CHAPTER ONE

1.0 1.1 INTRODUCTION Small Scale Enterprise in Perspective There is no universally accepted definition of Small-Scale Enterprises (SSEs). Thus, SSEs tend to differ in definition among individuals in various countries at different levels of economic development or even regional differences in industrial development within the same country. In spite of the above difficulty, basically SSEs have mainly been defined based on the level of turnover, investment capital and the size of employees. According to Central Bank of Nigeria (1979), small-scale enterprises are establishments whose annual turnover does not exceed N500,000 in the same year, the Federal Ministry of Industries in Nigeria defined SSEs as enterprises having investment capital (investment in land, building, machinery and equipment and working capital) of up to N60,000 and employing no more than 50 persons. This definition thus looks at SSEs on the basis of both investment capital and number of employees. The Nigerian Bank for Commerce and Industries (1982) also categorised enterprises investing in not more than N500,000 excluding the cost of land as small-scale enterprises. However, Steel and Webster (1992) and Gauthier (1996) define small-scale enterprises on the basis of the number of workers. Enterprises that employ between 4 and 29 employees irrespective of their capital investment are considered SSEs. In the mid-1960s, a new approach to small to medium-scale enterprise (SME) development began to emerger due to a number of factors. 1

First, there was growing concern over low employment elasticity of modern, large-scale production. It was claimed that even with more optimal policies, this for of industrial organisation was unable to absorb a significant proportion of the rapidly expanding labour force (Chenery et al., 1974; ILO, 1973). Second, there was widespread recognition that the benefits of economic growth were not being fairly distributed, and that the use of large-scale, capital-intensive techniques was pertly to blame (Chenery et al., 19740. Third, empirical diagnosis showed that the causes of poverty were not confined to unemployment, and that most of the poor were employed in a large variety of small-scale, low-productivity activities. Thus, it was thought that one way to alleviate poverty could be to increase the productivity of those engaged in small-scale production (Aftab and Rahim, 1989). This suggested a new role for small industries, or what has come to be labelled the urban informal sector. Small, labour-intensive industries were seen not only to increase employment, but also to increase the living standards of the poor. They were also thought to be capable of providing a new dynamic of economic growth. The new objective was not just to stop the retreat, but to promote the small-scale sector (Schmitz, 1982, Aftab and Rahim, 1989). In fact, the importance of Small Scale Enterprises in economic development cannot be over-emphasized. According to Aryeetey (2004), small scale enterprises have a lot of contributions to make to the economy of Nigeria, therefore their establishment and operation should be promoted. One way by which this can be done is by conducting empirical research geared towards 2

SSEs development. According to Daniels and Ngwira (1993), Small-scale enterprises in Nigeria can bring about the following: Provide managerial and technical training for the majority of unskilled and semi-skilled workers engaged in SSEs Promote effective domestic resources utilization Reduction of rural-urban migration Production of intermediate goods for use in large enterprises

According to Kayanula and Quartey (2000), SSEs also provide employment opportunites for a large number of the population. Besides they can for the foundation for the development of indigenous industries in Nigeria (Obasan, 2001). The dynamic role of small-scale enterprises in developing countries as engines through which the growth objectives of such countries can be achieved has long been recognized (Kayanula and Quartey, 2000). This is because, during the early stages of economic development, SSEs helped to create employment and wealth, particularly in low income countries (Obasan, 2001). 1.2 Cooperative as a panacea to Small Scale Development

According to Weihe (2004), cooperatives are special purpose organizations that

have unique attributes compared to other forms of enterprise. They are independent, member-owned and democratically governed businesses, created with equity financed by members who invest in order to benefit through their

patronage. Cooperatives are built on a collective identity and shared destiny. This characteristic is the underlying factor in the rise of cooperative networks in the face of national and/or regional conflict and hostile, monopolistic alien enterprises and or middlemen/usurers.

Epetimehin (2006) described cooperative as a business owned and controlled by the people who use its service. They finance and operate the business or service for their mutual benefit. Roy (1964) saw cooperatives as voluntary organisation established for the pursuance of economic, social and political interest of members. The International Labour organisation (ILO) on its studies and report series, No. 57 of 1960 on cooperative management and administration viewed cooperatives as an association of person usually of limited means, who have voluntarily joined together to achieve a common economic end through the formation of a democratically controlled business organisation, making equitable contribution to the enterprise and accepting a fair share of the risk and benefits of the undertaking. Onuoha (1986) averred that cooperatives are business of patrons whose motive is to obtain the goods and services they require at cost through their joint undertakings. The International Cooperative Alliance (ICA) which is the world apex body of cooperative movements at its centennial congress and General Assembly in Manchester, 1995, gave the whole picture of a cooperative organisation as a voluntary association of free and independent persons for the betterment of their economic conditions.

In the word of Akinwumi (2006), cooperative method provides the best alternative than all these economic grouping and schemes, suggesting that they needed to formalize in line with cooperative principles so that ling after project interventions they can remain sustained. Invariably, cooperative society remains the better alternative to economic reconstruction of the government. Most of the Non-Cooperative Group (NCGs) often die in the midway without fulfilling the economic objectives for their establishment.
By uniting small producers, cooperatives are unsurpassed in their capacity to achieve economies of scale from the farm to market: economies in effective planning, scheduling, transportation, storage and improved quality. Cooperatives offer immediate benefits even at modest levels of organization through bringing coherence out of largely chaotic, disorganized individual producers (Weihe, 2004).

1.3

PROBLEM STATEMENT

In Nigeria, finance has been recognized as an essential tool for promoting Small and Micro Enterprises (SMEs). In a study conducted in 1976 by CBN, shortage of primary production credit was identified as one of the major causes for declining production (Olaitan, 2006). Credit has also been discovered to be a major constraint on the intensification of both large and small scale businesses (Von-Priskieke, 1986). Several other studies also revealed that lack or insufficient credit is the bane of production in Nigeria (Adebayo, and Adeola, 2008; Olaitan , 2006; Amao , 2006; Adegeye and Ditto,1985; ). To address the finance constraints facing business development in Nigeria, lots of programmes were put in place by governments to solve the credit problems and alleviate poverty among the populace.

Olaleye and Adekola (2006) observed that Federal Governments in Nigeria have established about seventeen poverty alleviation programmes including Structural Adjustment Programmes (SAP), Literacy Education Programmes, Urban Mass Transit Programme, Low Cost Housing Scheme, Rural Banking, Peoples Bank, National Directorate of Employment (NDE), Directorate of Food, Road and Rural Infrastructure (DEFRI), Family Economic Advancement Programme (FEAP), Poverty Alleviation Programme (PAP), Youth Empowerment Scheme (YES) and most recently, National Economic Empowerment Development Strategies (NEEDS). The failure or very low success recorded by most of these programmes still make the incidence of poverty a prominent features among Nigerian (Igben, 1984). The failure of the government programmes necessitates a paradigm shift in policy towards encouraging self-help organizations among the citizenry. In Nigeria today, one of the various strategies employed to tackle poverty among the people is co-operative society (Olaleye, 2004). A prominent one among the Cooperative Societies is Cooperative Thrift and Credit Society (Olaitan, 2005). Cooperative Thrift and Credit Societies mobilize funds from members contributions, trade and fines and advance credit to members with very minimal interest rate on win-win terms. In the literature, cooperative-based small scale enterprises has been found to perform better than their non cooperative-based counterparts (Amao, 2006; Adebayo and Adeola, 2008; Adegeye and Ditto; Anyawu, 1987), however, whether this is the case in Yewa North Local Government Area remains a subject of discourse requiring empirical evidence. This empirical evidence is what this study is intended to provide. To effectively provide this empirical evidence, there is the need to provide answers to the following questions: What are the socio-economic characteristics of small scale cocoa SSEs in the study area?; What is their level of participation in cooperatives?;

In what ways do cooperatives contribute to socio-economic development of the SSEs owners?;

Is there significant difference between the financial performance of cooperative and noncooperative members owned SSEs?

What are the reasons for participation or otherwise in cooperative societies by the SSEs owners?

An attempt to answer these questions informs the objectives of this study. 1.3 Objectives of the Study The general objective of this study was to examine the effect of cooperatives on the growth of small scale enterprises in Yewa North Local Government Area, Ogun State while the specific objectives were to: 1. describe the socio-economic characteristics of small scale enterprises owners; 2. access their level of participation in cooperative societies; 3. identify ways by which cooperative contributes to socio-economic development of the SSEs; 4. establish if there is significant difference between financial performance of cooperativebased and non-cooperative based small scale enterprises; 5. identify reasons for participation or otherwise in cooperative societies by the SSEs owners. 1.5 Justification of the Study A review of relevant literature on small scale enterprises (Olaitan, 2006; Onuoha and Enyeribe, 1986; Nigerian Bank for Commerce and Industry, 1982; Inang and Ukpong, 1992) revealed dearth of empirical information on effect of cooperative societies on small scale

enterprises in the study area. An empirical information on the effect of cooperative on SSEs may further highlights ways by which cooperative can be positioned to serve the SSEs better there contributing more to the desired economic emancipation SSEs owners and overall national economic growth . An informed mind is said to have higher probability of making informed decisions (Lippi et al., 2010). Informed decision by the marketers on the roles of cooperative will ultimately better their businesses. This research is therefore relevant to small business development which justifies its funding. This study will contribute to knowledge in the area of small business development. It will provide basis for further research on the study by the academia with a view to ultimately encouraging participation in self-help group (cooperatives). Empirical information on effect of cooperative on sall scale enterprises can assist government to better the lot of the active poor (businessmen) by formulating appropriate policies to promote cooperatives.

CHAPTER TWO 2.0 LITERATURE REVIEW 2.1 The Importance of Small Scale Enterprises Small Scale enterprises are reputed to be behind most of the socio- economic transformation in South East Asia and they play a significant role in the development of Sub- Saharan Africa countries (Kayanula and Quartay (2000). This is so because during the early Stages of economic

development, SSEs ( Small-scale Enterprises ) provide great opportunities for creating employment and wealth. Thus, SSEs have been noted as vital instruments for poverty alleviation ( Kimuyu, 1999 ). Small Scale rural and urban enterprises have been an area of major concern to policy makers in an attempt to accelerate the rate of growth in developing countries. SSEs have been recognized as the engines through which the growth objectives of developing countries can be achieved ( Kayanula and Quartey, 2000 ). Industrial development has been seen as the heart of Nigerias economic programme since independence. Consequently, the small industries were recognized as having the potential to play a dynamic role in industrial growth, particularly through its multiplier effect on macro economic objectives of economic growth, full employment, and income distribution as well as the development of local technology and the stimulation of indigenous entrepreneurship ( Essien and Bello, 2007 ) Generally Speaking, in developing countries with large informal sector, the importance of small enterprise and the upgrading of the informal sector are being advocated as a strategy for enhancing development and growth. It becomes more apparent when one considers their labour intensive nature, income generating possibilities, capital saving capacity, use of local resources and reliance on few imports, flexibility, innovativeness and strong linkage with other sectors of the economy ( Anyanwu, 2001 ). Consequent upon the aforesaid crucial roles played by Small-scale Enterprises, it has therefore been postulated that the key index of real economic development in a given country is the quantum of enterprises taking place within such countrys territorial boundaries (Olaleye and Adekole (2006).

The importance accorded Small-scale Enterprises development is not without some justifiable reasons. Some of the reasons were identified by Olaleye (2004 ) as including the following : (i) Since the products of small enterprises originate from indigenous craft tradings, it is likely

to satisfy the needs of the (local) poor people. (ii) Local people are satisfied because the profits of small enterprises are not dependent on long

run production, so they can manufacture small quantities of products which have a regional or even a more local market. (iii) (iv) (v) Employment created is equitably spread throughout the country The small enterprise produce differentiated products Foreign exchange is saved because local ingenious technology will probably use locally

produced raw material and equipment. (vi) Small enterprises produce jobs than larger ones,

(vii) Though job satisfaction can not be measured but research has shown that people who work in small enterprises are happier than those who work in larger organizations. (ix) Small enterprises are preferred in the area of management because they use lesser capital

which is scarce resource and also less management which is more scarce. (x) They are resilient to depression and offer steadier level of employment than larger ones. There are three (3) cogent arguments for existence of small enterprise. The first is the labour absorptive capacity argument that small enterprise simply exist because the growth rate of the formal economy is inadequate to absorb the national force. The second is the labour creation argument which explains how small enterprises can be used to create jobs whereby the third is the

10

poverty reduction argument. In this parlance, it is seen as a vehicle that facilitates pro-poor growth and offer opportunity for better utilization of indigenous resources (Essien and Bello, 2007 ). Small-scale businesses can create employment in two major ways. Firstly, by selfemployment of the owners of the enterprises and secondly, through paid workers employed to work in small-scale firms ( Ogisi et al, 2009 ). It should be noted however, that apprenticeship is another medium by which SSEs ( Smallscale Enterprises ) create employment in rural and urban areas. According to Ogisi et al ( 2007 ), this is so because, the trainees later set-up their own small businesses practicing their trade at the expiration of their period of apprenticeship . 2.2. PROBLEMS OF Small-scale Enterprises IN NIGERIA

In spite of the numerous benefits derivable from Small-scale Enterprises, they (Small-scale Enterprises ) are plagued with lots of problems militating against their growth in Nigeria and in Yewa North Local Government Area of Ogun State. These include problem of high rate of business attrition among small firms. The problem of high rate of business attrition (or gradual wearing down) among small firms has been traced to a myriad of factors including funding, lack of management ability, infrastructure, poor record keeping, shortage of skilled personel as well as poor or improper risk management which has made small enterprises witnessed a high rate of attrition, indebtedness and bankruptcy ( Ejembi and Ogiji, 2007 ). Effective performance of small business rests on finance (Bircall,2003). Therefore, a number of attempts have been made especially in the area of finance in order to alleviate small scale enterprises problems. This follows because finance is one of the needed factors for proper business operation which will apparently lead to business expansion.

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Despite their (SME) dominant numbers and importance in job creation, SME traditionally have faced difficulty in obtaining formal credit or equity. This is because the maturities of commercial bank loans extended to SME are often limited to a period far too short to pay off any sizeable investment. (Abereijo and Fayomi, 2005). Finance has been identified in many business surveys as one of the most important factors determining the survival and growth of small and medium enterprises (Small-scale Enterprises) in both developing and developed countries (UNCTAD, 1995, 2001, SBA, 2000). 2.3 Financing Small Scale Enterprises for Economic Development Small-scale Enterprises development championed by the private sector can be said to be synonymous with entrepreneurship development. However, as development takes places, the question that arises is the extent to which credit can be offered to the rural poor to facilitate their taking advantage of the developing entrepreneurial activities and the generation of self employment in non farm (and even farming) activities required investment in working capital which at low level of income, the accumulation of such may be difficult. Under such circumstances, loans by increasing family income can help the poor to accumulate their own capital and invest in employment generating activities (Hossain, 1988). In swift response to address the problems of finance of Small-scale Enterprises, a number of programmes were instituted by both Federal and states governments in Nigeria over the years. Provision of viable credit delivery system has been a cardinal mission of governments in developing economies. Often, these government practice the policy of providing subsidized credits to resource poor farmers (and non-farmers alike) through the formal financial intermediaries with the view to insulating them from the usurious tendencies of informal credit sources (Udoh, 2008).

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Olaleye and Adekola (2006) observed that Federal government in Nigeria has established about seventeen (17) poverty alleviation programmes including Structural Adjustment Programmes (SAP), Literacy Education Programmes (LEP), Urban mass Transit programme, Low cost housing scheme, Rural Banking, Peoples Bank, National Directorate of Employment (NDE), Directorate of Food , Road and Rural Infrastructure (DEFRI), Family Economic Advancement Programme (FEAP), Poverty Alleviation Programme (PAP), Youth Empowerment Scheme (YES) and most recently, National Economics Empowerment Development Strategies (NEEDS). The failure or very low success recorded by most of these programmes still make the incident of poverty a prominent feature among Nigerians (Igben, 2004). The failure of the government programmes necessitates a paradigm shift in policy towards encouraging self-help organization among the citizenry. In Nigeria today, one of the various strategies employed to tackle poverty (and perhaps promote Small-scale Enterprises) among the people is cooperative society (Olaleye, 2004). 2.4 Cooperative in Perspective A cooperative is an autonomous association of persons united voluntarily to meet their common economic, Social and cultural needs and aspirations through a jointly owned and democratically controlled enterprise (International Cooperative Alliance; ICA; 2008). This definition emphasizes that cooperatives are independent of government and not owned by any other one than members. Cooperative organization can be seen as an instrument for social transformation (ILO, 1966). The history of cooperative movement can be traced to Britain at the end of the 18th century and in the early part of 19th century (Anyanwu, 2001). The notion of cooperative movement was conceived by the British working class mainly as a result of their poor working conditions

13

(Aryeetey, and Udry, 1997). The first successful cooperative shop was established by a group of 28 flannel weavers in Rochdale Lancashire that came to be known as Rochdale society of Equitable Pioneers. The formation of a cooperative movement coincide with the period the impact of industrial revolution was being felt among the working class. The main aim of cooperative organisations formed by the weavers were to raise enough capital, open a shop where they will exhibit their work jointly to create employment opportunities for their members by establishing a manufacturing venture etc (Anyanwu, 2001) According to Munkner (1976), cooperative can be seen as having four elements which determined the specific structure, its structure as a form of organization; namely: A group of person with at least one economics interest in common. The self-help motivation. The means to achieve this aim by establishing a common enterprises and The main objective which is to perform services for the promotion of economics situation of members enterprises or households. Cooperatives have principles of open membership rather than size of investment, autonomy and independence (Bircall, 2003). Behind these principles are values of self-help, self-responsibility, as well as honesty, openness, social responsibility, democracy and caring for others (ICA, 2008). Cooperative societies are basically for economic improvement of members through the social means of group participant and joint effort. According to Somefun, the major goals of the cooperative societies are directed at the general welfare of members. The cooperative being product of the members, provides basis for the members to grow with it and also provide a foundation with which poverty is powerless to effect structural changes on the members (Olaleye, 2006). 14

To achieve improved welfare of members, Igben (1984) observed that cooperative societies mobilize local resources and human skills which have been under utilized and channeled them into production to meet local demands. However, Iniodu and Okoji (1996) argued that the realization of the major or minor goals of the cooperative societies is dependent on factors such as: the political and economic conditions in the country; the material and financial capabilities of the cooperatives; the educational level and activities of members and associate and the totally of the surrounding conditions. 2.5 Cooperatives as a Tool for Small-scale Enterprises Development The United Nations (UN) sees cooperative as an important means of creating employment, overcoming poverty, achieving social integration and mobilizing resources effectively (Birchall, 2003). Cooperative can therefore be seen as an instrument for social transformation (ILO, 1966). Economic development as describe by Mr A. Okorie of the University of Nigeria, Nsukka, is a system whereby greater percentage of the people of the country is stimulated to actively participate in the social and political growth of the country. He went further to say that except development programmes of the country are brought to the level of every Nigerian to participate in them, the citizens will regard such programmes as foreign and they will not show interest in them. Going by the World Banks latest assessment, the gap between the rich and poor is growing and that unless current trends are reversed; the Millennium Development Goals (MDG) will not be met. However, the UN has constantly recognized the contribution of cooperatives to the MDGs (Birchall, 2003). Nigeria agriculture also confronts an array of challenges common across sub-Saharan Africa that is low productivity, limited capitalization, small size of land holdings and decline in soil fertility. The major challenges of the agricultural sector include a persistent urban bias in price

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and public spending policies leading to highly unbalanced distribution of resources between the rural and urban sectors (Ministry of Finance, 2003). Burning with patriotic zeal, Tete-Ansar launched, in 1932, the African cooperative society as he felt that the economic salvation of the people lay in their own hands. The diamond cooperative scheme introduced as part of a USAID peace building intervention, the Diamond industrial policy and management (DIPAM) programme which later developed into the integrated diamond management programme (IDPM) and from September, 1999 to December 2007. Management system international was contracted by the United States government and furnished with nearly $6.5 million (Dollars) to manage the programme aimed at improving revenue to the Sierra Leonean government and benefit to the community. The strategic objectives were to ensure that Sierra Leones diamond can never again be used to fund conflict. (MSI, 2004) and to reduce the potential for diamonds to be used for money laundering and funding international crime and terrorism (Levin, 2005). The report made on this cooperative scheme shows a number of positive socio-economic impacts which includes access to employment, income generation for women, providing support services, access to proper medical care, improved social status and sense of dignity amongst member miners to attend to their children education rehabilitate and construct houses and purchase consumable such as furniture (Global Witness, 2006 and MSI, 2007). According to Olaleye (2007), granting credit to members, convenient period of pay back, acquisition and distribution of vehicles to members ,distribution of household equipment , distribution of essential commodities, Organization of literacy programme, mutual aids, exchange of labour, training in record keeping, training in thrift and banking habit, acquisition of vocational

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skills, introduction to profitable ventures are some of the strategies employed by cooperative societies to alleviate poverty among members. Therefore cooperatives continues to be an important means often the only one available, whereby the poor as well as those better off but at perpetual risk of becoming poor have to achieve economic security and an acceptable standard of living and equality of life (ICA, 2008). 2.6 Cooperative In Entrepreneurship The Dynamic role of small and medium scale enterprises (Small-scale Enterprises) in Nigeria have been highly emphasized. These enterprises have been identified as the means through which the rapid industrialization, job creation, poverty alleviation and other developmental goals are realized, Small-scale Enterprises are also seen as vital agents in the development process of less developed countries and developed economic, including Nigeria Small-scale Enterprises are specifically promoted by the government to achieved policy targets on entrepreneurship, to create employment opportunities, to mobilize local recourses, to mitigate rural area and to distribute industrial enterprises (The Nation, 2006) In addition to the above, the promotion of Small-scale Enterprises would not only encourage indigenous initiative but also promote the establishment of import substitution industries. It will also generate additional foreign exchange and help to strength currency and the balance of payment position ( The nation, 2006) 2.7. Determinants of Small scale Enterprises Growth

The growth of Small-scale Enterprises is determined by five major factors. These factors are: (a) (b) (c) Size of the market and nature of product The stock of economies of scale and scope The rate of upgrading

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(d) (e) (a)

The nature of the supporting institution The form of collective efficiency Size of the market and nature of products: Market size is an important factor for Small-

scale Enterprises development because the scale of product demand determines the growth rate of the produce. At this end, the impacts of Small-scale Enterprises are limited because of low demand for their products caused by low income-relative growth in Small-scale Enterprises due to positive change in money income, because people (in Remo Division of Ogun State) can gain such changes (Udoh, 2008) (b) The Stock of Economies of scale and Scope: The ability to penetrate larger market is

important for Small-scale Enterprises dynamics. Reaching larger market will not only induce proportionate increase in productivity but also lead to increasing returns. Such returns arise when an increase in all productive inputs results to a more than proportionate increase in Output (Ejembi and Ogiji, 2007) (c) The nature of the supporting institutions: Since the attainment of Independence, every

known regime recognizes the importance of promoting Small-scale Enterprises as the basis of economic growth. As a result several lending institution including the Nigerian Banks for Commerce and Industry (NBCI), the People Bank of Nigeria (PBN), the Micro Finance Bank and co-operative Societies. Performance in business signifies applying capital productively. The only one appropriate way is to measure the return on all assets employed or on all capital invested (Drucker, 1976). A business organisation could measure its performance using financial and non-financial measures. The financial measures include profit before tax and turnover etc. 2.8 Cooperative as an Informal Source of Finance to Small Enterprises Development

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Finance is one of the factor needed for business operation.(Ogunleye, 2000). An increasing body of analytical work has attempted to explain the functioning of credit markets using new theoretical development (Stigletz and Weiss, 1981). Lack of credit forces enterprises to rely on internally generated fund for both working capital and investment, which hampers firms ability to manage their working capital, making it difficult for them to increase sales and operate at full capacity (Ministry of Finanace, 2003). Empirically, research on the use of credit by rural household tends to imply that though it is not obvious that demand far credit for outweighs the supply; there are significant obstacles to the transformation of potential demand into revealed demand (Aryeeley, 1966). For small enterprises, reliable access to short term and small amount of credit is more valuable and emphasizing. It may be more appropriate in credit programmes aimed at such enterprises (Atieno, 2001). Credit markets in Africa have mainly been characterized by the inability to satisfy the existing demand for credit in rural areas. However, whereas for the informal sector, the main reason for this inability is the small size of the resources it controls, for the formal sector, it is not an inadequate lending base that is the reason (Aryeetey, 1996). A large part of financial transactions in Africa occur outsides the formal financial system (Atieno, 2001). Informal sources of finance refers to all trasactions,loans and deposits occurring outside the regulation of a central monetary authority, while the semi informal has the characteristics for both formal and informal sectors. In Africa, it has been defined as the operation of savings and credit associations (ROSCA), professional money lenders, and part-time money leanders like traders, grainmillers, friends as well as cooperative societies (Aryeeteyety et al, 1997; Aryeeteey and Udry, 1997). Cooperative societies being an example of informal sources of financnce tends to help the small enterprises in the area of finance. The emergence of demand for short-time credit especially

19

among traders and farmers will most likely lead to the development of an informal unit to meet that demand. Informal credit therefore seems to develop in response to an existing demand (Atieno, 2001). Informal credit market (say cooperative) has developed in rural areas, providing faster service s to the clients. That informal finance is more important than formal finance has been proven by different approaches used to measure its magnitude in different countries, namely; Malawi (Chipeta and Mkandawire, 1992) and Ghana (Aryeetey and Udry, 1997).

CHAPTER THREE 3.0 3.1 METHODOLOGY OF THE STUDY Study Area The area of the study was Yewa North Local Government Area of Ogun State. It was formally Egbado North Local Government with its headquarters in Ayetoro. Yewa North Local Government is one of the twenty local government areas in Ogun State and of these, it has the largest expanse of land with a size of 2,043,60 square hectare (Y.N.L.G. 2005). The Local Government area is bounded in the west by Republic of Benin, in the south by Yewa South Local Government Area and in the North by Oyo State. Ayetoro is the headquarters of this local government and it is located on latitude 7O15N and longitude 3O3E in the deciduous derived savannah zone of Ogun State. Other important settlements in the local government include Joga Orile, Saala Orile, Owode Ketu, Igbogila, Igan-Okoto etc. The inhabitants are mainly Yorubaspeaking various dialects which comprises of the Yewas and Ketus and their major occupation is farming. 20

3.2

Sources and Methods of Data Collection Both primary and secondary data were used for the study. Primary data were sourced

through structured questionnaires that were administered by me with the assistance of trained enumerators on the respondents. The Small Scale enterprises owners in the study area will constitute respondents for the study. 3.3 Sampling Technique A multistage random sampling technique was employed for the study. While Ayetoro I, Ayetoro II, Idofoi, Igbogila and Imasayi are fairly semi-urban while Sunwa, Ijoun, Eggua, Ohunbe, Joga Orile/Iboro and Ibese are rural in nature. In the first stage, 50% of the towns in semi-urban and rural towns were selected appease for the study. This averages 3 political wards in semi-urban and rural wards each. In Ayetoro I, 40 SSEs were sampled while in each of the other wards, 15 SSEs were sampled. The sampling of more SSEs in Ayetoro I is based on the concentration of SSEs in the area as revealed by personal observation. Table 1: Selection of Sample Size Political wards Semi-urban settings Ayetoro I Igbogila Imasayi Rural settings Sunwa Joga Orile/Iboro Ibese Total 3.4 Methods of Data Analysis Both descriptive and quantitative methods of data analysis were employed in achieving the objectives of the study. Number Of SSEs to be sampled 40 15 15 15 15 15 130

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3.4.1

Objective 1, 2, 3 & 5

Descriptive statistics such as frequency distribution tables, measures of central tendency, proportions etc shall be used in describing socio-economic characteristics of the respondents (1), assessing their level of participation in cooperative societies (2), identify ways by which cooperative contributes to their socio-economic development (3) and describe reasons for participation or otherwise in cooperative societies (5). 3.4.2 Objective 4

Budgetary Analysis was used to analyse the cost-return structure but the Rate of Return on Investment (taken as financial performance) of the small scale enterprises. Budgetary analysis involves determining gross margin, net-income, profitability index and rate of return on investment among others. The model is explained below: TR TC GM NI PI = = = = = = TR-TC PQ TVC + TFC TR-TVC and GM-TFC NI TR RRI = NI TC Where; = Profit x 100 1

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TR = total revenue from cocoa sales. TVC = total variable cost. TFC = total fixed cost TC = total cost GM = PI = RRI = gross margin profitability Index Rate of Return on Investment

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CHAPTER FOUR
4.0 4.1.0 4.1.1 RESULTS AND DISCUSSIONS Socio economic characteristics Age Distribution of Respondents

Age is an important factor that affects level of productivity and level of productivity may affect credit use and decision of SSEs to participate in cooperative and reap the benefits of cooperative movement. The age distribution of the respondents is presented in Table 4.1 Table 4.1: Age Distribution of Respondents Cooperative Membership Non-Cooperators Cooperators Gender 18-45 years old 46-60 years Subgroup Total 18-45 years old 46-60 years Subgroup total Grand total Frequency 64 11 75 (57.7%)* 52 3 55(42.3%)* 130 Percent 85.3 14.7 100.0 94.5 5.5 100.0*

Source: Field survey, 2011. * % of the grand total The study revealed, as shown in Table 4.1, that majority (57.7%) of the sample SSEs were noncooperators while 42.3% of the sampled SSEs owners were cooperators. It can also be seen from the distribution in Table 4.1 that majority (85.3%) of the non-cooperators were between 18-45 years age bracket. Likewise, majority of cooperators had their age within the same age bracket (1824

45 years). The implication of this is that any crusade to encourage participation in cooperative societies as a self-help means should focus more on respondents within 18-45 years age bracket as the success of such endeavour would most likely depend on their conviction. 4.1.2 Gender Distribution of Respondents

Gender has been found to influence access to productive resources including credit (Yahaya et al., 2011). It is therefore necessary to describe the gender of the respondents for possible inference and generalization on how it relates to participation in cooperative societies. The distribution of respondents by gender and cooperative membership is presented in Table 4.2. Table 4.2: Gender Distribution of Respondents Cooperative Membership Non-Cooperators Cooperators Gender Male Female Sub Total Single Married Subgroup total Grand total Frequency 50 25 75 (57.7%)* 32 23 55(42.3%)* 130 Percent 66.7 33.3 100.0 58.2 41.8 100.0*

Source: Field survey, 2011. * % of the grand total The study revealed, as shown in Table 4.2 that the male constituted the majority of sampled cooperators (66.7%) and non-cooperators (58.2%). However, the womenfolk seemed closing the gap between male and female in membership of cooperative societies with 41.8% as against 33.3% exhibited in the non-cooperative group. This might not be unconnected to thrifting tendency of the womenfolk.

4.1.3

Marital Status of Respondents

25

Marital status is expected to influence respondents level of responsibilities which could have positive or negative influence on the need to participate in cooperative societies. Table 4.3: Marital Status of Respondents Cooperative Membership Non-Cooperators Marital status Single Married Divorced Widowed Separated Sub Total Single Married Divorced Widowed Separated Subgroup total Grand total Frequency 21 50 2 0 2 75 (57.7%)* 11 38 5 2 3 55(42.3%)* 130 Percent 28.0 66.6 2.7 0.0 2.7 100.0 20.0 69.0 9.0 3.6 5.4 100.0*

Cooperators

Source: field survey, 2011. * % of the grand total The study revealed, as shown in Table 4.3, that majority of the respondents (either cooperators or non-cooperators) were married. The study also revealed that substantial percentage of noncooperators (28.0%) and cooperators (20.0%) were single. From the distribution, one could observe that while 28.0% of the sampled non-cooperators were single, only 20.0% of the sampled cooperators were single. Conversely, 66.6% of the sampled non-cooperators were married while 69.0% of the sampled cooperators were married. This implies that marriage seems to have influence on being members of cooperative society while being single reduces the propensity to be a cooperator. 4.1.4 Education Level of Respondents

Education is an important factor in the recognition and utilization of investment opportunities. The essence of education was emphasize by Lawal (1993) when he asserted that entrepreneurs should not be motivated to launch a business venture by considering the profitability and viability of the 26

project without the required knowledge and experience. And that education and experience in line of work are highly essential to entrepreneurs. Table 4.4: Distribution of the respondents by educational attainment Cooperative Membership Non-Cooperators Level of Education No formal education Primary education Secondary education OND/NCE HND BSC PG Subgroup Total No formal education Primary education Secondary education OND/NCE HND BSC PG Subgroup total Grand total Frequency 2 16 22 19 12 4 0 75 (57.7%)* 2 9 17 13 9 4 1 55(42.3%)* 130 Percent 2.7 21.3 29.3 25.3 16.0 5.3 0.0 100.0 3.6 16.3 30.9 23.6 16.3 7.2 1.8 100.0*

Cooperators

Source: Field Survey, 2011 * % of the grand total As shown in Table 4.4, cooperators and non cooperator cut cross various educational status of the respondents. The study revealed that 2.7%, 21.3%, 29.3%, 25.3%, 16.0% and 5.3% of the sampled non-cooperators had no formal education, had primary education, secondary education, OND/NCE, HND and BSC respectively. This implies that substantial percentage of the sampled non-cooperator (29.3%) and cooperators (30.9%) possessed secondary education. 4.1.5 Religion of Respondents

The religion distribution of the respondents is presented in Table 4 5. Table 4.5: Religion Distribution of Respondents Cooperative Membership Non-Cooperators Religion Christianity Islam 27 Frequency 40 33 Percent 53.3 44.0

Cooperators

Traditional Subgroup Total Christianity Islam Traditional Subgroup total Grand total

2 75 (57.7%)* 27 28 0 55(42.3%)* 130

2.7 100.0 49.1 50.9 0.0 100.0*

Source: Field Survey, 2011 Looking at the distribution in Table 4.5, it can be seen that the two dominant religions (Christianity & Islam) are fairly represented in the study. This implies that the results obtained/obtainable from this study is likely to be less religious bias. Besides, the highest percentage of the non-cooperators (53.3%) were Christians while the highest percentage of the cooperators (50.9%) were Muslims. This could mean that religion has a role to play in being a member of cooperative societies. 4.1.6 Household Size Distribution of Respondents The total household size of the respondents comprises of their wives or husbands, children and their dependants. This is in agreement with the view of Akerele (2003), who stated that a household consists of a category of people who fed from the same pot. In African setting children and women constitute large proportion of a household size. In addition, the household size has been a major determinant of involvement in entrepreneurship in the area of loan credit procurement and repayment, involvement in cooperatives and utilization of cooperative and microfinance facilities as supported by the findings of Oladeebo (2005) Ojo (2008) Mafimisebi (2008). Table 4.6: Household Size Distribution of Respondents Cooperative Membership Non-Cooperators Household size 1-5 6-10 Above 10 Subgroup Total 1-5 6-10 Above 10 28 Frequency 58 16 1 75 (57.7%)* 41 13 1 Percent 77.3 21.3 1.4 100.0 74.5 23.7 1.8

Cooperators

Subgroup total Grand total Source: Field Survey, 2011

55(42.3%)* 130

100.0*

As shown in Table 4.6, majority of the non-cooperators (77.3%) and cooperators (74.5%) had household size of between 1-5 persons. This implication of this is that the respondents had fairly moderate household sizes. By carefully observing the Table 4.6, one can conclude that respondents with either household sizes of between 1-5 or 6-10 persons are fairly represented in either of the two groups (cooperators & non-cooperators). 4.1.7 Primary Occupation Distribution of Respondents

The primary occupation of the respondents could influence the need for credit and the propensity to participate in cooperative society. The distribution of the respondents by their primary occupation is presented in Table 4.7. Table4.7: Primary Occupation Distribution of Respondents Cooperative Membership Primary occupation Frequency Non-Cooperators Farming 5 Trading 20 Artisan 26 Civil service 17 Others 7 Subgroup Total 75 (57.7%)* Cooperators Farming 2 Trading 15 Artisan 18 Civil service 18 Others 2 Subgroup total 55(42.3%)* Grand total 130 Source: Field Survey, 2011 Percent 6.7 26.7 34.7 22.7 9.2 100.0 3.6 27.3 32.7 32.7 3.7 100.0*

Looking at the distribution in Table 4.7, one could see that both non-cooperators and cooperators were involved in various activities as their main occupation. Different occupations seemed to be fairly represented in either of the groups (cooperators and non-cooperators). This implies that type of occupation may not be a significant factor influencing decision to join cooperative society. 29

4.2 4.2.1

LEVEL OF PARTICIPATION IN COOPERATIVE Types of Cooperative of the respondents

The figure below revealed the frequency distribution of respondents according to the types of cooperative societies that they belonged to. Figure 1: Types of Respondents Cooperative Societies

TYPES OF COOPERATIVE SOCIETIES

60
FREQUENCY DISTRIBUTION

57.7

50 40 30 20 10 0
NONE CTCS 32.3

5.8
CMS

4.2
COOP. HOUSING

Source: Field survey, 2011. Figure 1 revealed that majority (57.7%) of the respondents were non-cooperators. Besides, 32.3%, 5.8% and 4.2% of the respondents belonged to Cooperative Thrift and Credit Society (CTCS),

30

Cooperative Multipurpose Society (CMS) and Housing Cooperative respectively. This implies that majority of the cooperators belonged to Cooperative Thrift and Credit Society (CTCS) apparently to have access to loan for their various businesses.

4.2.2

Average Annual Savings and Shares Contributed by cooperative members

The level of participation in cooperative may not be adequately captured by membership of cooperative societies, but also by the magnitude of their contributions in the societies. Hence, the need to analyze the magnitude of their savings and shares in the societies. Figure 2: Average Members savings and Shares in Cooperatives

98800
100000 90000 80000 70000 60000 50000 40000 30000 20000 10000 0 YEAR 2009 SAVINGS SHARES YEAR 2010

79850 47800 32500

Source: Field Survey, 2011 As shown in Figure 2, irrespective of the year under comparison, the average savings of cooperative members exceeded their shares. This may not be unconnected to the fact that 31

investment in cooperative shares is usual once which limits its growth while savings is continuous. Besides, nominal growth in savings and shares of cooperative is noticeable in year 2010. While the average shares and savings of cooperators in 2009 were N79, 850 and N32,500 respectively, that of years 2010 were N98,800 and N47,800 for saving and shares respectively. The nominal growth in members savings and shares may result to increased loan availability for members.

4.2.2

Enterprise Size of the Respondents

In classifying the enterprise size of the respondents, the employees size approach was adopted. This is in line with the view of Lawal (1993) that sales turnover, capital employed, profit, number of employees, scope of operation are some of the indices used to measure organization size. In addition, using size of employees to define and classify enterprises has been a common practice in literature (Adams and Hall, 1993; Freel, 1999; Rothwell and Zegveld, 1982). Following the definition of Nigeria National Council of Industries (NNCI) a small scale enterprise is an enterprise with a labour size of 11 100 workers (Udechukwu, 2003). Figure 3: Enterprise Employees' Size

32

Source: Field Survey, 2011

4.3.0

WAYS BY WHICH COOPERATIVE CONTRIBUTES TO SSE DEVELOPMENT

Table 4.8 presents the responses of sampled cooperative-based SSEs on cooperative contributions to the development of their enterprises. Table 4.8: Contributions of cooperative to SSE Contribution of cooperative to SSEs Frequency Loan 53 Cooperative education 24 Avenue for savings 34 Access to production inputs 25 Acquisition of assets 20 Supports during special occasions 10 Total 166* Source: Field Survey, 2011 * Multiple responses 33 Percent 31.9 14.4 20.5 15.0 12.1 6.1 100.0 Rank 1st 4th 2nd 3rd 5th 6th

As shown in Table 4.8, the most important way by which cooperative impact SSE in the study area is through loan advancement with 31.9% of the total responses. Aside loan advancement to members, next in the list of ways by which cooperatives impact SSEs is by providing avenue for savings to members with 20.5% of the total responses. The third most important way by which cooperatives impact SSEs is in the area of asset acquisition. The respondents in question claimed that if not for cooperative, they wouldnt have being able to acquire certain assets. The fourth and fifth most important ways by which cooperatives impact SSEs in the study area were through cooperative education and supports during special occasions respectively. While 14.4% of the total responses supports cooperative education as a way by which cooperatives impact their SSEs, only 6.1% of the total responses was in favour of supports during special occasions.

4.4.0 4.4.1

Comparison of Enterprise Performance Budgetary Analysis of the Sampled Enterprises All enterprises 28,500,250 5,025,340 33,525,590 35,023,450 6,523,200 1,497,860 0.04 4.46 36,065,440 8,025,118 44,090,558 52,012,500 15,947,060 7,921,942 0.15 17.96

Category Non-cooperators

Variables TVC TFC TC TR GM NI PI RRI (%) Cooperators TVC TFC TC TR GM NI PI RRI (%) Source: Field Survey, 2011

34

TVC = Total Variable Cost. TFC = Total Fixed Cost. TC = Total Cost. TR = Total Revenue. GM = Gross Margin NI = Net Income, PI = Profitability Index, RRI = Rate of Return on Investment The budgetary analysis table below shows the performance of the enterprises in question in the year 2010. From the table, the enterprises formed by non - cooperators had a total variable cost of N28,500,250, total fixed cost was N5,025,340, total cost was N33,525,590 and the total revenue was N35,023,450 while the gross margin and net income were N6,523,200 and N1,497,860 respectively. For the cooperators, the total variable cost, total fixed cost and total cost were N36,065,440, N8,025,118 and N44,090,558 respectively. The total revenue for the enterprise operated by cooperators was N52,012,500 while the gross margin and net income were N15,947,060 and N7,921,942 respectively. From the analysis, the result shows that the enterprises formed by cooperators earned more net income than the enterprises formed by non cooperators. However, this is not an indication of higher profitability or performance. To measure the profitability and perhaps performance of the enterprises, their Profitability Index (PI) and Rate of Return on Investment (RRI) were estimated. As shown in Table 4.8, the PI and RRI of the noncooperative based enterprises were 0.04 and 4.46% respectively while that of cooperative based enterprises were 0.15 and 17.96% respectively. The superiority in performance (measured by profitability and rate of return on investment) of the cooperative-based enterprises might not be unconnected to access to affordable loan (which usually characterized cooperative societies) and cooperative education which could have helped them in their businesses.

35

4.5.0

MOST IMPORTANT REASONS FOR JOINING COOPERATIVE SOCIETIES

Table 4.9 presents the distribution of the respondent by the reasons for joining cooperative societies Cooperative Membership Non-Cooperators Cooperators Reasons for joining cooperative Not a member Subgroup Total To have access to credit To socialize For the cooperative education Noticed cooperative effect on Frequency 75 75 (57.7%)* 40 2 10 3 Percent 100.0 100.0 72.7 3.6 18.2 5.5

friend enterprise Subgroup total 55(42.3%)* 100.0* Grand total 130 Table 4.9: Distribution of respondents by their most important reason for joining cooperative societies Source: Field Survey, 2011 As shown in Table 4.9, the most important reason for belonging to cooperative societies by members is to have access to credit. 72.7% of the respondents claimed that they joined cooperative societies in order to have access to credit while 3.6%, 18.2% and 5.5% of the respondents claimed that they joined cooperative societies mainly to socialize, for cooperative education and as a result of cooperative effects they noticed in the friends business respectively. It is worthy of note that substantial percentage (18.2%) of the respondents claimed that they joined cooperatives mainly for 36

cooperative education. This implies that aside to gain access to credit, cooperative education is in the forefront of reasons for joining cooperative societies.

CHAPTER FIVE 5.0 5.1 SUMMARY, CONCLUSIONS AND RECOMMENDATIONS SUMMARY OF FINDINGS

This study examined the effect of cooperatives on the growth of small scale enterprises in Yewa North Local Government Area, Ogun State. A total of one hundred and thirth (130) respondents were randomly selected for the study. All the respondents (130) were interviewed through structured questionnaire. The results obtained on the socio-economic characteristics of the respondents revealed that majority SSEs were non-cooperators (57.7%), majority (85.3%) of the non-cooperators were between 18-45 years age bracket. Likewise, majority of cooperators had their age within the same age bracket (18-45 years). The implication of this is that any crusade to encourage participation in cooperative societies as a self-help means should focus more on respondents within 18-45 years age bracket as the success of such endeavour would most likely depend on their conviction. It was also discovered that majority of the sampled non-cooperators (66.7%) and cooperators (58.2%) were male. However, the womenfolk seemed closing the gap between male and female in membership of cooperative societies with 41.8% as against 33.3% exhibited in the non-cooperative group. This might not be unconnected to thrifting tendency of the womenfolk. Another revelation of the study is that married respondents constituted the majority of the non-cooperators (69.0%) and cooperators (69.0%) in the study area and that being single reduces the propensity of being a

37

cooperator. It was discovered that cooperators and non-cooperators cut across various educational group. However, substantial percentage of the sampled non-cooperator (29.3%) and cooperators (30.9%) possessed secondary education. The study also revealed that the highest percentage of the non-cooperators (53.3%) were Christians while the highest percentage of the cooperators (50.9%) were Muslims. This could mean that religion has a role to play in being a member of cooperative societies. It was also discovered from the study that majority of the non-cooperators (77.3%) and cooperators (74.5%) had household size of between 1-5 persons and that respondents with either household sizes of between 1-5 or 6-10 persons were fairly represented in either of the two groups (cooperators & non-cooperators). Analysis of the level of participation in cooperative societies revealed that 57.7% of the respondents did not participate in cooperative while 32.3%, 5.8% and 4.2% of the respondents participated in Thrift and Credit Cooperatives (CTCS), Multipurpose Cooperatives (CMS) and Housing Cooperatives respectively. This implies that majority of the cooperators belonged to Cooperative Thrift and Credit Society (CTCS) apparently to have access to loan for their various businesses. An investigation into ways by which cooperatives contributed to the growth of SSEs in the study area revealed that the most important way by which cooperative impact SSE in the study area is through loan advancement followed by providing avenue for savings to members. Other ways by which cooperatives contributed include access to production inputs, cooperative education, acquisition of assets and supports during special occasions in that order. Comparison of the financial performance of cooperative and non-cooperative-based SSEs was done through budgetary analysis. The results revealed that enterprises formed by cooperators earned more net income than the enterprises formed by non cooperators. However, this was not

38

an indication of higher profitability or performance. To measure the profitability and perhaps performance of the enterprises, their Profitability Index (PI) and Rate of Return on Investment (RRI) were estimated. The PI and RRI of the non-cooperative based enterprises were 0.04 and 4.46% respectively while that of cooperative based enterprises were 0.15 and 17.9% respectively. The superiority in performance (measured by profitability and rate of return on investment) of the cooperative-based enterprises might not be unconnected to access to affordable loan (which usually characterized cooperative societies) and cooperative education which could have helped them in their businesses. Analysis of the most important reasons for joining cooperative societies showed that the most important reason for belonging to cooperative societies by members is to have access to credit. Other reasons claimed by the respondents for joining cooperative societies included; to socialize, for cooperative education and as a result of cooperative effects they noticed in the friends business. It is worthy of note that substantial percentage (18.2%) of the respondents claimed that they joined cooperatives mainly for cooperative education. This implies that aside to gain access to credit; cooperative education is in the forefront of reasons for joining cooperative societies. 5.2 CONCLUSIONS

This study examined the effect of cooperatives on the growth of small scale enterprises in Yewa North Local Government Area, Ogun State. Based on the findings of the study, it is concluded that: Majority of the respondents were male, married, had household sizes of between 1-5 persons, appreciably literate, aged between 18-45 years and were non-cooperative members.

39

Being single reduces the propensity of being a cooperator Among the cooperators, Thrift and Credit Societies were the most patronized. The most important way by which cooperative impact SSE in the study area is through loan advancement to member SSEs

The financial performance of cooperative-based SSEs is superior to Non-cooperative based SSEs

The most important reason for belonging to cooperative societies by members is to have access to credit

5.3

RECOMMENDATIONS

Arising from the conclusions of this study, it is recommended that: SSEs in the study are should endeavour to join/form a cooperative societies as cooperative membership by SSEs is found to contribute positively to SSEs financial performance. Married residents have higher propensity to join cooperative societies when compared to their single counterparts. Therefore, any cooperative members enrolment crusade should focused more on married residents as they are more likely to be pacified to join cooperative than their single counterparts.

40

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