IMPACT OF COOPERATIVE FINANCING ON RURAL INCOME DISTRIBUTION
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Abstract
The study was carried out to investigate the role played by cooperative societies’ loans services on members’ economic condition through household income generation in rural areas where there is no bank or other formal financial providers. Using a questionnaire technique, the study covers the activities of cooperative societies located in rural communities and villages outside the state capital and local government headquarters where there is no electricity, water, and tarred road in Ijebu North local government area of Ogun State, Nigeria. Data are analysed using chi-square and t-test. The study found that participation in a cooperative is associated with increase in household income, while membership duration, house ownership, and marital status are the three variables that contributed significantly to the increase in household income reported by members in addition to the program loan. The result indicates specifically that being a cooperative member for a longer period of time and living in rented houses were significant contributory factors towards increase in household income. However, there was no difference in the number of increase in household income reported based on marital status of the members. The use of cooperative loan increases household income level of the borrowers because the loan serves as additional investment and therefore helps to improve economic position for better living standard of the members. The increase in household income through cooperative loan is a financial capital which supports the social capital theory to explain the role of cooperatives in rural finance at the household level.
CHAPTER ONE
INTRODUCTION
1.1 Background of the study
Economists have discussed income distribution issues for decades. These issues have recently emerged as major debates even in developed economies (Meltzer & Richard, 2015 As Sarel (1997) refers, income distribution has been a relevant issue in positivistism (what it is) and normativism (what it should be). Inequality is a universal and robust phenomenon, not bound by either time or geography, but for scholars, it has a few statistical regularities, as is the case with income and wealth distributions over a wide range of societies and across different time periods (Soriano-Hernandez et al., 2016). In the oldest economy literature, the explanation of the theory of distribution constitutes the major concepts of the economists’ views. Several theories have been formed to investigate the distribution of personal income.
Cooperative financing however includes any decisions made by a business that affect its finances. Such decisions may include: investment decision (where should a firm invest its scarce resources), project analysis, financing decisions that will tell how a firm should raise additional resources Gupta (2001). Cooperative finance however refers to financial services ranging from short, medium and long-term loans, to leasing, to agriculture and insurance, covering the entire production value chain-input supply, production and distribution, wholesaling, processing and marketing. Rural and agricultural financial services are provided by formal and informal financial institutions as well as through financial arrangement. Bello (2012)
Meanwhile, it is not unclear that the income distribution in Nigeria is relatively unequal, that is there is a significant disparity in the distribution of income between individuals, groups, populations, social classes, or countries. Income inequality is a major dimension of social stratification and social class. It affects and is affected by many other forms of inequality, such as inequalities of wealth, political power, and social status. Income is a major determinant of quality of life, affecting the health and well-being of individuals and families, and varies by social factors such as sex, age, and race or ethnicity
The concern here is that rural environment dominates the larger number in the Nigeria populace. Therefore to achieve a meaningful income flow or development, rural environment is considered the most Olayide (2007). It is found that within-sector inequalities in income distribution are substantially higher than that in expenditure distribution because expenditure level is more dependent on whether rural or urban characteristics of a household, while the determinants of income level seems to stay in other characteristics such as education and occupations of household members. Income inequality within the urban sector is higher than that in the rural sector because urban income mainly comes from wage employment and non-farm self-employment and cooperative growth which are more unequal than rural income. Interestingly, cooperative employment may seem to be an equalizing income source in both urban and rural areas.
Through Cooperative financing, members have the opportunity to pool resources and create institutions that make it possible to offer financial services to customers, based on some type of common interest or profession. For example, there are several nations around the world with cooperatives based on industry are found Royer, et al (2007).
One major benefit of the cooperative finance is that there is usually some type of central support organization that actively seeks discounted benefits for all members, hence influences the circulation of income. The central organization is granted authority to negotiate and enter into contracts with various vendors, based on the combined buying power of the members of the rural dwellers. This often allows the organization to command highly competitive discounted rates and highly developing rural settlers that each member can utilize if desired. By securing these rates, even members who would only make use of particular goods or services on a sporadic basis can enjoy the benefits of discounted pricing that would normally be available only to consumers who generated much larger volumes of business Adeniyi, (2011).
1.2 Statement of the problem
Rural income is undeniably an inequality-equalizing source. Therefore, much of income inequality stays in the distribution of sources other than wage and agriculture. Fritzen, (2012). Cooperative financing plays important roles in transforming lives of individual, improving their economic and financial as well as social status. It is no gain saying that in most cases, rural regions do not get pleasure from financial inclusion from most institutions. The reason for this is not far-fetched;
Factors such as poor infrastructure and widely dispersed population in rural areas raise translation and information cost, thus further hindering the spread of income and financial services. Title and property right can be difficult to verify in rural areas, posing problems in the use of collateral.
From the foregoing, it could be observed that rural areas are financially excluded and income is not thoroughly circulated due to the above mentioned factors and many other reasons. It is in light of this that this research aimed at unraveling the impact of cooperative financing on rural income distribution.
1.3 Objective of the study
The main objective of this study is to examine the impact of cooperative financing on rural income distribution. Other objectives include:
- To examine the income distribution among rural household in the study area.
- To evaluate the significant influence of corporative finance on rural income distribution.
- To determine the contributions of cooperative societies in income distribution among rural households.
1.4 Research questions
This study is set to answer the following questions:
- Does cooperative financing has any impact on rural income distribution
- Is there any way(s) cooperative financing affect rural income distribution
- Does cooperative financing has any significant effect on rural income distribution
- Is there any relationship between cooperative finance and rural income distribution
1.5 Research hypotheses
Ho1: there is no significant impact of cooperative financing on rural income distribution
Ho2: there is no significant relationship between cooperative financing and rural income distribution
1.6 Scope of the study
This study is set to disclose whether or not there is any impact of cooperative financing on rural income distribution in Ijebu North local government area of Ogun State.
1.7 Significance of the study
This study will be of great significance to rural settlers, by discovering that cooperate financing could be used for both economic and social transformation of the rural settlers. Rural areas are exemplified by many challenges ranging from lack of access to financial services, poor infrastructure, rural clients remaining beyond the reach of financial outlets, reluctance of financial institutions to provide financial services to agricultural and rural activities, agricultural risks, less frequent repayment amid others.
To rural developers/planners, this study will also help developers in forecasting activities towards improving the lives of the rural dwellers by bringing in access to financial sustenance, loan, grant and employment. Also to the researcher, this study will tend to develop and equip the researcher on the presence and relevance and up to date information on cooperative financing as it may affect rural income distribution in Ijebu North Local Government as a study area. This study will encourage the study area to enhance the opportunities within cooperative and cooperative financing that are available, there by using cooperate financing as an instrument for rural income distribution, development and also to the general public.
1.8 Organization of the study
The study contained five chapters. The first chapter shall contain the background to the study, the statement of the research problem, the objectives the study, the research questions and research hypotheses etc. that would guide the study. Chapter two summarizes the opinions of different authors on the subject matter. Chapter three states the methodology adopted in the study. Chapter four focuses on the presentation, analysis of data and interpretation of results. The last chapter, which is chapter five, presents the summary of findings, conclusion and appropriate recommendations.
1.9 Definition of terms
Cooperative: a legal entity that is separate and distinct from its owners
Financing: act of providing fund for a person or enterprise
Cooperative financing: the capital structure and source for funding a corporation
Rural areas: a geographic area that is located outside town or cities
Income: money received, especially on a regular basis, for work or through investment.
Income distribution: the smoothness or equality with which income is dealt out among members of a society.
Inequality: difference in size, degree, or circumstances
Income inequality: different in the degree at which income flow
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