The Role of Co-operative Loans in Rural Finance

This paper examines how loans made by co-operative societies in rural areas meet the financial needs of their members and, by extension, the role of the co-operative lending in rural finance. The study makes use of primary data from nine focus group discussions comprising 72 members selected randomly from twelve co-operatives in six local government areas. Data was analyzed using tables of numbers and percentages, content analysis and quotations from participants.

The study found that the financial needs of the members were met through loan granting at reduced interest rates without the pledging of fixed and financial assets as collateral. The low interest rate on loans reduces the likelihood of members patronizing money lenders and of possible loan defaults. The personal guarantor arrangement greatly enhanced the inter-personal relationship among members enabling them to provide support to members in trouble and reducing their individual poverty level. However, there may be need for emergency loans that can be repaid over a longer period of time to ease the financial burden of the members and enhance social and financial capital.