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This study investigated the access to and utilization patterns of funds from Micro-Finance Institutions by Farmers in Udi Local Government Area, Enugu State. It assessed the terms and cost of accessing and the pattern of utilizing micro-credit facilities by farmers. The study also examined the socio-economic characteristics of the borrower and factors affecting them. Due to the large number of subjects investigated, the study adopted the survey research method as its research design. A total of 73 farmers constituted our sample size out of which 40 were selected for the study. Variables of interest were farmers' socio-economic characteristics, variations between amount applied for, amount approved and received as well as the utilization pattern of micro credit facilities. Probit regression analysis was used for the study. Key findings show that 78.5% of loan recipients were male and only 10.5% had informal education. On utilization pattern, 13.5% of the respondents are into crop farming, 16.2% engaged in livestock production while 21.6% practice both crop and livestock production. We applied Chi-Square statistical test in testing the formulated hypotheses. The Chi-Square estimate of 22.520 is highly significant and this support the first hypothesis which postulate that access to credit by farmers is positively influenced by their higher values in terms of educational level, farm size, experience, extension contact and farm income. It was also established that gender is not a barrier to accessing credit facilities. Finally, the negative coefficient of membership of co-operatives (-0.0339) indicates that against our expectations, non-members of co-operatives have probability of accessing credit. In the light of the above, this study recommends the implementation of a loan increment policy to farmers as well as increased capacity development for loan borrowers.



1.1         Background to the Study

In the past few decades, the challenge of poverty alleviation has remained one of the biggest socio-economic challenges for Nigeria. In an attempt to address the menace of poverty, many governments have attempted to implement various measures aimed at alleviating poverty. These measures have however been met with little success.

The need to secure credit is increasingly gaining currency as an essential need of most impoverished populations. In this regard, many strongly prefer to start their own entrepreneurial activities rather than earn wages. It has also been argued that where small scale industries thrive, it will contribute considerable to addressing some macro-economic challenges in the society. This perhaps informs the need for commitment to micro-financing across most developing societies.

Beginning from the late 1970’s, the concept of micro-finance has rapidly spread across the globe. But whether and how it alleviates poverty has been a subject of popular controversy. In recent years, Microfinance Institutions (MFIs) have begun to offer a wide variety of services, including insurance and business development skills training. In Nigeria, a considerable number of the micro-financing schemes focus on provision of micro-credit scheme to farmers. Microfinance is one of the few market-based, scalable anti-poverty solutions Nigeria is experimenting today. The argument to scale it up to meet the overwhelming need is quite compelling.

Broadly speaking, microfinance for loans (i.e., micro credit) is the provision of small scale financial services to people who lack access to traditional banking services. The term microfinance usually implies very small loans to low-income clients for self employment,


often with the simultaneous collection of small amounts of savings. The design principles of microfinance are derived from the needs and socio-economic conditions of the poor and have emerged from the experience of microfinance institutions during the last two to three decades all over the world. These design principles are:

·                     small saving or thrift by poor is possible if collected at doorsteps;

·                     poor people need small collateral free loans with frequency instead of large loans at a time;

·                     timely, adequate and continued credit facility;

·                     simple application processes

·                     non-rigidity of end use is preferred by poor people over rigid end use of small loans;

·                     repayment to match with existing family cash flow

·                     relatively small repayment periods are preferred, e.g. weekly, fortnightly, monthly, instead of half-yearly, yearly, etc.( Aiyar, 2009; Banerjee, 2009; Kala, 2004; Khandker, 2006).

A number of researches have also shown that intensive supervision is required for microfinance operations. Again, women are better customers relative to men and group method of lending is more successful relative to individual lending (Banerjee, 2009; Kiiza, 2007; Naresh 2007).

The mostly used service of MFIs is the micro-credit to begin, establish, sustain, or expand very small, self-supporting businesses. Many microfinance programs offer services beyond credit. The most basic such service is savings i.e providing the poor a safe place to store their money. Some MFIs require mandatory savings each week from each borrower as well as each group. Some of these programs also collect voluntary savings, allowing clients to deposit as much as they like each week. Recently MFIs have begun to offer a wide variety


of services, including insurance (life insurance and/or health insurance), business development skills training, and remittances. A popular form of training is credit with education, developed by Freedom from Hunger, which includes modules on both business and health training (Raghavendra, 2003; Olomola, 2001; Oladeji and Ogunrinola, 2001).

Micro-finance interventions can be identified based on their span of activity, source of funds, route through which it reaches the poor or the coverage. However, it seems that one of the most common practices and approaches prevalent is providing credit through Self-Help Groups (SHGs). The approach is to make SHGs the main focal point to route all credit to members. In Nigeria, almost all national funding organizations as well as other Government schemes advocate forming of Self-Help Groups and thus providing or linking with credit. However, many organizations providing individual finance directly also exist.

In Nigeria, as is the case in most Sub-Sahara Africa, total saving is low. Only a small share of it is transformed into financial savings. For instance, in Senegal, the financial savings (the change of the difference between M2-M1)2 averaged solely 8 percent of national savings, showing the difficulties of formal financial sector in mobilizing savings and providing financial services, especially for the poor. Microfinance institutions could play an important role in meeting the financial needs of households and microenterprises. Above and beyond the microcredit facet, microfinance could contribute to poverty reduction by offering adequate savings services.

On the supply side, microfinance could be the best instrument to bring about poverty eradication by loosening constraints on capital, opening the door to investment, smoothing consumption over time, and meeting emergency needs for liquidity. On the demand side, empirical evidence shows that a significant segment of the poor are savers and that the microfinance institutions could support them by looking after their savings in a secure


manner and by helping them accumulate interests on their deposits. The poor will be able to deal with emergency and make significant investment expenditures. The performances of microfinance institutions could be caught through their institutional financial viability and their outreach to the poor people. Technical, political, social factors could influence these performances, reinforcing the need to combine the strengths of traditional and modern Micro-finance approaches.

In practice across countries, microfinance and microenterprise are critically linked: microenterprise development is an essential extension of microfinance schemes. If microfinance is to have a sustainable impact on poverty eradication, it must eventually scale-up into creating a private sector of entrepreneurs who function in the formal economy. In other words, microfinance has the potential of formalizing the informal sector, empowering micro-entrepreneurs to participate and benefit from the formal economy. Microfinance can support initiative for direct supply and market linkages to small and medium businesses targeting promising micro-entrepreneurs in non-traditional, low volume but high value-adde

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