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African Journal of Agricultural Marketing ISSN 2375-1061 Vol. 8 (2), pp. 001-005, February, 2020. Available online at 
www.internationalscholarsjournals.org © International Scholars Journals 

 

Author(s)                                           Author(s) retain the copyright of this article. 
 

 

Full Length Research Paper 

 

Sustainability of farm credit delivery by 

cooperatives and NGOs in Edo and Delta states, 

Nigeria 

 
G.O. Alufohai 

 
Department of Agricultural Economics and Extension Services, University of Benin, Benin City, Edo State, 

Nigeria. E-mail: ax4grace@yahoo.com 
 

Accepted 07 October, 2019 
 

The paper examined the sustainability rates of co-operatives and NGOs in farm credit delivery in Edo 
and Delta States of Nigeria. The Subsidy Dependence Indices (SDI) and the capital formation rates were 
determined using both primary and secondary data obtained from 80 and 20 purposively 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. 

 
Key Words: Sustainability, Farm credit delivery, Cooperatives, NGOs, Nigeria. 

 
INTRODUCTION 

 
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 agricultural 
production. Farm credit could be obtained from either the 
formal sources which are the commercial banks and 
government owned institutions, or the informal sources 
which are the self-help-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. 

 
 
 

 
Subsequently, the cooperatives and NGOs which are 
formalized informal sources of credit in both rural and 
urban sectors are being considered as more credible 
sources to both farmers and small scale enterprises. 
Nevertheless, these informal institutions do not seem to 
be fulfilling this obligation as evidence still abounds that 
farmers are still in dire need of adequate capital, Oni 
(1999). This raises such questions as whether these 
institutions have enough loanable funds to meet the 
needs of applicants and whether they have the ability to 
sustain the credit delivery function in terms of capital 
availability. 

This study is therefore designed to assess and 
compare the financial ability of the cooperatives and 
NGOs to sustain the farm credit delivery function as its 
main objective with such specific objectives as to identify 
their sources of loanable funds, examine their volume of 
loanable funds and their adequacy, examine their degree 
of subsidy dependence and to estimate their capital 

file:///C:\Users\user\Documents\REPUBLICATION\AGRICULTURAL%20SCIENCES\AppData\Local\Temp\www.internationalscholarsjournals.org


 
 
 
 

 

formation rates. 
Though the issue of self-sustainability and how to 

assess and measure it remains unclarified especially with 
the existence of explicit and implicit subsidies, a 
development financial institution may be considered 
sustainable if it is able to maintain its lending operations 
with a reasonable profitability over time (Yaron, 1992). It 
is true that financing investments depends seriously on 
access to credit facilities and most organizations often 
cover their operating costs by outside aids. It is however 
worth noting that if external aids create dependency, and 
development organizations plan their organisation’s 
programmes within this dependency, such Organisations 
would crumble in the extreme cases (Vincent 1995). In 
line with this, Yaron (1992) stated that institutions with 
high financial sustainability are said to have low subsidy 
dependence index (SDI), this was supported by the 
observations of CGAP (1996), and Maclsaac (1996), that 
sustainability appears to correlate with ―best practice‖ 
design features such as reasonable interest/lending 
rates, availability of voluntary savings facilities, frequency 
of loan collection, incentive materials for borrowers and 
lending staff, as well as high loan repayment rates. 
Managerial ability to move the organization towards self-
sustainability is therefore an important task for financial 
institutions.  

Though the paucity of literature on the argument as to 
which of either the cooperative movement or the NGOs 
has demonstrable ability to attain sustainability in loan 
delivery is still of serious concern to researchers, the 
World Bank (1998) asserted that NGOs and indigenous 
savings and credit schemes frequently suffer from lack of 
sustainability because of their welfare orientation, small 
scale, low absorptive capacity and lack of exposure to 
international best practices. As government seeks the 
best possible micro-finance institutions through which 
credit could be channeled to farmers for sustainable 
agricultural development, such microfinance institutions 
must also be sustainable to deliver the goods. This study 
therefore looks at the ability of the cooperatives and the 
NGOs to sustain this all important function compare them 
and advise on options for the achievement of the self-
sufficiency policy in food production in Nigeria. 
 

 

Methodology 

 

The study was carried out in Edo and Delta States of 
Nigeria, an area where agricultural production is the 
mainstay of the citizens. Seven Local Government Areas 
from Edo State and nine from Delta were purposively 
selected for the study due to the preponderance of NGOs 
and cooperatives in the area compared to other parts of 
the states. A total of twenty NGOs and eighty cooperative 
societies involved in farm credit delivery were purposively 
selected from the list obtained from the state ministries of 

 
 

 
 

 

commerce and industry and corporate affairs 
commission. Primary data were obtained through the use 
of a structured questionnaire administered through 
personal interview while the secondary data were 
obtained from the annual reports and monthly records of 
the institutions. Three analytical techniques were adopted 
in this study;  
— The use of descriptive statistics involving means, 
percentages and frequency counts 

— Some measures of financial analysis which involved 
the computation of subsidy dependence index (SDI) for 
both institutions in line with Yaron (1997).  
— The use of some quantitative techniques, inferential 

statistics and the calculation of capital formation rates. 
 
 

The SDI Model 
 

The computation of the SDI was based on Yaron (1997) 
given as 

SDI= 
S
  

LP. n 
  
where 

S = Annual subsidy received by each 
organization calculated from 

S = A (M-c) + [(E.M) – P] + K 

Where 

A = Organization’s concessional borrowed funds 
outstanding (annual average no differentiation between 
long or short term loans)  
M = interest rate the organization would be assumed to 
pay for borrowed funds if access to concessional funds 
were eliminated.  
C = average annual concessional rate of interest actually 
paid by the organization on its average annual 
outstanding concessional borrowed fund.  
E = Average annual equity of the organization. 
P = Reported annual profit (adjusted for loan loss 
provisions and inflation). 
K = The sum of all other types of annual subsidies 
received by the organization (such as partial or complete 
coverage of the organization’s operational costs by the 
state or Federal Governments).  
LP = Average annual outstanding loan portfolio of the 
organization 
n = Average on – lending interest rate of the organization. 
 

The financial ratio (SDI) gives a measure of the level of 
financial self sustainability of the microfinance 
organizations. The Subsidy Dependence Index (SDI) 
assesses and quantifies subsidy dependence of a 
financial organization which is a measure of self 
sustainability. An SDI of zero means the financial 
institution achieved full self-sustainability. An SDI of 
100% indicates that the institution cannot sustain itself 
without subsidies and that a doubling of the average on-
lending interest rate is required if subsidies are to be 



 
 
 

 

eliminated. A negative SDI indicates that a financial 
institution not only fully achieved self- sustainability but 

that its annual profits less the equity charged at the 
approximate market interest rate exceeded the total 

annual value of subsidies, if subsidies were received. 
 

 

CAPITAL FORMATION RATE 

 

The capital formation rate was based on a crucial 
assumption that the ability to sustain the lending function 
would depend on the rate of capital formation which is to 
provide the re-investable funds.  
The sustainability rate is therefore equated to the capital 
formation rate (Rc) computed from the equation below. 

Rci = 
 

F     r   

  
  C  Cc  r 

 
 

D  
 

i1  
i
 i   i li i 

d
i 

  
N 

Where: 
Rci = Rate of capital formation for period N by Institution 
Yi F i = Total funds received from all sources by institution 
Yi ri = Total interest charged on loans by institution yi Di = 
Total loans disbursed by institution yi  
CIi = Loan administrative costs for institution y which 
includes costs of printing loan forms, interest paid on 
borrowed funds, loan recovery/supervision costs and 
other costs.  
C ci = Overhead costs for loan administration by 
institution yi 

rdi = Total defaults by clients of institution yi 

The above computation is based on the expectation that 

total receipts less total disbursements and expenditure 

per time period would give the rate of capital building for 
the given period, i.e. 
 

Rate of capital = Total receipts – total disbursements/Expenditure 
 
Building per year Time period in years 

 

The numerator represents the re-investable surplus which 
is an indicator of sustainability. The above presentation 
suggests that there is no default, yet defaults cannot be 
ruled out in credit delivery hence the modification in the 

initial formula to reflect the amount of defaults. (rdi ). 
 
 
 

Results and Discussion 

 

 Socio-economic Characteristics of the 
Organizations: The studied cooperatives were within the 
age range of five to thirty nine years with average 
membership strength of 60, involved in multipurpose 
activities with credit delivery as their main function.

 
 
 
 

 

The NGOs were within the age range of three to 

fourteen years, also involved in a wide range of activities 

with credit delivery as a very small segment of their 

operations, playing mainly an on-lending role. 
 

 Sources of Loanable Funds: Two main sources 
were identified; they were the external sources from 
donors and loaning bodies and internal sources which 
were within the organisation’s efforts. The analysis 
showed that all studied NGOs depended on external 
sources which were mainly international donors while the 
cooperatives depended solely on internal sources which 
were mainly contributions from members.
 

 

Loan Volume Assessment 
 

The results showed that the NGOs had higher loan 
volumes than the cooperatives (Table 1) about 88% of 
their loan requests were met during the period while 
about 68% of loan requests were met by cooperatives. 
This may not be unconnected with the availability of funds 
from the NGOs external sources. The cooperatives 
however had a wider outreach in terms of individual 
beneficiaries but lower individual loan volumes. 
 

 

Subsidy dependence indices (SDI) for the studied 

cooperatives and NGOs 
 
The subsidy dependence analysis showed that all the 
studied cooperative societies were self-sustaining as the 
computation gave a subsidy dependence index (SDI) of 
zero. This was as a result of their internally generated 
revenue as no cooperative society received any form of 
subsidy from any source according to the information 
gathered. An SDI of zero means that the Cooperative 
Societies achieved full self-sustainability during the period 
in question, which can be translated to mean that they 
had no form of external financial assistance.  

However, an average annual Subsidy Dependence 
Index (SDI) of 0.7642 (76.42%) was obtained for the 
NGOs. This indicates that if subsidies are to be 
eliminated, the present on-lending interest rate of the 
NGOs may almost be doubled (requiring about 76% 
increase) to sustain the credit delivery function. The 
implication of this is that the NGOs may face 
sustainability crisis if subsidies (i.e. the identified grants 
from donors) are withdrawn.  

The SDI value which measures the degree of external 
funding of the organization is a good reflection of the 
importance of dependable sources of loanable funds for 
both institutions if they are to be relied upon as channels 
of credit delivery to farmers.  

The over all interpretation of these findings in comparing 

the sustainability level of the credit delivery function of the 

cooperatives and NGOs is that whether external funding 



 
 
 

 
Table 1. Loan Volume Assessment for NGOs and Cooperatives Cooperative NGOs. 

 

  Cooperatives   NGO  

Class of loan Average Average Average Loan Average Average Average 
 Loan Loan disbursement Loan Loan Disburse- 
 request Approval  request approval ment 

<100000 2,400,000 2,272,000 2,272,000 4,500.000 4,500.000 4,500.000 
101,000-200,000 4,550,000 3,500,000 3,500,000 10,000,000 9,000,000 9,000,000 
201,000-300,000 5,500,000 3,000,000 3,000,000 7,000,000 4,800,000 4,800,000 
301,000-400,000 Nil Nil Nil 5,000,000 3,500,000 3,500,000 
401,000-500,000 1,500,000 1,000,000 1,000,000 5,000,000 4,500,000 4,500,000 
501,000-600,000 2,000,000 2,000,000 2,000,000 3,500,000 3,500,000 3,500,000 
601,000-700,000 Nil Nil Nil 4,580,000 4,000,000 4,000,000 
701,000-800,000 3,500,000 1,700,000 1,700,000 Nil Nil Nil 
801,000 and above 1,800,000 1,000,000 1,000,000 5,000,000 5,000,000 5,000,000 
TOTAL 21,250,000 14,472,000 14,472,000 44,580,000 38,800,000 38,800,00 
Percentages NA 68.10 68.10 NA 87.70 87.70 

       

 
Source: Survey Data 2005 

 

 
Table 2: Correlation Coefficicients for Capital Formation Rate and Its Determinants for NGOs and Cooperative. 

 
DETERMINANT  CORRELATION COEFFICIENTS 

 NGOs  COOPERATIVES 

(sources of funds)  0.912 Nil 
(Motivation of members)  Nil 0.487 
(Lending rate)  0.837 0.561 
(Loan repayment rate)  0.832 0.768 
(Savings rate by clients)  0.853 0.922 
(membership participation index)  0.398** 0.915 

    
 

Source: survey data, 2005.  
 All NGOs had no motivation programmes 
** Significant at 5%

All other coefficients 
are Significant at 1%. 
Cooperatives had no 
External Sources.

 

 

exists or not, the Cooperatives would have 100% 
sustainability level whereas the NGOs would have just 
about 25% which might be an indication of phasing out 
the credit delivery function from their programmes if 
subsidies are withdrawn. 

 

Capital formation Rates (Rc) 

 

The computed capital formation rates showed an average 
rate of 18.15% (0.1815) for the cooperative societies and 
12.3% (0.123) for the NGOs. On the basis of the 
assumption earlier stated, the capital formation rate was 
equated to the sustainability rate of the lending institution 
as regards the credit delivery function, the sources of 
funds not withstanding. In line with this, the figures above 
indicate a slightly higher sustainability rate for the 
Cooperative Societies than the NGOs which also 
confirms the results of the SDI analysis. This may 
probably indicate higher reliability on the sources of funds 

 
 
 

for the Cooperatives than those for the NGOs. These 
rates are however too low for both organization which 

indicates low sustainability in line with World Bank (1998). 
 
 

 

Determinants of the Capital formation Rate 

 

Major determinants of the capital formation rates for both 
organizations were the external sources of funds, lending 
rates, loan repayment rates, savings rate by 
members/clients, motivation of members and 
membership participation index. Correlation analysis 
between these determinants and the capital formation 
rate for each organization is given in Table 2. The results 
showed that external sources had the highest correlation 
coefficient for NGOs while savings rate and membership 
participation index (MPI) had high coefficients for the 
cooperatives. The implication here is that the capital 
formation rate depends highly on the external sources of 



 
 
 

 

finance for the NGOs while for the cooperatives it 

depended on the willingness of members to save and 

participate highly in the cooperative activities especially in 
paying their contributions/savings. 
 

 

Conclusion and Recommendations 

 

The study looked at the sustainability rates of NGOs and 
cooperatives in farm credit delivery through their subsidy 
dependence indices and capital formation rates. 
Summarily, the findings were that, the cooperatives had 
an SDI of zero with 0.1815 capital formation rate, 
depending solely on internal sources with capital building 
relying mainly on savings by members and membership 
participation index. Whereas, the NGOs had 0.7642 SDI 
with a capital formation rate of 0.123 and relied mainly on 
external sources of loanable funds.  

The paper therefore concludes that the sustainability 
rate is low and the cooperatives had an edge over the 
NGOs since they had a higher sustainability rate with 
zero SDI. It is therefore recommended that both 
organizations seek better strategies of building their 
capital. More avenues of internally generated revenue 
should be exploited to improve on their capital formation 
rates. It is equally recommended that some level of 
external funding may be needed by cooperatives to 
augment their capital formation to improve their loan 
volumes.  

However, cooperatives may be recommended as a 

better channel of credit delivery to farmers in terms of 

ability to sustain the loan delivery function. 

 
 
 
 

 
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CGAP (1996). Financial Sustainability, Targetting the Poorest and 
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Ijere MO (1998). ―Agricultural Credit and Economic Development. In: 
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Maclsaac N (1996). ―Micro-Enterprise Support: A Critical Review‖ A 
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Oni MK (1999). ―Bank Credit Facilities for Small Holder Farmer: 
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D.C. 

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