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International Journal of Agricultural Science and Research (IJASR) ISSN 2250-0057 Vol.

3, Issue 4, Oct 2013, 11-24 TJPRC Pvt. Ltd.

COMPARATIVE STUDY OF CREDIT USE AND REPAYMENT RATES OF GROUPS AND INDIVIDUAL FARMER-CLIENTS OF MICROFINANCE INSTITUTIONS (MFIs) IN ENUGU STATE, NIGERIA
OMEJE CHIZOBA MODESTER & AGBO, FESTUS UGWOKE Department of Agricultural Economics, University of Nigeria, Nsukka, Nigeria

ABSTRACT
This study compares credit use and repayment rates of groups and individual farmer-clients of MFIs in Enugu State, Nigeria. The study is a contribution to the ongoing debate in microfinance circles with respect to the most appropriate way to channel microfinance to end users. A total of 62 individual and 36 group farmer-clients were used for the study. The objectives of the study were (1) to compare the repayment performance of group and individual clients of MFIs; (2) to examine the effects of credit use on the farm output of group and individual farmers that benefitted from microfinance intervention, and (3) to identify problems faced by group and individual farmer-clients of MFIs. The analytical techniques used were multiple regression and factor analysis. Levenes test for equality of means was used to gauge if the mean values of repayment rates for groups and individual farmers differed significantly. From the results of the study group clients performed better in both repayment rate and credit use. Problems identified included lateness in loan disbursement, high interest rates, high administrative charges, lack of collateral and cumbersome loan processing procedures. It can therefore be concluded that insistence on farmers accessing microfinance facilities through their groups is still a superior option.

KEYWORDS: Credit Use, Repayment Rates, Delivery Options, Microfinance Access INTRODUCTION
The dismal performance of the conventional finance sources triggered the advocation for microfinancing. Since its emergence, the number of microfinance institutions has proliferated at a fast pace after the 1970s. Today there are more than 700 micro-lending organizations providing loans to more than 25 million poor individuals around the globe (Mohammed and Hassan, 2008). The Nigerian microfinance industry has come a long way. It boasts of the entire four well-known models in the industry. A Central Bank of Nigeria (CBN) study identified as of 2001, 160 registered MFIs in Nigeria with aggregate savings worth 99.4 million and outstanding credit of 649.6 million indicating huge business transactions in the sector (Anyawu, 2004). With a population of well over 150 million and two-thirds of this population categorized as poor, Nigeria has the third highest number of poor people in the world (UNDP, 2007). Most of these poor people are dependent on micro and small scale farm and off-farm enterprises to the extent that about 90% of Nigerias businesses are considered as microenterprises. These farm or non-farm microenterprises serve as the main income source for the majority of Nigerian citizens (CBN, 2005). A lot of studies have been carried out on the impact of microfinance on poverty alleviation. For example, Khandker (2005) found positive effects of microfinance on poverty alleviation indicating that between 1991/92 and 1998/98 microfinancing caused moderate poverty to decline by 17% in Bangladesh. MkNelly and Christopher (1992)

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Omeje Chizoba Modester & Agbo, Festus Ugwoke

found the same trend in Bolivia where 67% of programme participants agreed that access to microfinance increased their income. The same trend was also found in Ghana where clients of lower Pra Rural Bank Credit agreed that their incomes increased by 36 dollars over and above 18 dollars increase for non-clients per month (MkNelly and Christopher, 1999). Girabi and Nwakage (2013) developed a conceptual framework for microfinance and agricultural productivity (Figure 1) where farmers with access to microfinance were compared with those without. It was projected that credit use would impact positively on farmers output and subsequently their incomes. The framework presumed that farmers with access were likely to have better access to markets, pay for transportation, buy improved farm inputs, use superior technology thereby increasing their farm yields per hectare.

Source: Girabi and Nwakege (2013) Figure 1: Conceptual Framework for Influence of Microcredit on Agricultural Productivity Although the conceptual framework advanced by Girabi and Nwakege (2013) appears to be generally true it does not foreclose the need for empirical case by case evidence on the impact of microfinance on agricultural productivity in rural areas where majority of the low income and subsistence farmers operate. One critical issue in microfinance is loan repayment. Failure of farmers to repay loans obtained from MFIs on time or not repaying them at all is a serious problem facing microfinance schemes and institutions in developing countries (Osuntogun and Olidimu, 1980). Poor loan recovery has been attributed to interest rate problems, inadequate volume of loan, loan diversion as well as unprofitable investments (Njoku and Obasi, 1991). In Nigeria, several factors have been identified to influence loan repayment to include improper or inadequate loan supervision, poor assessment of borrowers creditworthiness and factors outside the borrowers control like natural hazards (Oladebo and Oladebo, 2008). Nawai and Shariff (2010) categorized the factors that affect repayment performance of MFIs into four namely individual/borrowers factors, firm factors, loan factors and institutional factors. The individual/borrower factors include educational level, gender, business experience and monthly income (Eze & Ibekwe, 2007; Papias & Ganesan, 2009; Rinke, 1998; and Nannyonga, 2000). MFI factors include transaction costs, regular monitoring and threat imposed by the lenders (Batt & Tang, 2000; Zeller, 1998; Arsyad, 2006; Olomola, 2000; Oke et al., 2007). Loan characteristics/factors include amount of loan (loan size), repayment method and repayment period (Roslan & Zaini, 2009; Sharma & Zeller, 1997, Arene, 1992; Eze & Ibekwe, 2007). Firm characteristics/factors include non-financial services like training, basic literacy and health services (Godquin, 2004; Roslan & Mohd Zaini, 2009).

Comparative Study of Credit Use and Repayment Rates of Groups and Individual Farmer-Clients of Microfinance Institutions (MFIs) in Enugu State, Nigeria

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Several studies (Greenbaum et al., 1991; Hoque, 2000; Coyle, 2000; Ozdemir & Boran, 2004) show that when a loan is not repaid, it may be as a result of the borrowers unwillingness and/ inability to repay. Stiglitz and Weiss (1981) recommend that MFIs should screen the borrowers and select the good borrowers from the bad borrowers and monitor the borrowers to make sure that they use the loan for the intended purpose. The causes of non-repayment could also be as a result of inherent characteristics of borrowers and their businesses that make it unlikely that the loan would be repaid, the characteristics of lending institutions and the suitability of the loan product to the borrower and the systemic risk from the external factors such as the economic, business and political environment within which the borrower operates (Derban et al., 2005). Three leading elements have been found to enhance loan repayment namely: the demand for and use of nonconventional collateral, a screening procedure which combines new with traditional elements in conjunction with dynamic incentives coupled with the threat to terminate loan at anytime evidence of default is noticed (Vigenina & Kritiko, 2004). According to Roslan et al. (2007) close and informal relationship between MFIs and borrowers may help in monitoring and early detection of problems that might lead to non-payment of loans. Another factor that brightens the prospects of loan repayment is the ability of various agencies involved in MFI loan delivery to cooperate with one another and coordinate their activities in such a way that additional support is made available to MFI loan beneficiaries to enable them repay as and when due. A study carried out in India (Field and Pande, 2006) concludes that to improve repayment performance most microfinance contracts require that repayments start nearly immediately after loan disbursement and occur weekly thereafter. Even though economic theory suggests that a more flexible repayment schedule would benefit clients and potentially improve their repayment capacity, microfinance practitioners believe that fiscal discipline imposed by frequent repayment is critical to preventing loan default. Another factor that was found to improve repayment rate in the India study was the number of alternative credit sources available to the borrowers. Borrowers tend to be more steadfast in repayment when sources of MFI loans are very limited. Most of the studies already cited in this paper have dwelt majorly on factors affecting repayments of MFI loans and how to improve repayment rates but not many considered the difference in repayment rates between group and individual clients of MFIs. Available studies like Mkpado (2005) dwelt on the effects of group design characteristics on repayment performance. That of Chukwuone and Agwu (2005) was gender specific when it considered credit use and repayment performance of group and non-group women farmers under the community banking system in Enugu State, Nigeria. There is, therefore, the need to compare, without recourse to gender credit use and repayment performance of group and individual clients of MFIs to add to the existing body of literature on the credit services of MFIs. To do this three questions become pertinent: (1) what effects do credit use have on the output of groups and individual farmer-clients of MFIs (2) does repayment rate of farmer groups differ from those of the individuals and (3) what are the problems that constrain group and individual clients of MFIs from making adequate use of MFI loans as well as repayment of MFI loan. To answer the above questions this paper is set out to achieve three specific objectives namely to: Examine the repayment performance of groups and individual farmer-clients in the study area; Examine the effects of credit use on farm output of group and individual farmer-clients, and Identify the problems faced by both group and individual farmer-clients of MFIs.

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Omeje Chizoba Modester & Agbo, Festus Ugwoke

RESEARCH METHODOLOGY
The Study Area The study was carried out in Enugu State. The state which is one of the 36 states that make of up the Federal Republic of Nigeria is located between latitudes 5 056' and 7006'N and longitudes 6053' and 7055' (Nwafor, 2004). The state occupies an area of about 12,831 km2 with a population of 3,257,289 persons (NPC, 2007). The predominant agricultural practices of the area are crop farming and animal husbandry. Major crops grown are roots and tubers as well as grains and cereals. The livestock production enterprises are predominantly poultry, sheep and goats as well as piggery. For purposes of administration the state is divided into three agricultural zones namely Enugu zone comprising of five local government areas (LGAs), Agwu zone comprising of six LGAs and Nsukka zone comprising also of six LGAs. Sampling Procedure Two out of the three agricultural zones, namely Enugu and Nsukka agricultural zones, were randomly selected for the study. The MFIs targeted were microfinance banks and microfinance NGOs. Ten microfinance banks, five from each of the two agricultural zones, were randomly selected out of a total of twenty five in the two zones. One microfinance NGO was selected from each zone namely Lift Above Poverty Organisation (LAPO) for Enugu zone and Nsukka Amalgamated Livestock Traders Nsukka United Self Help Organisations (NALT-NUSHO) for Nsukka zone. The two microfinance NGOs were purposively selected due to their strategic and extensive outreach in the respective zones. Respondents were selected on the basis of proportionate random sampling. Because of the predominance of individual clients 62 out of 300 individual clients, identified in the two zones during a preliminary survey, were randomly selected for the study. In the same way 36 out of 167 group clients were also randomly selected for the study. Data Collection Data for the study were collected from primary sources by use of structured questionnaires. Basic questions raised in the questionnaires, one for individual and another for group clients, included amount of loan received, repayment procedure and extent of repayment, different cost items, value of farm outputs, problems encountered by both clients during production and loan repayment. Analytical Techniques The objectives of the study were achieved through multiple regression analysis, factor analysis and levenes test for equality of means. Repayment rates were gauged by the use of descriptive statistics. Multiple Regression Analysis Multiple regression analysis was used to examine the influence of credit use on the farm output of the group and individual farms of MFIs clients. The regression analysis measured output (Y) as a function of some variables which affect its behaviour (Koutsoyiannis, 1981). Two regression models were specified. One for group-farms and another for the individual farms of MFIs clients. The forms showing the number of variables for each of them are: For group and individual-farmer clients Y = f(X1, X2, X3, X4, X5, X6 Xn) Explicitly, the model was presented in the following four functional forms; (1)

Comparative Study of Credit Use and Repayment Rates of Groups and Individual Farmer-Clients of Microfinance Institutions (MFIs) in Enugu State, Nigeria

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Linear Functional Form Yi = 0 + 1X1 + 2X2 + 3X3 + 4X4 + 5X5 + 6X6 + 7X7 + e (2)

Semi-Log Functional Form Yi = 0 + 1 logX1 + 2 logX2 + 3 logX3 + 4 logX4 + 5 logX5 + 6 logX6 + 7 logX7 + e (3)

Double Log Functional Form Log Yi = 0 + 1 logX1 + 2 logX2 + 3 logX3 + 4 logX4 + 5 logX5 + 6 logX6 + 7 logX7 + e (4)

Exponential Functional Form Log Yi = 0 + 1X1 + 2X2 + 3X3 + 4X4 + 5X5 + 6X6 + 7X7 + e Where: Y X1 X2 X3 X4 X5 X6 X7 e = = = = = = = = = value of farm output (in naira) rent paid on hired fixed inputs (naira) credit from MFIs (naira) distance from the farm to the microfinance institution (kilometre) number of extension visit(s) during the credit period labour cost (naira) cost of other variable inputs (naira) type of farming enterprise error term (5)

Factor Analysis The method of principal components is a special case of the more general factor analysis. The aim of the method is to construct out a set of variables, Xjs (j = 1, 2, , k) of new variables (Pi) called principal components, which are linear combination of the Xs: P1 = a11X1 + a12X2 + + a11Xk P2 = a21X1 + a22X2 + + a2kXk * * * * * * * * * * * * * * * * * * * *

Pk = aktX1 + ak2X2 + + akkXt

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Omeje Chizoba Modester & Agbo, Festus Ugwoke

Where P1, P2 Pn = observed variables/constraints to repayment performance of group and individual-farmer clients of MFIs. a1 an = factor loadings or correlation coefficients.

X1, X2, Xn = unobserved underlying factors constraining group and individual-farmer clients of MFIs. The as, called loadings, are chosen so that the constructed principal components satisfy two conditions: (a) the principal components are uncorrelated (orthogonal), and (2) the first principal component P1 absorbs and accounts for the maximum possible proportion of the total variation in the set of all Xs, the second principal component absorbs the maximum of the remaining variation in the Xs (after allowing for the variation accounted for by the first principal component and so on (Koutsoyiannis, 2001). Only variables with factor loadings of /0.50/ and above at 10% overlapping variance were used in naming the factors. Levenes Test for Equality of M eans Levenes test is an inferential statistic used to assess the equality of variances in different samples. Some common statistical procedures assume that variances of the populations from which different samples are drawn are equal. Levenes test assesses this assumption. It tests the null hypothesis that the population variances are equal (called homogeneity of variances or homoscelasticity). If the resulting p-value of Levenes test is less than some critical value (typically 0.05), the obtained differences in sample variances are unlikely to have occurred based on random sampling from a population with equal variances. Thus, the null hypothesis of equal variances is rejected and it is concluded that there is a difference between the variances in the population. In this study the mean values of repayment rates of group and individual clients were subjected to Levenes test to confirm if their difference is statistically significant.

RESULTS AND DISCUSSIONS


Influence of Credit Use on the Farm Output of MFI Clients Credit use was found to have made critical impact on the output of group farms having been significant in all the functional forms of the specified regression model (table 1). Other variables that were found to have significant effect (p > 0.05) on output included rent, labour cost and type of agricultural enterprise. This is in consonance with the results obtained by Aihonsu and Olatingiri (2012) who studied the impact of credit use on the output of artisanal fishermen in Lagos State, Nigeria. Table 1: Parameter Estimates of the Multiple Regression Model of Group-Farmer Clients of Microfinance Institutions (MFIs)
Variables Rent (N) Credit (N) Distance from the farm to the MFI (km) Extension contact (No. of visits in season) Labour cost (N) Cost of other input (N) Linear Coefficient -1.499 (1.382) 1.269 (0.481) 36327.77 (67223.08) 1509.64 (71852.34) 2.926 (1.028) -0.259 (0.6001) t-Ratio -1.08 2.64*** 0.54 0.02 2.85*** -0.43 Semi Log Coefficient -26422 (20622.1) 1080145 (392048.7) 33710.17 (354126) -50851.61 (93563.2) 728555.61 (355161.8) 233176.1 (330081) t-Ratio -1.28 2.76*** 0.10 -0.54 2.05** 0.71 Double Log Coefficient -0.0118 (0.0084) 0.606 (0.160) -0.0494 (0.145) -0.027 (0.038) 0.429 (0.145) 0.0152 (0.135) t-Ratio -1.41 3.74*** -0.34 -0.27 2.95*** 0.11 Exponential Coefficient -1.62E-06 (5.80E-07) 7.10E-07 (2.02E-07) -0.0034 (0.028) -0.0036 (0.0302) 1.65E-06 (4.31E-07) -3.14E-07 (2.52E-07) t-Ratio -2.80*** 3.52*** -0.12 -0.12 3.81*** -1.24

Comparative Study of Credit Use and Repayment Rates of Groups and Individual Farmer-Clients of Microfinance Institutions (MFIs) in Enugu State, Nigeria Table 1: Contd., 684588.4 1.28 (546478.7) -1.01E+07 -4.42*** (2285784) 36 4.49 0.0019 0.5287 0.4109

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Type of agricultural enterprise Constant Number of Observation F(7, 28) Prob > F R-Squared Adjusted R-Squared

124790.1 (98374.64) -159300.5 (410078.2) 36 4.28 0.0025 0.5171 0.3963

1.27 -0.39

0.5024 (0.223) 0.144 (0.935) 36 7.38 0.0000 0.6485 0.5607

2.25** 0.15

0.0961 (0.0413) 5.294 (0.172) 36 6.54 0.0001 0.6206 0.5258

2.33** 30.77***

Significant responses *** at 0.01; ** at 0.05; * at 0.1 probability levels Figure in parenthesis are the standard errors Source: Computed from field data, 2012 Similar regression result (Table 2) was obtained from individual farms except that labour appeared to be a more critical factor affecting output in the individual farms. Other factors that complemented credit use to improve the output of individual clients farms include cost of other inputs and number of extension contacts. This result agrees with the findings of Ironkwe and Olojede (2012) as well as Makarau et al. (2012) in their separate studies on combinations of inputs that affected the output of individual cassava and soybean farmers in Abia and Kaduna States of Nigeria respectively. Table 2: Parameter Estimates of the Multiple Regression Model of Individual-Farmer Clients of Microfinance Institutions (MFIs)
Variables Rent (N) Credit (N) Distance from the farm to the MFI (km) Extension contact (No. of visits in season) Labour cost (N) Cost of other input (N) Type of agricultural enterprise Constant Number of Observation F(7, 54) Prob > F R-Squared Adjusted R-Squared Linear Coefficient -5.598 (3.221) 1.549 (0.661) 98757.24 (11755.94) 3463.63 (38055.35) 8.733 (1.266) 0.400 (0.5574) 990.97 (46758.9) -284379.4 (127904.5) 62 10.74 0.0000 0.5820 0.5278 t-Ratio -1.74* 2.34** 0.74 0.09 6.90** * 0.72 0.02 -2.22*** Semi Log Coefficient -29032.77 (32721.65) -135150.1 (227030.9) 93321.75 (124819.2) 577283.7 (319363.3) 919421.4 (220241.4) 318162.4 (236330.4) 153325.8 (240205.7) -4878608.0 (1311220.0) 62 4.47 0.0006 0.3669 0.2848 t-Ratio -0.89 -0.60 0.75 1.81* 4.17** * 1.35 0.64 3.72*** Double Log Coefficient -0.0275 (0.026) -0.175 (0.143) 0.0455 (0.0787) 0.428 (0.202) 0.602 (0.139) 0.4802 (0.149) 0.00604 (0.152) 1.124 (0.827) 62 6.32 0.0000 0.4501 0.3789 tRatio -1.33 -1.22 0.58 2.12** 4.33** * 3.22** * 0.04 1.36 Exponential Coefficient -2.16E-06 (2.38E-06) 7.43E-07 (4.88E-07) 0.0033 (0.00867) -0.00365 (0.0281) 5.00E-06 (9.35E-07) 8.63E-07 (4.12E-07) -0.0249 (0.0345) 5.087 (0.094) 62 7.81 0.0000 0.5031 0.4387 t-Ratio -0.91 1.52 0.38 -0.13 5.35*** 2.10** -0.72 53.87***

Significant responses *** at 0.01; ** at 0.05; * at 0.1 probability levels Figure in parenthesis are the standard errors Source: Computed from field data, 2012 Repayment Rates of Group and Individual Clients of MFIs at Due Dates Group clients achieved higher repayment rates than individual clients. This is because at due dates 38.9% of group clients had repaid 90-100% of credit received while only 17.7% of individual clients achieved the same level of repayment (Table 3). A greater percentage of individual clients (32.3%) achieved only 50-75% repayment at due date. This agrees with the result obtained by Field and Pande (2006) in their study of repayment rates by MFI clients in India. Table 3: Frequency Distribution of Group and Individual-Farmer Clients of Microfinance Institutions (MFIs) by their Repayment Rate
Repayment Rate (%) 90 100 75 90 50 75 Group-Farmer Client of MFIs Frequency Percentage Ranking 14 38.9 1st 6 16.7 3rd 10 27.8 2nd Individual-Farmer Clients of MFIs Frequency Percentage Ranking 11 17.7 4th 14 22.6 3rd 20 32.3 1st

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Table 3: Contd., 16.7 3rd 100.0

Omeje Chizoba Modester & Agbo, Festus Ugwoke

< 50 Total

6 36

17 62

27.4 100.0

2nd

Source: Computed from field data, 2012 The mean repayment scores of the two categories of clients (Table 4) were subjected to the Levenes test for equality of means to ascertain if the differences were statistically significant. Table 4: Mean and Standard Deviation of Repayment Rates of Group and Individual-Farmer Clients of Microfinance Institutions (MFIs)
Client Type Group-farmer Individual-farmer Number of Observations 36 62 Mean 76.45 67.40 Standard Deviation 23.26 19.56 Standard Error Mean 3.88 2.48

Source: Computed from field data, 2012 The result of the Levenes test confirmed that the difference in the mean scores of the two categories of clients (Table 5) was statistically significant (P < 0.05). This agrees with the conclusion earlier reached that groups are more faithful in loan refunds than individual clients of MFIs. Table 5: Levenes Test for Equality of Means of Repayment Rates of Groups and Individual Clients of MFIs
F Equal variances assumed 2.64 Sig. 0.108 t-Value 2.058* Df 96 Sig. (2-Tailed) 0.042 Mean Difference 9.049 Standard Error Difference 4.397

Note * = Significant response at 0.05 probability level Source: Computed from field data (2012) Problems of Group-Farmer Clients of Microfinance Institutions (MFIs) Table 6 shows the varimax-rotated principal component analysis of factors constraining group-farmer clients of MFIs in the study area. The results showed that five factors were extracted based on the responses of the respondents (group-farmer clients of MFIs). The Kaiser criterion (1960) was used for selecting the number of underlying factors or principal components explaining the data. This number was decided by leaving out components with corresponding Eigen values (a measure of explained variance) of less than one (<1). Only variables with factor loadings of /0.50/ and above at 10% overlapping variance were used in naming the factors. Variables that have factor loading of less than /0.50/ were not used while variables that loaded in more than one constraints were also discarded (Madukwe, 2004). The communalities describe the relation between the variables and all other variables (i.e. the squared multiple correlation between one item and all other items). After rotation, the first factor accounted for 35.5% of the variance, the second factor accounted for 25.5% of the variance, the third factor accounted for 15.4% of the variance, 7.8% of the variance was accounted for by the fourth factor, and 6.4% of the variance was accounted for by the fifth factor. The true factors that were retained explained 87.6% of the variance in the 9 constraining factors or variable components. Factor 1 (high administrative charges and high interest rate constraints), the variables or factors that loaded high were, high administrative charges (0.989) and high interest rate (0.887). The main constraints as perceived by the group-farmer clients of MFIs limiting their repayment performance under factor 2 (lack of collateral security and inadequate initial savings or contribution constraints) include; lack of collateral security (0.951) and inadequate initial savings or contribution (0.877). Variables that loaded under factor 3 (long distance/high transportation cost and lateness in loan disbursement), the variables or factors that loaded were, long distance/high transportation cost (0.719) and lateness in loan disbursement (0.709). Factor 4 (high cost of transaction) this is the only variable that loaded under factor with loading of 0.970. Factor 5(previous default inability to repay

previous loan at promised date) is the only variable that loaded under factor with loading of 0.937.

Comparative Study of Credit Use and Repayment Rates of Groups and Individual Farmer-Clients of Microfinance Institutions (MFIs) in Enugu State, Nigeria

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Table 6: Varimax Rotated Factors of Problems Faced by Group-Farmer Clients of Microfinance Institutions (MFIs) in Enugu State, Nigeria
Problems High administrative charges High interest rate Lack of collateral security Inadequate initial contribution/ savings Long distance/high transportation costs Lateness in loan disbursement High cost of transaction Previous default (inability to repayment previous loans from other informal sources) % of Total Variance Factor 1 0.898 0.887 Factor 2 Factor 3 Factor 4 Factor 5 Community 0.845 0.945 0.923 0.950 0.709 0.907 0.963 0.971

0.951 0.877 0.719 0.709 0.970 0.937 35.4 25.5 15.4 7.8 6.4

Extraction Method: Principal Component Analysis Rotation Method: Varimax with Kaiser Normalization Source: Computed from field data, 2012 Problems of Individual-Farmer Clients of Microfinance Institutions (MFIs) The result in table 7 shows the varimax-rotated principal component analysis of constraining variables to credit from microfinance institutions by individual-farmer clients. From the result, five factors were extracted based on the responses of the respondents as seen in table 7. The Kaiser criterion (1960) was used for selecting the number of underlying factors or principal components explaining the data. After rotation, the first factor accounted for 40.4% of the variance, the second factor accounted for 17.4%, the third factor accounted for 13.3%; the fourth factor accounted for 10.5% and 6.9% of the total variance was accounted for by the fifth factor. The true factors that were retained explained 88.5% of the variance in the 9 constraining factors or variable components. Under factor 1 (lateness in loan disbursement, inadequate initial savings and high interest rate constraints), the constraining variables or factors that loaded high were; lateness in loan disbursement (0.906), inadequate initial savings (0.850) and high interest rate (0.754). The factors or variables that loaded under factor 2 (high cost of transaction and previous default i.e. inability to repay loan at promised date constraint) include; high cost of transaction (0.899) and previous default i.e. inability to repay loan at promised date (0.889). The main constraints as perceived by the selected individual-farmer clients under factor 3 (high administrative charges and high transportation cost/long distance constraints) include; high administrative charges (0.928) and high transportation cost/long distance (0.776) Under factor 4 which is lack of collateral security with factor loading of 0.976. Factor 5 (loan procedure is lengthy (cumbersome) loaded with the loading of 0.968. Table 7: Varimax Rotated Factors of Problems Faced by Individual-Farmer Clients of Microfinance Institution (MFIs) in Enugu State, Nigeria
Problems Lateness in loan disbursement Inadequate initial saving High interest rate High cost of transaction Previous default (inability to repay previous loans) High administrative charges Long distance/high transportation costs Lack of collateral security Loan procedure is lengthy (cumbersome) % of Total Variance Factor 1 0.906 0.850 0.754 Factor 2 Factor 3 Factor 4 Factor 5 Community 0.850 0.756 0.776 0.852 0.909 0.928 0.776 0.976 40.4 17.4 13.3 10.5 0.968 6.9 0.963 0.990 0.933

0.899 0.889

Extraction Method: Principal Component Analysis Rotation Method: Varimax with Kaiser Normalization Source: Computed from field data, 2012

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Omeje Chizoba Modester & Agbo, Festus Ugwoke

CONCLUSIONS AND RECOMMENDATIONS


Conclusions The study has considered the effects of credit use on the farm output of group and individual clients of MFIs among other things. Credit use was found to boost the output of farms of both category of clients. Regression results point to the fact that group farms utilized credit better than individual farms. Other factors that combined with credit to affect output were labour cost, cost of other inputs, type of agricultural enterprise and rent. Group performed better than individual clients in the repayment of loans from MFIs. For instance, about 39% of the groups repaid their loans between 90 100% at due date while individual clients repaid only about 18% of their loans at due date. Repayment performance of groups was found to differ significantly (P < 0.05) from that of individuals as confirmed by the Levenes test for equality of means. Factors that hindered the two categories of client from accessing and making fuller use of MFI credit were found to include high administrative charges, high interest rates, lack of collateral, lateness in loan disbursement and credit history. In specific terms it can be concluded that groups performed better than the individual clients in the study especially in respect of loan repayment and credit utilization. Recommendations The findings of this study have important implications for enhancing the performance of group and individualfarmer clients of microfinance institutions (MFIs) especially their performance in loan repayment. The following recommendations are therefore presented: Credit programmes should be designed in such a manner that various forms of clients can be reached with appropriate outreach measures that will enhance better repayment performance. Groups might not be the only panacea in credit outreach with better repayment performance, especially if those groups do not evolve naturally; Microfinance institutions should be able to offer ancillary services like training and extension visits that will improve access to MFI loans as well as help them to repay as and when due; Microfinance institutions should strengthen their monitoring units so as to forestall information asymmetry; Microfinance institutions should also set up outreach centres very close to their clients in order to monitor loan use and recover more of their loans during the loan period. The Central Bank of Nigeria should ensure that the interest rates charged by MFI are more borrower-friendly, in order to avert loan defaults.

REFERENCES
1. Anyanwu, C.M. (2004). Microfinance Institutions in Nigeria. Paper presented at the GS4 Workshop on Constraints to growth in Sub-Saharan Africa, Pretoria, South Africa, Nov. 29 th 30th. 2. Arene, C.J. (1992). Loan repayment and technical assistance among smallholder maize farmers in Nigeria. African Review of Money and Banking. A Supplement of Savings and Development Journal, 1, 64-72. 3. Armendariz De Aghion, B. and Morduch (2005). The Economics of Microfinance, Mit Press.

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Omeje Chizoba Modester & Agbo, Festus Ugwoke

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Comparative Study of Credit Use and Repayment Rates of Groups and Individual Farmer-Clients of Microfinance Institutions (MFIs) in Enugu State, Nigeria

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