IMPACT OF INFORMAL MICROFINANCE ON ENTERPRISE FINANCIAL CRISES

1. IMPACT OF INFORMAL MICROFINANCE ON ENTERPRISE FINANCIAL CRISES Onafowokan OLUYOMBO PhD Department of Financial Studies Redeemer’s University, Ogun State, Nigeria oluyomboo@run.edu.ng & oluyomboo@gmail.com Conference paper presented at Coping with Crisis: Re-evaluating the role of crises in economic and social history. Collingwood College, Durham University, United Kingdom. 26 – 28 July, 2013 I would like to thank Redeemer’s University for funding this study through her research grant.

2. Background on Microfinance • A financial service arrangement for low income earners to save and take loan • To reach the un-reached with tailor made financial services • For those that cannot meet formal banking requirements • With less restrictions in operating an account

3. Research objectiveTo assess the roles that informal microfinance – cooperative societies - play during financial crises in enhancing rural dwellers ability to survive periods of reduced cash flow and coping with difficult times in their enterprises.

4. The study investigates how rural people who live in locations where there is no formal financial institutions manage their financial crises by using members of informal microfinance scheme – Cooperative Societies - that are fully funded by the programme participants without any assistance from donors and government in rural areas of Ogun State, Nigeria.

5. Significance of the study This study is significant because it shows if the cooperative is in the best position to provide financial intermediation of mobilising fund in form of savings from the surplus of some members, and giving same as loans to make up for the deficit of other members in time of financial needs in their enterprises.

6. Research hypothesisParticipation in informal microfinance – cooperatives - does not lead to ability to survive periods of reduced cash flow.

7. METHODOLOGY • Ogun State consists of twenty local governments divided into three senatorial districts. • Two local governments that are more rural were selected in each senatorial district • Five cooperatives were randomly selected in each local government area to make a total of thirty cooperatives. • A random sampling of 10 individuals from the membership list of the 30 cooperatives were selected to participate in the survey questionnaires, which give 300 sample size. • Responses to the questionnaire from only 287 people • Participants comprises of two groups – loan members and no-loan members. • The no-loan members are members of the cooperative societies, but they did not take loans as at the time of the study. • The choice of loan and no-loan members is to enable the researcher to use the no-loan members as the control group for the loan members.

9. The responses from the questionnaires are presented using simple percentages in tables. Further quantitative analysis was carried out using the SPSS statistical package for chi-square tests for independence - used in comparing the relationship between two categorical variables based on cross tabulation tables.

10. RESULTS AND DISCUSSION

11. Financial Difficulty at Some Point In table 4 above, 71% (141 respondents) of loan members and 50% (44 respondents) of no-loan members reported that they were unable to conduct their enterprises at some points due to lack of money. In addition to the result in the table above, there is a need to know the membership period of those who at some point lack money for their business and this is shown in table 5 below.

12. Loan Availability at Difficult TimeThe purpose of this segment is to find out if loan members were able to meet their financial needs in time of financial constraint from the cooperative loan.This is to determine if the cooperatives can absorb financial shock from her members especially in solving financial problems in their businesses. The response from a question as stated in table 6 below was used to find out if those with financial constraints were able to solve the cash flow problem faster as a result of loan from the cooperative.

14. The significance or otherwise of the result presented in this section is determined using chi-square tests on the research hypothesis stated below. Ho: Participation in informal microfinance does not lead to ability to survive periods of reduced cash flow Chi-square test statistic value is 82.466 with an associated significant level of 0.000 is smaller than the alpha level of significance of 0.05. The result is significant and shows that participation in a cooperative lead to ability to survive periods of reduced cash flow. In other word, there is an association between being a loan member and surviving periods of reduction in enterprise cash flow.

15. CONCLUSION • The effect of the association between the two variables determined from the symmetric measure is the Phil coefficient of 0.544 which suggests that the effect of being a loan member in a cooperative is high and positive in surviving periods of reduced financial crises. • On the average, about 54.4% of loan members with financial constraint in their enterprises can depend on the cooperative through the loan to meet their financial needs and be able to continue their businesses. • A chi-square test for independence indicated significant association between participation in cooperatives and survival of periods of reduced cash flow in an enterprise, X2 (1, n=199)=82.466, p=0.000, phi = 0.544.

16. THANK YOU