aim of this research work, is focused on the performance of group members which is measured by group social cohesion, intra-group  risk pooling and loan repayment rate.

    Homogeneity of groups has been shown as an important element of high repayment rates (Devereux and Fishe, 1993). Using the example of small farmers Development Programme in Nepal, they suggested that groups homogeneity helps to reduce the potential for cross-subsidizing between groups. They further noted that if groups are organized with non-homogeneity members, then the potential for default/delinquency will be high and the chances that the group will remain together over time will be low. Studies of homogeneity still report different facts on effects of homogeneity on performance. For instance, Okeke (2006) reported that homogeneity in age and genders have not affected loan repayment in South eastern Nigeria.

    However, the importance of homogeneity in explaining the results of collective action probably differs according to the factor(s) under consideration. Some researchers also question whether the success of group based credit repayment is actually, due to homogeneity in membership or to the other features of the group (Jain, 1996). Consequently, the study aims at establishing or refuting the position of membership of homogeneity on the performance of micro credit groups.

1.3    Objectives of the Study

    The broad objective of the study is to examine the effects of membership homogeneity on the performance of Agricultural micro credit groups in Enugu State of Nigeria.

The specific objectives are to:

i.    describe the socio-economic characteristics of the groups with respect to   age, gender, literacy, occupation, ethnicity and residency

ii.       describe the characteristics of the groups on the basis of  homogeneity  or otherwise heterogeneity.

iii.    determine the effects of membership homogeneity on social cohesion,

iv.    determine the effects of membership homogeneity on intra-group risk pooling;

v.    determine the effects of membership homogeneity on loan payment;

vi.    analyse the effects of social cohesion and intra-group risk pooling on loan repayment.

vii.    identify the various problems of agricultural micro credit group administration in the state; and

viii.    make recommendations based on results.

1.4    Study Hypothesis

The null hypotheses to be tested are;

i    Membership homogeneity has no significant effect on social cohesion.

ii    Membership homogeneity has no significant effect on intra-group risk pooling.

iii    Membership homogeneity has no significant effect on loan repayment.

iv    Social cohesion and intra-group risk pooling have no significant effect on loan repayment.

1.5    Justification of the Study

    The nature of membership composition is crucial for improved performance of groups, not only in terms of homogeneity, but also in terms of inherent social capital, which can be of great benefit to both lenders and borrowers (Olomola, 2002). It is therefore possible to employ the concept of social capital to enhance the understanding of the performance of the micro credit groups on the basis of the available social homogeneous characteristics.

    The capacity to enforce rules in groups where members are homogenous is higher, than in groups with membership heterogeneity (Olomola, 2002). Such characteristics which can enhance trust building include regularity of operations, religion, membership of the same community, belonging to the same ethnic group, cultural affinity, common neighbourhood and consanguinity. These factors can strengthen the social cohesion and moral bands required for effective enforcement of the loan contractual agreement.

    A high degree of connection is appropriate to lead to better peer monitoring and lower faults rate. Groups with such characteristics can be said to posses high endowment of social integration which constitutes an important source of social capital, which enhances their access to micro credit.

    The more homogeneous the group members are the more intensive the social ties and the trust within the groups, and the higher is the groups endowment of social capital (Woolcock, 1998). Consequently, the need for the study of the effect of membership homogeneity on social  cohesion, intra-group risk pooling and loan repayment among agricultural micro credit groups in Enugu state of Nigeria, to examine the effect and nature of membership composition which is important for effective performance of groups.

    This study will be of benefit to both the federal and state ministries of agriculture and also to the Federal and state Governments in the formulation of credit policies and programmes that is group oriented as it will encourage finance and policy makers in formulating policies on how to improve access and repayment of loan in the study area. The study will also present a plat form for groups formation for improved performance. Other groups to benefit are the (NGOs), and private participants in micro credit business.




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