Ife Journal of Entrepreneurship and Business Management, Maiden Issue, 2015

RESTRUCTURING THE LOAN SYSTEM IN COOPERATIVE

SOCIETIES FOR ECONOMIC EMPOWERMENT IN NIGERIA
Adesina, F.A.1, Jegede, C.T.2, Abereijo, I.O.2, Fayomi, A.O.2, Opatola, M.O2., Jiboye, T.F.2,
Akinyosoye, M.O.2 & Oguntimehin, A.A.2
1
Department of Geography, Obafemi Awolowo University, Ile-Ife, Nigeria
2
Institute for Entrepreneurship and Development Studies, Obafemi Awolowo University, Ile Ife, Nigeria

ABSTRACT

This paper investigated the nature of loan regimes in cooperative societies in Nigeria with
a view to improving cooperative system for sustainable development. The paper specifically
examined barriers to sustainable loan regimes by looking at the related challenges and
opportunities of cooperative societies‟ access to an utilisation of financial services in Nigeria in
general and in Osun State of Nigeria in particular. Studies have affirmed that re-structuring for
sustainable development is a process involving three essential elements, that is, feasible industrial
growth to fulfill basic socio-economic needs; ensuring maximum development of human
resources; and achieving greater social justice through more equitable income distribution.
Unfortunately, none of these is satisfactorily manifesting in African nations. In Nigeria,
unemployment rate is increasing among the youth, young graduates and the poor people. Globally,
cooperative societies have become well appreciated as a strong vehicle for promoting economic
empowerment particularly among the youth and other vulnerable and marginalised groups.
Primary data were obtained through in-depth interviews, focus group discussions and semi-
structured questionnaire directed at all the 2,972 cooperative societies in the state of Osun,
Nigeria. Secondary data were obtained from books, journals and internet. Research findings
showed that although cooperative societies have been instrumental to economic empowerment in
the rural areas of the State of Osun, and in promoting local entrepreneurship across the West
African countries, especially between Nigeria and Ivory Coast, nevertheless, loan regimes could
still be further improved to make cooperative system more efficient in the quest for rapid
sustainable economic development. The paper averred that cooperative societies, if well
harnessed, could be used to make local entrepreneurs have access to finance.

Keywords: Cooperative Society; Empowerment; Entrepreneurship; Loan Regimes; Sustainable

Development

INTRODUCTION
Given the increasing working age population in developing countries and Nigeria in
particular, the high levels of unemployment and limited economic opportunities for the working
class; governments are increasingly looking for proactive approaches to help citizenry realize their
full economic potential (CBN, 2000; Jegede and Jiboye, 2009). Increased access to financial
services through restructuring of loan regimes for better service delivery in cooperative societies
may provide that beacon. Yet the working age in developing economies face many barriers in
accessing financial services, including restrictions in the legal and regulatory environment,
inappropriate and inaccessible products and low financial capability (UNICEF, 2011; Collins,
1999; Madaline, 2009; Laura 2011; and Blunt et. al., 1992). Overcoming these barriers and
achieving successful and sustainable cooperative financial inclusion requires a multi-stakeholder
approach that engages government (including policy makers, regulators, and line ministries),

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financial service providers (FSPs) and other stakeholders, as well as the beneficiaries themselves
including low income people.
This paper will address these barriers by looking at the related challenges and
opportunities at the macro level that have affected cooperative access to and utilisation of financial
services in Nigeria in general and in Osun state of Nigeria in particular,
Specifically, the paper aims at:
i. examining the loan and repayment regimes of cooperative societies;
ii. determining and recommending appropriate funding levels that can significantly raise the
capacity of cooperative societies to support their members;
iii. providing information on cooperative societies for better governance and sustainability;
According to Adesina (2012), a cooperative society is an enterprise that is jointly owned by
the members who use its services. A cooperative society is defined as 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. It is a business
organisation owned and operated by a group of individuals for their mutual benefit (World Youth
Report, 2007).
All members of a cooperative society are equal decision makers in the enterprise, using a
democratic system of one-member, one-vote. In turn, all members share the benefits of co-
operation, based on how much they use the co-operative‟s service.
Cooperative societies take different forms and they operate in all sectors of the economy,
but a co-operative society is generally set up by a group of people who share a common need. By
pooling their resources and working together, the members can satisfy that need through the co-
operative (Otto and Ukpere, 2011). While they serve a wide variety of functions, co-operative
societies generally fit one of the following four types:
(i) Consumer co-operative society who provides products or services to its members (such as
a retail co-operative society, housing, health-care or child-care cooperative society)
(ii) Producer co-operative society who produces and markets them through its members, and
or supplies those necessary to the members‟ professional activities (such as independent
entrepreneurs, artisans or farmers).
(iii) Worker co-operative society that provides employment for its members. In this type of co-
operative society, the employees are the members and owners of the enterprise.
(iv) Multi-stakeholder co-operative society that serves the needs of different stakeholders
groups, such as employees, clients, and other interested individuals and organisations. This
type of co-operative is usually found in health, home care and other social enterprises.
Cooperative Societies serve both economic and social purposes. While a co-operative
society exists to meet the common needs of its members, it also promotes the development of
those members through their involvement in the democratic governance of the enterprise (Laura
and Katharine, 2010; Adeyemo and Bamire, 2005). However, despite these advantages, co-
operative movements continue to face some challenges.
According to Adesina (2012), members of co-operative societies face the following three
barriers to accessing and using formal financial services:

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 Ife Journal of Entrepreneurship and Business Management, Maiden Issue, 2015

(i) Restrictions in the legal and regulatory environment (e.g., minimum age and identification
requirements).
(ii) Inappropriate and inaccessible financial products offered by FSPs.
(iii) Poor financial capabilities of SMEs, members and non members of cooperative societies.
To overcome these barriers, researchers have proposed micro finance institutions, credit
scheme institutions, youth organisations, business angels and youth-friendly regulatory
environment that recognise the needs of low income people, youth and SMEs. Co-operative
societies, financial education and entrepreneurship development can also assist SMEs, youth and
low income people in taking greatest advantage of the financial services available. Government
policies and incentives can help stimulate the financial sector to design appropriate financial
products as well as innovative delivery channels including low-cost access points such as mobile
banking, cooperative societies, cooperative colleges and school banking programmes.

METHODOLOGY
The study covered the whole state of Osun, in the south western part of Nigeria. Data
were collected from every co-operative society in all the geographical zones within the local
government areas of the state. In all, 2,972 members of co-operative societies were covered in the
six zone covering all the local government areas of Osun State, Nigeria.
A combination of research techniques was employed in collecting relevant data sets for
the exercise. This includes interviews with semi-structured questionnaires and Focus Group
Discussions. The instruments used for data capturing were developed and pre-tested before their
administration. The pre-test was to ensure that the instruments would be able to capture the
pertinent data needed for the exercise. The instruments include:
(i) A comprehensive questionnaire to capture the various aspects of the activities of
Cooperative societies;
(ii) A questionnaire for executive members of the cooperative societies;
(iii) A checklist of questions for Union officials and members of FOSCOOP;
(iv) A set of questionnaires for evaluating performances of the cooperative college.

FINDINGS AND DISCUSSIONS

The study observed that a co-operative's start-up capital usually comes from member
shares in the co-operative society, and a portion of any surplus generated by the co-operative
society may be returned to members in the form of patronage dividends. This type of return is
different from profits earned on invested capital since it is based on how much the member uses the
co-operative society's service, not on the number of shares the member holds in the society. Some
societies are structured as non-profit entities, such as housing, health- and day-care co-op societies.
These co-op societies do not issue patronage dividends.
The study also observed that co-operative societies function within a regulatory
environment in Nigeria. A co-operative will need to be registered with the Directorate of
Cooperative Societies at the Ministry of Trades at State level before it becomes a legal entity. It
may be formed in accordance with the co-operative statute setting out its corporate form and mode

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of operation; or in accordance with the Nigerian Co-operative Societies Act when the co-operative
society has a place of business in at least two states in Nigeria.
The study also noted uneven distribution of co-operative societies as captured by zone.
The distribution of co-operative societies across the State could be a representative of intensity of
entrepreneurship activities among the local people.
Figure 1 below shows the distribution of the co-operative societies by the geopolitical
zones of the State. It shows that Osogbo zone is having a relatively larger number followed by
Ikirun and Ife zones. The distribution is
fairly representative of the different parts of
the State. The dominance of Osogbo zone
should be expected. Apart from being the
State capital where economic activities are
much higher than in any other zones, many
of the cooperative societies that came from
Oyo State to the new State in 1991 ended
up in Osogbo. Also, Osogbo has a long
history of being a commercial centre and a
strategic nodal town linking the southern
part of western Nigeria with the northern
part. This vantage position may have
supported the presence of a large pool of
cooperative societies in the area. However,
the study observed that all the societies Figure 1: Distribution of Sampled
were not interconnected as expected. They
were too independent of each other with very little interactive activities going on among them. The
result therefore suggests that however the need for societies to build stronger network so that they
could interface with each other on various issues of interest.
The study further investigated the various categories of co-operative societies in the
State. The analysis of the data showed that there were five main categories of co-operative
societies in the various parts of the State. These were Credit and Thrift cooperatives, Produce
Buying Cooperatives, Consumer Cooperative, Producers Cooperatives and Farmers Cooperative.
To this may be added a sixth category – Multi-purpose cooperatives. Figure 2 below shows the
relative proportions of the various types
of societies in the State. From the figure,
it is clear that the Credit and Thrift
Cooperative Societies constitute the
dominant type of in the State
representing nine-tenths of the Societies
covered. Produce buying societies are the
next most important group of cooperative
societies although it is only 4% of the
total.

Figure 2: Proportions of the main types of Cooperative Societies in Osun State

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The Farmers Cooperative Societies representing only 3% are the next group of societies. The
result suggests that any intervention by the government must specifically focus on Credit and
Thrift Co-operative Societies in order to spread and affect the lives of the majority at the
grassroots.
The study also examined the registration status of every society in the State. It was found
that a large proportion, at least nine-tenths of all cooperative societies interviewed, indicated that
they were registered with the Ministry (Figure 3). Virtually all of the remaining were desirous and
seem very determined to register except for
some bottlenecks. One implication of this
finding is that there is need to review the
registration process in order to make it
possible to register with minimum stress.
The Department of Cooperative Services at
State level must identify what is deficient in
the process and put in place a system that
allows easy registration of qualified
associations as cooperative societies.

Figure 3: Registration Status of Societies

The study also explored the current asset base of all the societies. As shown in Table 1
and Figure 4, close to two-fifths (36.1%) have less than one million naira base. About a third
(32.2%) has a capital base of between 1 and 5 million. A similar proportion (31.7%) had five
million and above. Thus close to seven-fifths of the societies (68.3%) has not more than five
million naira as capital base. It is important to note that as expected, a larger proportion of farmers
and produce buying co-operatives fall in the categories of societies with capital bases of at least
one million naira and more than 5 million naira.
Table 1: Current asset Base of Cooperative Societies
Value Frequency Percentage Cumulative
percentage
<N50,000 66 3.24 3.24
N50,000-100,000 128 6.28 9.52
N101,000 - 250,000 121 5.94 15.46
N251,000 - 500,000 193 9.47 24.94
N 501,000 - 1m 268 13.16 38.10
N 1m - 5 m 640 31.42 69.51
N 5m and above 621 30.49 100
Total 2,037
Source: Field Survey
In general, this capital bases are weak. This may be partly responsible for the common remark that
members do not readily get loans when they need them. It is also a reason why government may
consider providing some support in the form of revolving loans to the co-operative societies.
In Table 2, the different categories of societies are cross tabulated with their “capital
base” parameter. This was to have a picture of the distribution of capital bases by type of
cooperatives. The analysis shows important patterns. For instance it shows that Produce Buying

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Cooperative Societies tend to be capital intensive. About 70% of the societies in the category has a
capital base of 1 million naira and above, whereas, for the Credit and Thrift category, 62% of the
societies fall into that bracket.

Figure 4: Current Asset Base

Table 2: Cross Tabulation of Asset base by Society Type

Category T&C Con Prod Far PB Total
< N50,000 53 1 1 4 5 64
N50,000-100,000 106 4 2 8 8 128
N101,000-250,000 109 2 0 3 7 121
N251,000-500,000 182 0 1 7 3 193
N500,000-1 million 239 5 4 16 3 267
N1-5 mil. 590 6 6 15 23 640
> N5 mil. 567 5 4 10 35 621
Total 1,846 23 18 63 84 2,034
Source: Field Survey
Key: T&C = Thrift & Credit Co-operative Society;
Con = Consumers Co-operative Society
Prod = Producer Co-operative Society
Far = Farmers Co-operative Society
PB = Produce Buyers Co-operative Society

The study also assessed the total asset and fund required by cooperative societies. Going
by the Table 3, the range of figures quoted as capital bases are very high. In estimating the total
asset we assumed a median for each category of asset bases and used this to compute the total
asset. This gives a conservative sum of N6.43 billion. Table 4 shows proportions of this that
Government may choose from to support the societies. If government can raise about N640m, it
will be supporting the society to ten percent of their assets and would make substantial impact on
the societies.
The study also identified the monthly contributions by members as the main source of
funds to most of the co-operative societies. This comes weekly, monthly or as frequently as
members meet. Table 4 shows the distribution of the categories of monthly contributions on the
average. Contributions range between less than N500 and above N10,000. In general, the monthly
contribution averages N203,042.1 and has a wide range of between N500 and N2.5 million. As
expected, the contributions vary greatly with the intensity of the capital of the individual

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members‟ businesses. More than two-fifths contribute just about N1,000 a month. This is a
reflection of the limited economic power of the members.
Table 3: Total asset and possible support levels from Government
Proportion Amount (In Naira)
100% 6,432,264,200
30% 1,929,679,260
25% 1,608,066,050
20% 1,286,452,840`
15% 964,839,630
10% 643,226,420
5% 321,631,210

Table 4: Average Monthly Contribution of members

S/N Range of Percentage (%)
Contribution
1 Less than N 500 10.05
2 N 500 – 1,000 30.16
3 N 1001 – 2,500 21.74
4 N 2501 – 5,000 9.78
5 N 5001 – 10,000 4.89
6 Above N 10,000 22.83
7 Not applicable 0.54
Investing in ventures is another source of income for cooperative societies. Societies with
good investments are able to give high dividends and can give loans at very low interest rates
(sometimes at zero rates) to their members. In general, the older the societies are, the greater the
chances that they would have wider ranges of investments. As shown in Figure 5, close to three-
fifths (58.2%) of the cooperative societies have investments of various types.

Figure 5: Proportion with or without investment

As depicted in figure 6, most of these investments were on land and landed properties as
well as rental services. Common landed properties mentioned are multi-purpose halls and meeting
places as well as housing units. Only few societies invest in motor vehicles (taxis) and shares. The
societies are generally careful about their choice of what to invest upon to ensure that their money

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does not get lost in the process and in any case, that the efforts bring good returns. Most societies
believe that landed properties are safe to invest in.

Figure 6: Nature of Investment

An analysis of loan regimes in the societies revealed that societies gave out loans to their
members on a regular basis. These are usually proportional to the financial strength of the society
as well as the investment of the members. The usual practice is to give as loan to members an
amount that is twice their investment in the Cooperative Society. This is one reason why in the
Nigerian Cooperative Act, no member is allowed to have more than one-fifth of the total
investment of the society.
The loans range from less than N10,000 to more than N2.5million. Loans in many
societies can be lower than N10,000 because the petty businesses that they engage in such as
selling roasted maize or plantain, pap made from corn, bean cake and gaari among others, require
very little funds to run. This is corroborated by the fact that the most common category of uses to
which loans is put as indicated by the respondents is petty trading (82%). Other reasons are for
farming (9.5%) and Produce buying (3%).
Table 5 below shows the conditions that need to be met in securing a loan. The two most
important conditions for accessing loans is “membership for at least 6 months” (88.1%) and
regular contribution (77.3%). The least are previous loan histories (49.1%) and reference from an
active member (43.1%).
Table 5: Condition for accessing loans from the Society
S/N Condition %
1 Regular attendance at meetings 66.2
2 Membership at least 6 months 88.1
3 Regular contribution 77.3
4 Project viability 55.4
5 Loan History 49.1
6 Referral 43.1
Source: Field Survey
When cross-tabulated with the ages of the cooperative societies, it was clear that the older
cooperative societies take loan histories as well as referrals from members more seriously than the
newer ones. This may explain in part, why older cooperative societies appear generally more
viable and self-sustaining.

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Table 2.7: Loan Recovery Strategies

S/N Issues %
1 Guarantying by member 87.5
2 Pre and post loan Project Monitoring 41.3
3 Group pressure 48.7
4 Prosecution 20.2
5 Awareness creation 42.8
6 Collateral 3.6
Societies have a wide range of methods that makes loan recovery possible. This include
group pressure, ascertaining the viability of what the loan would be used for and ensuring that loan
is utilized properly. Of the various methods, the most important is „guarantying by members‟
(87.5%). The least is collateral by the borrower. Some societies apply prosecution in extreme
cases where the guarantor is not available or incapacitated. In general however, the cooperative
rely on the long standing strategy of trust among its group members.
One common complaint that members gave is that money is frequently not available in
the purses of their societies when they needed to take loan. One factor that is responsible for this
trend is the fact that leaders are not skilful enough in giving loans. The executives need backup
plans to ensure that those who might need emergency support get it. More importantly, there is an
indication that the societies are not sufficiently strong in terms of their capital base. These
societies certainly need external supports to make their members more able to have access to
loans.
In this case, external supports from government and non-governmental organisations
(NGOs) are welcome by members. Our findings showed that an overwhelming majority of the
cooperative societies studied have not had any form of support from government. When those who
had ever received loans were prompted
about challenges they had in getting the
loans once the commitment is made, the
most important issue mentioned is high
interest rates. As shown figure 7, it is far
more important than any other challenge
that the societies mentioned. The next
most important is lateness in
disbursement. These two need to be taken
into consideration in subsequent
government interventions. The interest
rate should not be too high. It should be
noted that some societies are already
giving members loans with zero interest.
Figure 7: Challenges in Loan Disbursement
Also, the strategy of loan disbursement should be
such that guarantee easy access and fairness.
Duration of the loans, as indicated on figure 8, was mainly 12 months. Other durations were
mentioned but are not significant.
Loan disbursement was reported by more than seven-tenths (73.4%) of those who have
taken one, to be preceded by some form of training to ensure judicious use of loans. As shown in
Figure 9, the most important factor in the misuse of loan is economic. When there are economic
pressures which are far more common today, a loan may be misused. It is important that projects
are monitored properly to ensure that the loans are not diverted to other purposes.

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Figure 8: Length of time for Loan Repayment

Loan disbursement was reported by more than seven-tenths (73.4%) of those who have
taken one, to be preceded by some form of training to ensure judicious use of loans. As shown in
Figure 9, the most important factor in the misuse of loan is economic. When there are economic
pressures which are far more common today, a loan may be misused. It is important that projects
are monitored properly to ensure that the loans are not diverted to other purposes.

Figure 9: Challenges in appropriately using Loan

SUMMARY, CONCLUSION AND RECOMMENDATION

This section highlights the main findings of the study. It also lists recommendations
required to uplift co-operative societies in the State. The study investigated the nature of loan
regimes in co-operative societies in Nigeria with a view to improving co-operative system for
sustainable development. Studies have affirmed that in Nigeria, unemployment rate is increasing
among the youth, young graduates and the poor people. Thus governments are increasingly
looking for proactive approaches to help citizenry realise their full economic potential. Increased
access to financial services through co-operative societies may provide that beacon. Globally, co-
operative societies have become well appreciated as a strong vehicle for promoting economic
empowerment particularly among the youths and other vulnerable and marginalised groups.
Primary data were obtained through in-depth interviews, focus group discussions and
semi-structured questionnaires directed at all the 2,972 co-operative societies in the State of Osun,
Nigeria. Secondary data were obtained from books, journals and internet.

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 Ife Journal of Entrepreneurship and Business Management, Maiden Issue, 2015

Research findings showed that there are five main categories of co-operative societies in
the State, which are:
(i) Credit and Thrift Cooperatives
(ii) Produce Buying Cooperatives
(iii) Consumers Cooperatives
(iv) Producers Cooperatives
(v) Farmers Cooperatives and Multipurpose Cooperatives
Credit and Thrift Cooperatives constitute the dominant type of cooperative societies in the
State. They are more than nine-tenths ((91%) of the societies studied. Others are Produce Buying
Cooperative Societies (4%) and Farmers Cooperatives (3%), Consumer and Produce Buyer
Cooperatives - 1% respectively. A larger proportion (59.5%) of the co-operative societies met
once a month; 23.2% met twice a month, while 17.4% met once a week. The most important
conditions for becoming members of cooperative societies is the registration (83.7%). Close to a
third of the Cooperative Societies (32.2%) had a capital base of between one and five million
naira; 31.7% had five million and above, while others had less than 1million naira base. Produce
buying cooperatives tended to be more capital intensive; about 70% of these had a capital base of
five million naira and above. Credit and Thrift Cooperatives were less capital intensive; 62% of
societies in this category had less than one million naira capital base.
The main source of fund to the Cooperative Societies was contributions by members which
were done weekly, fortnightly and monthly as the case may be. In general, the monthly
contributions averaged N203,042 and ranged between N500 and 2.5 million. Also, close to three-
fifths (58.2%) of the Cooperative Societies, especially the older ones, had investments of various
types. Most of the investments were in landed properties; some societies invested in motor
vehicles and rental services.
The loans taken by members ranged from less than N10,000 to more than N2.5million. And
the main uses to which loans were put were petty trading (82%); farming (9.5%) and Produce
buying (3%). The most important conditions for accessing loans is membership for at least six
months, which was mentioned by more than four-fifths of the respondents.
The various strategies employed by the societies for recovering loans included guaranteeing
by members (87%), pre and post disbursement monitoring, awareness creation/sensitisation and
prosecution. Majority (95.4%) of the cooperative societies surveyed had not had any form of
support from government or any other source of funding. The challenges associated with the
financial intervention of the government, as expressed by representatives of societies who
benefitted from such, include high interest rate and delay in disbursement. Loan tenure was mostly
12 months (71.1%). A few of the societies operated loan tenure of 36, 18 and 6 months
respectively. All the loans taken by the sampled societies were fully paid back. This corroborate
the fact that co-operative societies can be used by government to empower the lowly in the
society.

POLICY RECOMMENDATION
As a matter of policy, government should consider the following restructuring features for
sustainability. Each society should acquire capacity through training to effectively manage its
financial resources to ensure that members have predictable access to loans. Also societies should

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be encouraged to cluster into Unions of their choices and affiliate with the Federation of Osun
State Cooperative Societies (FOSCOOP), which is the umbrella organisation for all the
cooperative societies in Osun State, for effective administration of loanable funds.
The Directorate of Cooperative Services at State level should urgently initiate and develop a
flexible database to capture and update data on all cooperative societies in the State. The data
captured should include basic documentary information including the annual account and statistics
that show investments, loan disbursement, as well as numeric strength of the Societies among
other critical information.
Government intervention with respect to strengthen the capital base of cooperative societies
should be implemented using FOSCOOP as the apex body and all registered cooperative Unions
are associated with it. This will help to strengthen the relationship and loan administration among
the various components of cooperative system. Government should build an implementable
monitoring procedure for the disbursement of intervention fund for the cooperative societies and
also organise periodical short term capacity building programmes for all categories of
stakeholders. Government should empower the cooperative officers dealing with the societies at
the grassroot to be able to effectively carry out their functions by:
1. Computerising fully the operations of the Department of Cooperative Services and make
same accessible to critical officers like the Commissioner through Internet.
2. Stimulating synergy among the stakeholders of Cooperative Societies to facilitate more
productive working relationship.
3. Ensure that all cooperative societies belong to appropriate unions to strengthen them and
add value to the economic activities of each society.
4. Establishing coordinating cooperative society offices in each local government.
5. Building capacities of FOSCOOP in organisation relation management, networking as well
as in the application of the provisions of the Cooperative Act and Bye-laws.
6. Fostering a synergy between the Department of Cooperative Services in the Ministry of
Commerce, Cooperative & Empowerment and FOSCOOP.
7. Government should encourage all Cooperative Societies to register properly with
FOSCOOP. This will not only facilitate proper monitoring but will also significantly
enhance revenue generation from the Cooperative system.

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Adesina, F.A. (2012) “Restructuring the Cooperative Societies in the State of Osun in Nigeria”
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Adeyemo, R and Bamire, S. (2005), Saving and Investment Patterns of Cooperative Farmers in
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Blunt, Peter and Jones, Merock (1992),” Managing Organisation in Africa”. New York: Water de
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Central Bank of Nigeria (CBN) (2000): Annual Report and Statement of Account, CBN Abuja.

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