This section examines enterprise performance in two segments covering enterprise profitability and enterprise assets. Enterprise impact is measured through changes in business development with increased profitability and increase in ownership of business assets (Edgcomb and Garber, 1998; Nelson, 2000). Acquisition of enterprise assets is the ability to invest the program loan in the enterprise rather than for consumption purpose (Nelson, 2000; Falaiye, 2002).
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Cooperatives, Economic Condition and Enterprise Profitability
Edgcomb and Garber (1998) indicated that existing clients have more profits than new clients, and clients enterprises improve as a result of changes in business development. In addition, more clients than new clients increase the scale of their business, employ more workers, improve the quality of their products, source cheaper credit and acquire new products to increase profitability. The study found more clients than non-clients selling in new markets, and a statistical significance of p=0.06 between program loan and increase in enterprise profit. Ghosh and Maharjan (2001) reported that cooperative members have an increase of 89% in enterprise profit. Falaiye (2002) documented that clients (6.1%) had an increase in total employees than new clients (5.6%), 14.3% of clients and 8.3% of incoming clients reduce business cost by buying input in large volume. Clients’ performance was higher than incoming clients on quality of product, bulk purchase, business expansion and ability to sell in new market as proxy for business profit. Larocque et al.’s (2002) found that more of members businesses declare surpluses that are about 15.7% of their net income but the surplus from urban areas was 30 times higher than the rural areas. Adedayo and Yusuf (2004) indicated that loans are used for productive purpose which yielded profit that eventually leads to increase in income and business diversification. Calkins and Ngo (2005) reported that members in Ghana had higher enterprise profitability than non- members and the control group, but contrary result was found in Cote d’Ivoire.
It is worthy of note that none of the summarised studies above on the impact of cooperatives on members’ enterprises profitability is placed within any theory. However, studies that are placed within the social capital theory (Simkhada, 2004; Sharma et al., 2005) reported partially different results. Simkhada (2004) found that 53% of members made profit in their enterprises, and that social capital also includes the establishment and expansion of markets. Sharma et al. (2005) found that 62.5% of members reported more profit in their enterprise and it was significant with F value of 9.831. The conflicting results between the last two studies (Calkins and Ngo, 2005; Sharma et al., 2005) on enterprise
Page | 69 profitability, and the multiple ownership structure of the cooperative societies used for the above studies required a further work. This study will examine which of the results is applicable to only members promoted cooperatives in rural areas with the aid of collected data. The null hypothesis to explain the relationship between participation in cooperative and enterprise profitability is stated as:
H3: There is no relationship between participation in a cooperative and changes in business development associated with increased profitability.
Many variables are required to determine enterprise profitability as explained above. The null hypotheses stated below are to test the individual component of enterprise activities that relate to profitability.
H3i: There is no relationship between participation in a cooperative and expansion of business facility.
H3ii: There is no relationship between participation in a cooperative and addition of new products.
H3iii: There is no relationship between participation in a cooperative and hiring more workers.
H3iv: There is no relationship between participation in a cooperative and improvement in the quality of products.
H3v: There is no relationship between participation in a cooperative and reduction in cost by buying input in greater volume.
H3vi: There is no relationship between participation in a cooperative and reduction in cost with cheaper source of credit.
H3vii: There is no relationship between participation in a cooperative and development of new enterprise.
H3viii: There is no relationship between participation in a cooperative and making more profit.
H3ix: There is no relationship between participation in a cooperative and selling in new markets.
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Cooperatives and Better Standard of Living through Enterprise Assets
Edgcomb and Garber (1998) reported 33% and 16% for clients and non-clients respectively on ownership of storage facility with a statistical significance of p=0.03. On acquisition of small tools, the study reported 40% for clients and 19% for non-clients, while Falaiye (2002) documented 50% for clients and 31% for incoming clients. Edgcomb and Garber (1998) and Falaiye (2002) indicated that clients were able to acquire major tools than non-clients, and also invest in minor assets in their marketing site more than non-clients. Clients were able to acquire a means of transportation for their business more than non-clients (Edgcomb and Garber, 1998). On investment in structures in business locations, Edgcomb and Garber (1998) reported that clients own 55% and non- clients 54% which is statistically significant with p=0.03, while Falaiye (2002) documented 21% and 8% for clients and incoming clients respectively. Edgcomb and Garber (1998) and Falaiye (2002) reported that existing clients increase their enterprise assets more than new clients.
Larocque et al. (2002) reported that 27% of members used cooperative loan in financing means of transportation. Sharma et al. (2005) indicated that non- members acquired fewer enterprise assets than members. Enete (2008) posited that cooperatives have been used successfully to establish small-scale industries, health care centres, poultry farm and food processing plants. Wanyama et al. (2008) reported that members used the program loan to buy motorcycle in Rwanda which helps to increase their income. It also leads to ownership of enterprise assets in South Africa, Egypt and Kenya, but the result in Kenya was made possible because the cooperative received financial support from donors.
It is clear from the results of previous studies summarised above that it is only Edgcomb and Garber (1998) that is empirical. While all the studies examine the effect of cooperatives on ownership of enterprise assets, it is only Edgcomb and Garber (1998) and Falaiye (2002) that provided the components of enterprise assets used. However, both studies were conducted among female program
Page | 71 located in rural and urban areas, and they were not placed within any theory. The passage of time between this study and the last empirical study (Edgcomb and Garber, 1998) and other gaps identified above required that their conclusion be reassessed if they are still tenable in spite of the development in rural finance using empirical data from cooperative societies with membership of both sex in rural areas alone.
The null hypothesis to examine the relationship between participation in cooperative and ownership of enterprise assets is stated as:
H4: There is no relationship between participation in a cooperative and increase in the acquisition of business assets.
The individual enterprise assets need to be tested for statistical significance as used by Edgcomb and Garber (1998). The null hypotheses for the individual assets are stated below.
H4i. There is no relationship between participation in a cooperative and ownership of small tools.
H4ii. There is no relationship between participation in a cooperative and ownership of major tools.
H4iii. There is no relationship between participation in a cooperative and acquisition of means of transportation.
H4iv. There is no relationship between participation in a cooperative and ownership of storage facility.
H4v. There is no relationship between participation in a cooperative and minor investment in marketing site.
H4vi. There is no relationship between participation in a cooperative and building structures in business location.
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3.9 Summary and Conclusion
The existing literature reviewed above shows that the criteria used to determine the role of cooperative on the members is based on the effect of the program on individuals, enterprises and households. The ability of any cooperative society to affect the members positively at any of the three levels (individual, household and enterprise) signifies an improvement in standard of living and better economic condition at different levels. Some of the previous studies (Edgcomb and Garber, 1998; Falaiye, 2002; Jainaba et al., 2005; Enete, 2008; Basargekar, 2010) focus on female program only. Sample selection in some cases (Edgcomb and Garber, 1998; Larocque et al., 2002) comprises cooperative society members and rural bank customers.
The literature revealed that cooperative societies are set up to bring about poverty reduction, better standard of living and improvement in economic condition among the members. Evidence from the literature (Lohlein and Wehrheim, 2003; Simkhada, 2004; Sharma et al., 2005; Holmgren, 2011) reveals that this study is best underpinned by the social capital theory which comprises of social capital, financial capital and physical capital. The need to know why membership of cooperatives might improve a person’s opportunity to overcome poverty with improvement in standard of living in urban and rural areas necessitates the conduct of cooperative impact assessments. However, “knowledge about the achievements of such initiative remains only partial and contested” (Adjei et al., 2009: 266). Moreover, the role of cooperatives societies on members’ standard of living and poverty reduction has not been studied in any systematic way (Develtere and Pollet, 2008). The role of cooperatives should be measured and analysed at different levels of the economy, especially among the rural dwellers in developing countries where there is paucity of accurate secondary data such as Nigeria. The competing view and the gap already identified in the literature require an organised research to determine the role of cooperative societies in rural finance as a pathfinder for other researchers that may be interested in studying the effect of cooperative
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The next chapter focuses on the research methodology which explains the steps taken in conducting this study.
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Chapter Four
Methodology
4.1 Introduction
This chapter discusses the research philosophy, the methods adopted and the steps taken in conducting the study. Section two discusses the important subject of epistemology while section three considers different research strategies suitable for this study and also identifies users of these methods and the reasons for their choice. Section four focuses on the research proposition and hypotheses for the study. Section five examines the research design which includes the criteria for selecting communities and villages used for the study and the distinguishing features of rural people in Ogun State. Section six focuses on the nature and sources of data in empirical investigations. This examines longitudinal and cross sectional studies, secondary and primary data, taking into cognisance their merits, demerits and the conditions for their usage. The researcher’s choice between a longitudinal and cross sectional study, primary and secondary data as well as the justification for such a choice are also considered. In section seven, the researcher examines sample size and sampling techniques which identify the sampling method appropriate for the study. Section eight focuses on the design of the research instruments and their administration. This includes an assessment of the reliability and composition of the instruments, steps taken to avoid bias and so ensure the credibility of the research and the confidentiality of respondents. Section nine explains the techniques used in the analysis of the data which include the statistical tests conducted. The chapter summary and conclusion is presented in the last section.