Noble J. Nweze
With no access to formal credit for improving their socio-economic well being, farmers among
the Igalas in Nigeria rely heavily on their indigenous systems of resource mobilization, the major
advantage of which is that they provide financial and material relief on favourable terms. This article
examines the major features of these indigenous associations, and their potential for rural development.
Small-scale farmers are hampered by the lack of access to institutionalized credit, in spite of the fact that they produce about 90% of the food consumed in Nigeria and generate foreign exchange for the country through agricultural exports. This situation has continued, despite attempts to bridge the credit gap in the agricultural sector through the establishment of various credit schemes.
The basic problem is that in designing and implementing rural capital mobilization programmes, the government has not worked together with indigenous savings and credit systems. This situation is presumably based on the incorrect assumption that rural households have no workable traditional sources of credit except for usurious moneylenders (Kropp et al, 1989).
The esusu or isusu are the most widespread indigenous savings and credit associations in Nigeria (Okorie and Miller, 1976; Nweze, 1991). These are voluntary mutual aid associations in which the members pool their individual savings and have access to credit on favourable terms. Although they take various forms, all the indigenous savings and credit associations have one thing in common: they unite the local people, encouraging them to identify their needs and mobilize their resources to meet those needs; in this way, they provide for themselves what the government is not able to provide (Ijere, 1988).
As yet there have been no concerted government efforts to work with indigenous financial systems, but there is a perceived need to establish a partnership between the newly established rural banks and the indigenous savings and credit associations. It is therefore important to examine the major features of these indigenous associations and their potential for rural development.
Research
An investigation was carried out between August and December 1990 in the community of Egabada in
Kogi State, which is inhabited by the Igala ethnic group of Nigeria. Farming is an important economic
activity in the area. Except for rice (Oryza sp.) and cassava (Manihot esculenta),
which are grown largely on their own, crops are usually grown as intercrops on outer, inner and
compound farms.
Most farmers depend almost entirely on informal, non-institutionalized forms of credit, in particular, credit from indigenous associations, since there is no institutionalized credit source in the community. Sixty (60) members of indigenous savings and credit associations were chosen at random from 10 purposively selected associations. Standardized interviews, supervised by the author, were carried out by interviewers who spoke the local language as their mother tongue.
Types of associations
The main types of indigenous savings and credit associations are rotating and non-rotating. In the rotating
type, which make up about 45% of the associations, contributions are collected at regular intervals and
immediately handed over to members in rotation, according to a pre-agreed sequence. In the non-rotating
type (50%), contributions are also collected at regular intervals but are then deposited with the treasurer.
At the end of a pre-determined cycle, members are paid back their total contribution. In over half of the
non-rotating schemes, members were not entitled to any interest accruing from their lending activities. A
significant feature of these schemes is the obligation to save at regular intervals. It is also noteworthy that
the savings and credit activities carried out by these associations are based on an indigenous system of
lending and local sanctions.
The respondents had various conceptions concerning the objectives of their association. Some 48% said that one of the major objectives was to mobilize capital resources, something which would have been impossible for individuals to do on their own. To others (28%) it meant an opportunity to save fairly considerable sums of money for the purchase of durable goods. Other important objectives were the provision of financial assistance to members in need (14%), the opportunity to pool labour for farm work (5%), and social welfare and community development (5%). Despite the diversity of these objectives, a common driving force within the associations is the desire to tackle socio-economic problems through self-help. At the same time, they save regularly according to need and capacity, adhering strictly to pre- determined criteria, under the supervision of recognized leaders.
Indigenous associations are characterized by a rather formal organizational framework. A typical association is led by a chairman (onu), a secretary (omale), and a treasurer (emaji); occasionally there is also a vice-chairman (orone-onu or achimola). The average number of leaders among the associations studied was four; there was no evidence that the leaders received any cash compensation for their activities.
Membership may be restricted or unrestricted. In unrestricted associations membership may cut across age, sex, and occupational or socio-economic status, while in restricted associations, membership is based on age, occupation (such as farmers or traders), or other socio-economic criteria. More than 70% of the associations studied were restricted; farmers predominated, which may be due to the fact that farming is an important economic activity in the area.
Prospective members of indigenous cooperative associations must be recognized as honest, well-behaved and respectable. Over half the associations required that at least two members attest to the character of any prospective member. Individuals without visible means of livelihood are not encouraged to join.
Records and resource mobilization
There was some form of record-keeping in 65% of the associations studied. These records were generally
concerned with savings, loans, interest calculations, minutes and attendance. Only four of the associations
had written bye-laws regarding admission, withdrawal, savings, loans, default, lateness and absenteeism.
The heaviest penalty laid down in the byelaws was for default in saving. This is not surprising, as
regularity in contributing is regarded as an obligation that must be met, even at the expense of other
pressing commitments. In fact, as Ardener (1964) notes, an indigenous credit association cannot function
unless all members continue to meet their obligations. Leaders place great emphasis on the 'honesty' and
'dependability' of other participants, since the risk of default is ever-present (Cope and Kurtz, 1980).
A characteristic feature of all the groups was resource mobilization through the regular compulsory contribution of cash. Contributions are made on meeting days, which are usually on a Sunday or market day. The frequency of contribution varies from monthly (60%) or weekly (30%) to every 8 days (10%); in most cases, this corresponded to market days. The size of the contribution made at each meeting ranges from Ngn 0.50 to Ngn 15.00, with an average of Ngn 7.50. In almost half the associations, members are allowed multiple contributions and thus multiple withdrawals. In 1989 the average amount contributed by individuals was Ngn 224.06 and by associations as a whole Ngn 5,870.35. These figures are higher than the contributions made to cooperative societies or development projects in Igala land (Seibel and Marx, 1985). As expected, there was a positive correlation between membership size and the level of annual contribution.
Other sources of funds for the associations include levies, admission fees, fines, interest on loans, and contingency payments. Together these accounted for 16% of mobilized funds. Nearly 65% of the members obtained their contribution money from the sale of farm produce. This was especially true of the groups that met on market days. Another 20% depended on salaries and previous savings, while the remaining contributors relied mainly on other productive activities.
Credit and use of funds
While the mobilization of members' savings is an important activity, the provision of credit is likewise
significant, for the simple reason that savings are neither hoarded nor banked, but rather lent to other
members or, in rare cases, non-members. In 1989, a total of 39 loans were made, amounting to Ngn
4,058.00. Although the lending rate of 45% per year was high, reflecting the scarcity of funds, the loans
were generally disbursed on more favourable terms than those obtainable from village money lenders or
institutionalized sources.
The funds borrowed were intended for a wide range of farm and non-farm uses. About 46% of all loans were used for agricultural purposes; primarily for payment for hired labour. There were also significant non-farm uses of credit, related to chiefly children's school fees and hospital bills.
Conclusion
In spite of the strength, resilience, flexibility and adaptability of the indigenous systems of savings and
credit, policy-makers and formal financial institutions have continued to ignore them. It is a cause for
concern that, although they are important sources of financial relief for their members, the volume of
savings does not afford sufficient credit to participants. This means that if these associations are to be
relied upon in far-reaching rural development processes, they must not be allowed to operate completely
outside the formal financial sector. Thus in the area of rural finance, there is a clear need for a partnership
between indigenous savings associations and formal financial institutions.
Noble J. Nweze
Centre for rural development and cooperatives
University of Nigeria
Nsukka
Nigeria
References
Ardener, S. (1964) 'The comparative study of rotation credit associations', Journal of the Royal
Anthropological Institute 94(2):201-229.
Cope, T. and D.V. Kurtz (1980) 'Default and the Tanda: A model regarding recruitment for rotating credit associations', Ethnology: An International Journal of Cultural and Social Anthropology XIX(2):213-231.
Ijere, M.O. (1988) 'A critical assessment of the suitability of self-help groups for the cooperative movement.' Paper delivered at the conference on 'Restructuring cooperative movement for rapid rural and national development' at Owerri, Imo State, Nigeria.
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Nweze, N.J. (1991) 'The role of women's traditional savings and credit cooperatives in small-farm development', pp. 234-253 in Issues in African rural development. Winrock International Institute for Agricultural Development.
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