R FO RES © A Publication of the Centre for Research and Development (CERAD), JoST 2019 E E R A T R N C The Federal University of Technology, Akure, Nigeria (www.jost.futa.edu.ng) E H C A N T D N D E M EVELO P Factors Influencing Default among Participants in Rotating Savings and Credit Associations (ROSCAS) in Yewa Division of Ogun State, Nigeria Akerele, E.O. and Obasanya, S. Department of Agricultural Economics and Farm Management, College of Agricultural Sciences, Olabisi Onabanjo University, Yewa Campus, Ayetoro, Ogun State, Nigeria *Corresponding Author: Akerele, E.O.; [email protected] ABSTRACT: Against the background of susceptibility of Rotating Savings and Credit Associations (ROSCAs) in the Yewa Division of Ogun State, Nigeria to default which poses high risk to their sustainability, this study assessed the factors influencing default in the association with a view to providing empirical link between participants’ socio-economic characteristics and default in the association for decision-making. Towards achieving this research objective, data were collected from 400 randomly selected residents within the division through a structured questionnaire. Descriptive and inferential statistics including frequency counts, percentages and measures of Central Tendencies, Probit Regression Model, Analysis of Variance (ANOVA) as well as Chi- square model were used in analyzing the study data. Results revealed significant difference (p<0.05) in the average age of defaulters (37.12 years) and non-defaulters (37.91 years). Household sizes of defaulters (4.66) and non-defaulters (4.11) were found to be significantly different (p<0.05) as well as their educational levels, marital statuses and main occupations. The income level of defaulters (N245,527) and non-defaulters (N200,426) was also found to differ significantly (p<0.05). However, no significant difference (p<0.05) was found in the gender, membership of social groups, tribes and religions of defaulting and non-defaulter ROSCA participants. Household size, annual income, what the pot was used for, proportion of working household members to household size had significant association with default in the association. Spending the lump sum received solely on personal consumption rather than business, having to repay too many slots at a time and having too many dependants to cater for at the home front were the major challenges militating against repayment of ROSCA pots in the study area. The study concluded that default in the associations was high and influenced by some of the participants’ socio-economic circumstances. The paper therefore recommended that ROSCAs’ foremen should be wary of respondents taken too many slots per ROSCA round to avoid default tendency. Keywords: ROSCA, Default, Socio-economics, Determinants, Yewa Division, Ogun State JoST. 2019. 10(1): 94-103. Accepted for Publication, April 30, 2019 INTRODUCTION In spite of the proliferation of formal financial participants, the bidding ROSCAs do this by a bidding institutions in Nigeria in general and in Yewa Division process (Hevener, 2006). The consumer durable of Ogun State in particular, informal savings and ROSCA is a variation of the aforementioned ROSCAs credit schemes are still very prevalent. These informal but rather than involving allocation of funds, the savings and/or credit schemes have different variants participants receive physical goods agreed upon at but they include the collector type of ajo (daily the commencement of a round. contribution or utaki), the group savings and With the random ROSCA, a fixed amount is borrowing schemes proprietary to licensed contributed at a regular time interval and handed over individuals or firms (e.g. LAPO, GAPO, GROOMY, to a participant whose turn is to receive the pot. The Grace and Mercy, and Astra Polaris) and unregistered random assignment can be done at the beginning of revolving group savings and credit schemes that are the ROSCA round or at every ‘cycle period’. If the self-organised by the participants through a foreman random assignment is done at the beginning (i.e. at or foremen (esusu) (Preliminary study, 2017). This cycle period T0), every participant will know his/her study focused on the esusu otherwise referred to as own turn ab initio but if the latter is the case, Rotating Savings and Credit Associations (ROSCAs). participants will only know the person to receive the \ROSCAs are in various forms. Basically, there are pot at every cycle period (i.e. at cycle period Tn). random, bidding and consumer durable ROSCAs. Most importantly, contributions across cycle periods While the random ROSCAs rotate funds by random are fixed. Unlike the random ROSCA, the bidding assignments of the lump sum (pot) among its ROSCA requires participants to bid for the pot at Pp 94 Journal of Sustainable Technology, Vol. 10, No. 1 (April 2019), ISSN: 2251-0680 Factors Influencing Default among Participants in ROSCAS in Yewa Division of Ogun State, Nigeria every cycle period by discounting contributions made ii. ascertain the relationship between socio- to the pot by other participants (Biggart, 2001). The economic characteristics of the participants and participant that offers the best discount receives the default in ROSCA. pot per cycle period. In the bidding ROSCA, there is iii. examine the challenges that promote default in an obvious element of borrowers and lenders as well ROSCAs in the study area. as cost of capital. The cost of capital reflects in the discount received (shortfall in the regular amount Hypotheses of the Study payable) by other participants. H01 = There is no significant relationship between The third type of ROSCAs, referred to as the number of slots taken by participants and default in consumer durable ROSCAs, are variants of the ROSCA. aforementioned ROSCA types but involves the H02 = Default incidence is not location (community) distribution of physical goods to participants instead specific. of physical cash. This ROSCA type is common among women who use it to acquire household Justification for the Study utensils like big iron cooking pots, electricity Focusing on factors influencing default in ROSCAs generators, dish washers, freezers among other within the Yewa Division of Ogun State, this study household equipment and other indivisible goods contributes to the empirical record of factors (Kabuya, 2015; Tsai, 2000; Bouman, 1977). influencing default associated with ROSCAs (focusing One important issue among the ROSCAs, on socio-economic variables) in Yewa Division of irrespective of their types or variants, is the Ogun State, in Ogun State and by extension, in Nigeria. possibility of non-repayment after the pot has been More importantly, results of this study can help in collected. The associations generally have no legal effective management of default associated with framework for debt recovery or legal sanctions which ROSCA. By minimizing incidence of default, having make them entirely susceptible to irrecoverable debt. been armed with information on factors (particularly Default has tendency to undermine ROSCA as an socio-economics) that could increase probability of alternative to the formal microcredit/microfinance default in the association, participants in the schemes and deserving of an empirical assessment. association can be assured that they will recoup their An important means of minimizing the occurrence savings at a certain cycle period within a ROSCA of default in ROSCA is to understand the variables ‘round’. The assurance that participants’ that can most likely contribute to default. These contributions will not be lost to default has tendency variables may be socio-economic, institutional or to increase number of willing participants. With more based on group dynamics. Managers of the funds in the pot (by way of increased participation), associations have traditionally relied on their participants can receive large sum that can be invested discretionary judgments in selection of participants relatively more profitably (considering the benefits and how they are dealt with (Bisrat et al., 2012; of economic of scale or size). Increased lump sum Biggart, 2001). The success of the discretionary and zero risk of default can create the pareto approach in the selection of participants and in optimality in the use of funds among all participants. determining the order of pot collection does not depend on any objective metric but on the personal Operational Definition of Terms judgment of the foremen which can be erroneous. The operational definitions of terms used in this study Provision of an empirical link between socio- are provided below to avoid ambiguity. economic and other variables associated with would- Pot: The sum total of the money contributed by all be participants and likelihood of default can help in participants at a contribution cycle to be given to a minimizing default in the association. To this end, participant. this study was conducted. Cycle or Round: A session within a ROSCA lifespan in which every participant is expected to have Objectives of the Study received the pot for that session. The general objective of this study is to assess the Cycle periods: Frequency with which contributions factors influencing default among Rotating Savings have to be made in each cycle. This can be daily, and Credit Associations (ROSCAs) in Yewa Division weekly, biweekly, monthly and half-yearly, every of Ogun State, Nigeria. The specific objectives are five days etc. to: Default: Failure to make contributions as at