REVIEW OF RELATED AND RELEVANT LITERATURE

Generally, a cooperative may be defined as an association of persons who pool their resources together on mutual basis to solve specific socio-economic problems, which may include income generating activities. A cooperative may also be defined as a self-help organization. These associations may be formed by either producers or consumers. The initiative to form such cooperatives usually arises from one or two people. These initiators then play an advocacy role and enlist other people to the co-operative. Often, the initiators become the key drivers of these projects and reap the consequent benefits as managers of these ventures.

There are several types of co-operative societies in Nigeria. These include:

Multipurpose co-operative societies

Marketing co-operative societies

Consumers co-operative societies

Processing co-operative societies

Industrial co-operative societies

Supply/purchasing co-operative societies

Credits and thrift co-operative societies

Co-operative societies in Nigeria operate at three levels: the primary, secondary and tertiary. The primary societies operate at the level of a community, the secondary society operate at the level of the local government area, while the tertiary or apex co-operative organization operates across the local government areas but within the state.

Brief history

The origin of co-operatives in the world may be traced to eighteen century England. The co-operative was formed as a result of human sufferings and degradation during the industrial revolution in England. The social impact of the revolution was pronounced and largely felt by the common man who needed to improve their conditions of living that had deteriorated to an inhuman standard. At that time, while employers were reaping high profits, employees were paid subsistent wages which remained very low in spite of rising cost of living (Ukpere, 2010). This affected the welfare of workers negatively, even the quality of food taken by workers was low (Bryce, 1996). It was as a result of these developments that the idea of co-operative movement was conceived by Robert Owen, who is often seen and referred to as the father of cooperative societies. Robert Owen advocated for selfsupporting communities. Owen’s initiative provided an example which was followed by the Rochdale Pioneers (a group of workers) who organized themselves into a movement for a new humanism based on self-help and group actions (Abia, 2000). However, Taylor (1974) traces the global origin of thrifts co-operative to the credits society formed by Herman Schulge – Delitzsch in 1851 to provide credit facilities to debt ridden peasant farmers in Germany. In Nigeria, the first formal co-operative was formed in 1936. The first co-operative legislation known as cooperative societies ordinance No. 6 of 1935 was enacted in 1935. This provided the plank for the first Registrar of co-operative societies to be appointed with the mandate to promote, supervise and register co-operative societies under the ordinance.

Credit and thrift co-operative

The focus of this discourse is the co-operative and thrift society, which may also be referred to as the credits and thrift co-operative or the thrift and loans co-operatives. All such co-operatives perform functions that are practically related. The core function is to improve access to credits at critical moments or more succinctly, financial intermediation. Principally, such co-operatives aim at making it easier for people (especially people with low income) to save, thereby increasing the amount of money available for lending to members. Loans and credits are provided to members at much more traditional and easier conditions than the methods adopted by commercial banks and other financial institutions (Otto, 2006). The thrift and credits co-operative is the earliest of cooperatives to have been formed worldwide and also in Nigeria. According to Abia (2000), it was the bedrock of capital formation of the lower Cross River Region in Nigeria.

MODEL AND FUNCTIONS

Models of co-operative and thrift societies

There are several models of thrift societies which are discussed further.

Rotating savings and credit associations (ROSCAs)

These are formed when a group of people come together to make regular contributions to a common fund, which is then pooled as a source of credits. The members of the group may be neighbours, friends, or colleagues at work. The group forum provides an opportunity for social interaction and is quite popular with women. These selfhelp groups may be classified under informal microfinance institutions. In Nigeria, the “Esusu” is also an example of the ROSCAs. “Esusu” is a revolving loan scheme in Nigeria and is entrenched in many West African countries as a source of credit and savings. Similarly, members in such a society make fixed contributions of money at regular intervals. At each interval, one member collects the entire contributions from all. The “esusu” is a programme that can assist people raise funds to execute projects including the expansion of capital for investment purposes.

The Grameen solidarity model

This model is based on peer group influence, and loans are made to individuals in groups. Group members collectively guarantee loan repayment, and access to subsequent loans is dependent on successful repayment by all group members. Payments are usually made weekly. These groups have proved effective in deterring defaults as evidenced by loan repayment rates attained by organizations such as the Grameen Bank, who use this model. Under the Grameen Bank variation of this model, groups contain 5 members and savings must be contributed for 4 to 8 weeks prior to receiving a loan. Savings must also continue for the duration of the loan term. Only two of the major group members receive a loan initially. After a period of successful repayment, 2 more members receive loans and after another period of successful repayment, the final members receive a loan. Ledger (1990) cited in Chuku (2010), highlight the fact that this model has contributed to broader social benefits because of the mutual trust arrangement at the heart of the group guarantee system. The group itself often becomes the building block to a broader social network (Nyele, 2011). There is a need to critically examine this, as repayment is not always easy. Frustration of repayment in the scheme, always result to social decadence.

Village banking model

Village banks are community managed credit and savings associations which provide access to financial services, build community self–help groups, and help members accumulate savings. They usually have 25 to 50 members who are low-income individuals seeking to improve their lives through self-employment activities. These members run the association, elect their own officers, establish their own by-laws, distribute loans to individuals and collect payments and services. The loans are backed by moral collateral, the promise that the group stands behind each loan (Chuku, 2010). The function of this type of cooperative therefore is financial intermediation; recycling funds from surplus spenders to deficit spenders. More specifically, the services include;

(1) Savings mobilization and

(2) Extension of credits and loans.

In practice, three forms of thrift and loan co-operations exist and are presented thus:

One category specializes in mobilization of savings among its various clients. These clients or members may be traders, commercial vehicle workers full time house wives among other especially low income earners.

Another category includes those specialized in entirely granting loans to their clients and other members of the public.

A third category involves those who mobilize savings and also extend credits to their clients. Quite often, the average cost of borrowing from these cooperatives or loan associations by non-members, is higher than the cost of borrowing from commercial banks, but the ease of access to such loans and the personal touch between the contracting parties is a major attraction for many people. Consequently, a lot of people patronize these co-operatives and other non-bank financial houses. There is also a need to see the demerits of the micro capitalist views on it.

Prospects

Given the high level of poverty in Nigeria and paucity of loan able funds, the patronage of these credit associations is very high (Ewubare, Aiie and Akekere, 2008). According to the last national living standard survey report published in 2006 by the federal office of statistics (also known as Nigeria Bureau of statistic), the poverty profile in Nigeria has become critical. These figures clearly indicate that poverty is steadily increasing in Nigeria except for 1996, in which the report showed marginal improvement. Current data shows (using the World Bank standard of people living below $ 1. or 2.00 daily) that the level of poverty in Nigeria is well over 72%t and unemployment is steadily on the increase (Otto, 2009).

So, the prospect of any business that will service and help to alleviate the plight of the poor is good. According to Todaro and Smith (2003), the marginal savings rate of the poor, when viewed from a holistic perspective are not small; this high volume of savings from the poor who usually constitute the target group of credit co-operatives can be encouraged and efficiently mobilized for the benefit of the individuals, the cooperative and the entire economy. The Governments in Nigeria as governments in many parts of the world are committed towards poverty emancipation and so, are likely to be less hostile but supportive of credit co-operatives. More succinctly, stringent tax imposition and adverse operational policies inimical to the progress of co–operatives are not likely. Besides the needs and problems of the poor including emergencies such as unanticipated deaths of close relatives, school fees, rents, among others, are not likely to cease in the near future. These needs will constantly require attention whenever and wherever they occur. Cooperatives can thrive anywhere; be it in the rural area or urban. It is not constrained by infrastructural inadequacies as power supply and many other difficulties common in the rural areas. The credit and thrift association is a potential source of self employment for any individual or group of individuals with sufficient interest in such ventures. More so because the initial cost of setting up such ventures are not prohibitive.

Pitfalls

Given the level of indiscipline and corruption in Nigeria, any business that has to do with credits is potentially risky. Many Nigerians are also not disposed to meeting obligations such as school fees, house rents, electricity bills, to mention a few, when they are due. Hence, agent interested in extending credits should be willing to confront these challenges.

Registration requirement

Co-operative associations are registered with the states co-operative division of the ministry of commerce in the relevant state of domicile. The ministry may differ from state to state since co-operatives are governed through the specified laws of a state. For instance, the cooperative societies in Delta and Edo states are governed by section 7 (1) of the co-operative operatives’ law, cap 45 of the Bendel state of Nigeria law of 1976 including all its amendments since then. In some states, the cooperatives division is in the Ministry of Trade and Industry (for example, Rivers State).

In Rivers State, as at 2004, there were over 500 registered co-operatives with several others operating without due registration. To operate legally as a thrift and credit co-operative, at least two levels of registration are mandatory; a) the general registration as co-operatives, which is done at the ministry; b) specific registration as a credit association, which is done at the courts and unions of other such bodies. These registration requirements, especially the second level of registration are better handled by professional consultants or experts including lawyers.

SURVEY OF THRIFT SOCIETIES IN SELECTED COUNTRIES

According to Taylor (1974), the first credit society was formed by Herman Schulze–Delitsch in 1851 to provide credit facilities for debt-ridden peasant farmers in Germany. Co-operative credit associations have been found in several countries to be well suited to providing loan facilities and stimulating savings as evidenced from the study of selected countries further discussed.

Ghana

In Ghana, credit and thrift societies are owned, managed and controlled by the people of the areas in which they are located. They are responsible for financing cooperatives as well as members within each catchment area. Thus, the main task of these credit co-operatives were to mobilize savings from the area and to on-lend such savings to deserving customers of the area, to enable them improve their productivity. These credit cooperatives ensure that credits are made to agriculture and other priority rural activities and also to the small rural borrower. To enhance borrowers’ effective utilization of loans, a proper monitoring is carried out and assistance in terms of procuring needed inputs is also offered (Agwu, 2006).

India

The most widespread application of co-operative thrift society has been in India, where the problem of peasant indebtedness and greedy money lenders has been a particularly serious issue. In India, co-operative banks and loan societies actually made an in-road into the rural areas, mainly as a result of official initiative and encouragement. The structures of co-operative banks were biased in favour of their occupations, which are agricultural co-operatives, employee’s co-operatives, business co-operatives and industrial co-operatives. The co-operative credit structure for short and medium term credit is a three tier federal one. With a State cooperative bank at the apex in each state, the central cooperatives at the district level, and the primary credit societies at the base. This has greatly improved the financing of agriculture and small scale enterprises and led to rising trend in output. India is currently a net exportter of food and almost self-sufficient in industrial goods.

Germany

Co-operative credit providers are believed to have started in 1851 in Germany. In Germany, the orientations of the big commercial banks towards large scale industries created a gap in financing of farmers, petty traders, etc., which was filled by setting up of credit co-operatives. Raiffeisans co-operative bank helped to provide credit for debt ridden peasant farmers while Delitsch co-operative bank was for the independent farmers. Both quite independently sought their solutions through the cooperative credit associations. Raiffeisan banks were based on village membership so that members knew, and could vouch for each other. They had no share capital, their farmer members accepted unlimited liability and their share of profits were not distributed but put into the reserve.

It was from the reserves and the deposits of local salary earners that the banks accumulated their capital, and loans were made for productive purposes only, such as seeds, cattle and ploughs. At the beginning of German’s Industrialization, these credit associations emerged with a structure which provided a strong closeness to their customers. Deposits were quite safe for all creditors and depositors. This German model has been followed by most peasant economies in Central and Eastern Europe, Asia, and some African countries.

France

The orientation of the French commercial banks towards large-scale industry and commerce, as in Germany, created a gap in the provision of finance to farmers and craftsmen. In Germany, there were two major categories of financing associations; a) The co-operative banks proper, or those financing institutions collectively known as the banques populaires (People’s Bank); b) The Credit Agricole – the state – controlled farmer’s bank – a mutual credit and co-operative organization.

These co-operative banks, the People’s Banks, began about a century ago and since 1878, they have multiplied all over France. They are not joint-stock companies as such, but association of persons putting together their savings, experience, and energies to distribute credit at a reasonable price from their own funds. But their current shape began to be formed in 1917 when, by the law of 13 March, 1917 on “the organization of credits for small and middle sized businesses and industry”, received a specific co-operative status from the French Parliament. At this time, also began their vital co-operation with the societies de caution mutuelles, groups of companies in the same sector brought together at departmental level to act as guarantors for loans. The People’s Banks came into existence out of the spontaneous initiative of artisans, small industrialists, and traders who had the idea to unite at the local level, to help each other, and to lend each other money which the big banks refused to them (Tombola, 2009). Although they serve as sources of finance for smaller industrialists generally, their “mission” as far as the government is concerned is to help the artisans, and they have an important function in administering and disbursing government funds placed at the disposal of this sector. Members of the co-operative thrift association pay 10% of their net profits into a special safeguard fund to come to the rescue of anyone in difficulties. In order to reinforce their activities of extending funds to smaller industrialists, the association has a subsidiary called Sopcomec, which provide funds to members in need of capital. Intervention includes the taking of minority participations. The accessibility of credits to the “small man” and the determinedly regional character of these associations are noteworthy. Being more than ever conscious of the fact that the small and middle-sized enterprises and handicrafts face financial and management constraints, they have devised a wide range of services to meet their needs, for example they play the role of counselors and financial advisors. In addition, they also enter into partnership with enterprises.

Types of cooperative societies

Cooperative societies are of various types depending upon their objects and nature of work. Some of the cooperatives have been formed to help consumers and other have been established to help producers. There are some societies which help the farmers in providing credit for the purchase of fertilizers and seeds etc. and some help them in the promotion of trade. Prof. Hafiz Some of the important types of cooperative societies are:

Producer’s cooperative societies: The producer’s cooperatives are established by the small producers. The members of the society produce goods in their houses or at common place. The raw material, tools money etc. is provided to them by the society. The output is collected by the society and sold in the market at the wholesale rate. The profit is distributed among the member in proportion to the goods supplied by each member.

Consumer’s cooperative societies: Consumer’s cooperatives are established to remove middlemen from the field of trade. These societies purchase foods at the wholesale prices and sell these goods to the members at cheaper rates than the market prices. However, the goods are sold to the non-members at the market rates. The profit, if any, is distributed among the members in the shape of bonus according to their purchase ratio.

Marketing cooperative societies: The marketing cooperative societies are formed by the small produces for the promotion of trade. The two main objectives of these societies are, to sell the good at reasonable prices by eliminating middlemen and to make the ready for the product of the member. These types of societies are formed by the small agriculturalist and artisans. Theses societies collect the products of its members and make its grading and keep them in warehouses and sell them in the market at whole sale rate when the market is ready for these products. The profit is distributed among the member according to the ratio of goods supplied by them.

Credit cooperative societies: These cooperatives are formed for the financial help of the members. These societies provide loans to the members at low rate of interest. In rural areas these provide loans to the farmers for the purchase of seeds, fertilizers and cattle. In urban areas these societies provide loan to its members for the purchase of raw material and tool.

Farming cooperative societies: These solicits are formed by the by the small agriculturalist to get the benefits of larges scale forming. These societies provide help to the farmer for the improve method of cultivations by providing large scale forming tools such as tractors, threshers and harvesters etc.etc.

Housing cooperative societies: These societies are formed for the procurement of land for the construction on houses on homogeneous basis. These societies are formed by those members who are intended to construct their own home. These societies provide loan to the members for the construction of houses. These also purchase construction material in bulk and provide this material to its member at cheaper rates.

Insurance cooperative societies: Theses societies make contract with insurance companies for the purchase of different insurance policies for its member at lower premium. This society may take a group insurance policy for its members. The main object of the society is to minimize the risk of its member.

Transport cooperative societies: These societies are formed to provide the services of transport to its members at lower rates. Welfare bus scheme is an example of this type of society. A pass is handed over to the member for traveling on approved routes.

Storage cooperative societies: These societies are formed for the provision of storage facilities to its member for perishable and non-perishable goods at lower rates. These societies also provide grading and distribution services to its members.

Labour cooperative societies: These societies are formed by unskilled labour for selling their services at reasonable wage rate. This type of society makes a contract with different firm for the provision of labour to them.

Miscellaneous societies: Some other important societies, in addition to the major form of societies discussed above are, Processing cooperative societies, Fisheries cooperatives societies, Forestry and poultry forming etc.

Theoretical framework

The only known and recognized theory, which backed the activities of the co-operative, is the “theory of Democracy” but this theory of democracy was later categorized into:

a) The classical theory

b) The modern theory

c) Co-operatives and the classical theory

Theory of democracy

The principal objective of this theory is to make co-operative an easy and profitable organization in which their aims and objectives are achieved. The theory provides at least some of the materials required to enable us to make a realistic assessment of decision making in retail co-operatives. An appraisals, however requires more than facts. If we desire to make some judgment about how democratic co-operatives really are, we need first of all a clear conception of the meaning of the term “Democracy”. Although there is no agreed definition of democracy, even though a cursory study of the uses of the term by modern writers and politicians shows that there is no agreed meaning. Some equate it with the rule of the majority, others emphasis the importance of protecting the rights of the minority. Some regard it as a system, which maintains certain valued institution, such as freedom of speech and association, while others said a way, which totalitarian democracy. Co-operative democracy could be view as the democratically control in the co-operative set-up, that is, democracy within co-operatives. The concrete elements in a co-operative democracy may of course, be different from those in a state democracy. For example, in a cooperative, the members take the place of the citizens and the Board of Directors take the place of the Government of the state. But these substitutions do not involve a change in the meaning of democracy. And any conclusions, which hold good democracy within the states, will apply equally well to democracy within cooperative societies.

The classical theory

The classical theory was developed in the eighteenth centuries. In essence, it holds that democracy is a method of government, which realizes the common good by a system in which the people themselves decide political issues, the decision taken can be said to express the will of the people. So stated, the presumption is that all the people participate in decision making, the system is one of direct democracy. The physical and practical impossibility of everyone taking part in every decision in all save relatively small groups; is recognized and leads to the introduction of the notion of representation and thus of indirect or representative democracy. In this attenuated form, the people’s will is not expressed, directly by themselves but indirectly through representatives who are elected by people and who meet periodically in assembly to carry out the will of the people. Representation on this view is an important device to enable democracy to be applied in large scale groups and small groups like cooperatives and trade union but it is nothing more than this: it changes the form but not the substance of democracy. Provided that the representatives do not attempt to substitute their wills for the people’s will and regular periodical elections help to ensure this. Thus, democracy of co-operative is thus seen as an institutional arrangement for arriving at co-operative decisions realize the common goals by making the people itself decide issues through the election of representatives who assemble in order to carry out its will. The first requirement of any theory is that its central concepts should be unambiguous. But the classical theory fails to meet this test. “The common good” is a much phrase, but its reference is selfdom clear. On analysis it is doubtful whether- it is something which can be “realized”. It is not an objective like full employment for which precise criteria can be established. The classical theory is also vulnerable to be changed as it ignores the problem of representations. It assumption that representation is merely a device to enable democracy to work in large-scale group is naïve. Representation is one of the most puzzling concepts in politics and nobody has, succeeded in explaining satisfactory how one person can represent another.

The modern theory

The modern theory of democracy rejects the questionnaire assumptions of the classical theory and seeks to provide model, which embodies ideas having clear and unambiguous empirical references. The main emphasis of the classical theory is on self-government, in the sense of government acting in the expressed interest of the people or at least a majority of them. It answers to the question. How DOES one ensure responsible government? Is through institutionalization of competition for leadership. Schumpeter has defined the modern democratic method as that “institutional arrangement for arriving at political decisions in which individuals acquire the power to decide by means of a competitive struggle for the people’s vote. On this view, the main function of the people is not to make, or indirectly, the multitude of decision involved in government, but to make one big decision to produce, by means of periodic elections, either a government or an intermediate body, which in turn will produce a government The model of democracy avoids the problem of representation since the problem arises only in the context of self-government. When the assumption that they themselves make the decisions is dropped, the representative need no longer be concerned about whether they reflect accurately the views of the electors: the right to make the decisions is theirs and due allowance is made for the exercise of leadership as distinct from the expression of the wills of other. The system works in such a way as to ensure that the interests of the government will not be neglected. In short, the modern theory is both neater and empirical than the classical theory. Its relation to the older theory is well summered up. Democracy can mean government of the people by the people, by the people and for the people. The modern theory has been developed to explain, and perhaps also to justify, the working of western parties state system. The importance the theory attaches to parties has now been generally recognized by the ordinary citizen who is inclined to regard the existence of a legitimate opposition party as the very hall-mark of a democratic state.

Co-operative and the classical theory

This is certainly true of co-operators. If the two theories of democracy are regarded as “Ideal types”, the classical theory is more useful for analyzing the practice of retail co-operative government. In the early days of the movement, co-operatives approximated very closely to ideal direct democracies in which all the members meet together in terms of equality to make decisions. The representative executive body-“the Government” of the co-operative exercised only limited powers between general meetings and there was no sharp distinction between the execution and other member. In some societies, the execution would be chosen by a system of rotation rather than election and it was common practice for ordinary members to attend executive meetings.

Today, even in the smallest societies, the roles of the executive and the members are clearly differential but the element of direct democracy remains relatively pronounced. Over the years, the indirect representative element in co-operative government has markedly increased, but all representative bodies remain, in theory at least, directly accountable to the business meeting as well as accountable to the membership through the election procedures. Other features of co-operative government underline its classical democratic character. Most obvious, perhaps, is the emphasis placed upon local democracy. Although the structure of the movement, based, as it autonomous local societies, seems to many observers ill-adapted to modern trading conditions, most active co-operative regard it as a landing of democracy. In theory, of course, it is possible to envisage as some reformist co-operators do, a single natural cooperative society constructed according to the canons of representatives classical democracy. Those cooperators who see democracy as direct self-government by the members are, therefore, correct their point of view, in questioning the ideas of a normal society. The member, it is implied, ought to be interested in the government of his society and the more members who are interested, the more likely is the society to be a “genuine” co-operative.

Empirical Review

Rainforest alliance (2006), opined that smallholders have lost their access to overseas markets and a major source of income. As one of the effective means of overcoming most of these obstacles to sustainable smallholder cocoa production, cooperative cocoa production in which farmers pull their resources together to increase agricultural productivity and enhance the economic and social status of member farmers has been suggested (Nweze, 2003). Interest in cooperative societies has grown widely in the study area (Unuigbe, 2005).At various times; Federal and State governments have endorsed cooperative societies as instrument for socio-economic transformation of rural areas Edo Cooperative Federation (ECF, 2002). Cooperative societies’ increasing involvement in production and farm inputs distribution in Nigeria has been widely reported. These include marketing, processing, supply of farm inputs (seeds, fertilizers, chemicals and modern farm implements), consumer goods, credit and banking, insurance, warehousing, transportation, farm extension and relevant support such as research and publication (Alufohai and Ilavbarhe, 2000; FAO, 1993 and Nweze, 2003).

Adekunle and Henson (2007) he studied the effect of cooperative thrift and credit societies on personal agency belief: a study of entrepreneurs in osun state, Nigeria. He opined that little or no attention has been paid to the role of entrepreneurship and the capacity of institutions like Cooperative Thrift and Credit societies to promote entrepreneurship. Afolabi and Fagbero (1998), the informal source of credit is more popular among small scale farmers which may be due to the relative ease in obtaining credit devoid of administrative delay, non existence of security or collateral, flexibility built into repayment which is against what is obtained in the formal sources. Ojo et al (1993), observed that the institutional lending system has failed to meet the objective for which they were set up. According to him only 15 percent of the trading bank credit to agriculture has been covered. The major short comings of their transactions he observed are due to the inaccessibility of these funds to rural farmers as a result of the bureaucratic procedures and high service cost, which are very difficult for the farmers to meet. Alufohai (2006) examined the sustainability rates of co-operatives and NGOs in farm credit delivery in Edo and Delta states in Nigeria.

The subsidy Dependence Indices (SDI) and the capital formation rates were determined using both primary and secondary data obtained from 80 and 20 purposely selected cooperatives and NGOs respectively, based on their involvement in farm credit delivery. A well structured questionnaire was used to obtain the primary data from the 100 organizations selected from a comprehensive list from the ministry of commerce and industry as well as corporate Affairs Commission. Both descriptive and quantitative statistics as well as financial analysis were employed in analyzing the data. The results showed low capital formation rate of 0.1815 and 0.123 for cooperatives and NGOs respectively. Cooperatives had zero SDI having no subsidies throughout the period while NGOs had an SDI of 0.7642 which is considered too high for them to sustain the credit delivery function on the withdrawal of subsidies. Though with low loan volumes, the study showed cooperatives more likely to sustain the credit delivery function than the NGOs, but they may need to improve their capital formation rate. Credit is considered as a catalyst that activates other factors of production and makes under-used capacities functional for increased production (Ijere, 1998). Thus farm credit plays a crucial role in agricultural and rural development as it enables farmers reap economies of scale, venture into new fields of production, employ new technologies and empower them to provide utilities for a widening market. Farm credit plays this role because it bridges the capital gap that exists in an agricultural production. Farm credit could obtained from either the formal sources which are the commercial banks and government owned institutions, or the informal sources which are the selfhelp-group (SHG) money lenders, cooperatives and Non-Governmental Organization (NGOs). However, Aryeetey (1997), stated that the informal rural financial sources in Africa perform better than the formal system because they have adapted to the high-risk environment. He therefore advised that the formal sector should learn from the informal institutions.