The Effect of Good Credit Management on Cooperative Organization
PURPOSE OF THE STUDY
The general purpose of the study is to determine the effectiveness of good credit management in cooperative organization.
The specific purposes of the study are to:
- Identify the effect of good credit management
- Know how credit are being managed in cooperatives
- Know whether there are difficulties in the management of the cooperative movement
REVIEWED OF RELATED LITERATURE
Transaction cost theory
Transaction cost theory tries to explain why companies exist, and why companies expand or source out activities to the external environment. The transaction cost theory supposes that companies try to minimize the costs of exchanging resources with the environment, and that companies try to minimize the bureaucratic costs of exchanges within the company. Companies are therefore weighing costs of exchanging resources with the environment, against bureaucratic costs of performing activities in-house. The theory sees institutions and market as different possible forms of organizing and coordinating economic transactions. When external transactions costs are higher than the company‟s internal bureaucratic costs, the company will grow, because the company is able to perform its activities more cheaply, than if the activities were performed in the market. However if the bureaucratic costs for coordinating the activity are higher than the external transaction costs, the company will be downsized .According to Coase (1937),every company will expand as long as the company‟s activities can be performed cheaper 8 within the company, than by example outsourcing the activities to external providers in the market. According to Williamson (1981), a transaction costs occurs “when a good or a service is transferred across a technologically separable interface”. Therefore transaction costs arise every time a product or service is being transferred from one stage to another, where new sets of technological capabilities are needed to make the product or service. Therefore, it may very well be more economical to maintain the activity in-house, so that the company will not use resources on example contacts with suppliers, meetings and supervision. Managers must therefore weigh the internal transaction costs against the external transaction costs, before the company decides whether or not to keep some activity in-house.
In-Kind Finance: A Theory of trade credit
According to Burkart and Ellingsen (2004), it is typically less profitable for an opportunistic borrower to divert inputs than to divert cash. Therefore, supplies may lend more liberally than banks. The model implies that trade credit and bank credit can be complements or substitutes. Trade credit has short maturity, is prevalent in less developed markets and accounts payables of large unrated firms are more countercyclical than those of small firms. A remarkable feature of short-term commercial lending is the central role played by input suppliers. Suppliers not only sell goods and services, but extend large amounts of credit as well. In the presence of specialized financial intermediaries, it is far from obvious why exchange of goods is bundled with credit transaction: When trade credit is cheaper than bank credit, as is often the case, the puzzle is that suppliers are willing to lend and when trade credit is more expensive, the puzzle is banks are willing to lend. Indeed, a sizable fraction of firms repeatedly fail to take advantage of early payments discounts and thus end up borrowing from their suppliers. Many firms offer trade credit despite having to take (bank and) trade credit to finance their operations. We argue that firms simultaneously give and take trade credit because receivables can be collateralized. Once an invoice is pledged as collateral, it becomes completely illiquid from firm‟s perspective, and the firm can obtain additional bank credit against receivables. Thus, offering an additional dollar of trade credit does not force a firm to reduce its 9 real investment by one dollar .According to Peterson and Rajan (1997), firms in financial distress increase their supply of trade credit, a result that they consider surprising. Trade credit should have shorter maturity than bank credit as trade credit loses its advantages once illiquid input is transformed into liquid output that‟s why bank credit is routinely rolled over, whereas trade credit is not.
In this chapter, we described the research procedure for this study. A research methodology is a research process adopted or employed to systematically and scientifically present the results of a study to the research audience viz. a vis, the study beneficiaries.
Research designs are perceived to be an overall strategy adopted by the researcher whereby different components of the study are integrated in a logical manner to effectively address a research problem. In this study, the researcher employed the survey research design. This is due to the nature of the study whereby the opinion and views of people are sampled. According to Singleton & Straits, (2009), Survey research can use quantitative research strategies (e.g., using questionnaires with numerically rated items), qualitative research strategies (e.g., using open-ended questions), or both strategies (i.e., mixed methods). As it is often used to describe and explore human behaviour, surveys are therefore frequently used in social and psychological research.
POPULATION OF THE STUDY
According to Udoyen (2019), a study population is a group of elements or individuals as the case may be, who share similar characteristics. These similar features can include location, gender, age, sex or specific interest. The emphasis on study population is that it constitutes of individuals or elements that are homogeneous in description.
This study was carried to examine the Effect Of Good Credit Management On Cooperative Organization. Selected cooperative societies in Lagos form the population of the study.
DATA PRESENTATION AND ANALYSIS
This chapter presents the analysis of data derived through the questionnaire and key informant interview administered on the respondents in the study area. The analysis and interpretation were derived from the findings of the study. The data analysis depicts the simple frequency and percentage of the respondents as well as interpretation of the information gathered. A total of eighty (80) questionnaires were administered to respondents of which only seventy-seven (77) were returned and validated. This was due to irregular, incomplete and inappropriate responses to some questionnaire. For this study a total of 77 was validated for the analysis.
SUMMARY, CONCLUSION AND RECOMMENDATION
It is important to ascertain that the objective of this study was to ascertain The Effect Of Good Credit Management On Cooperative Organization. In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of the Effect Of Good Credit Management On Cooperative Organization
This study was on the Effect Of Good Credit Management On Cooperative Organization. Three objectives were raised which included: To determine how cooperative education and seminar produce good credit management in cooperative organization, to identify some technicalities of regular supervision and auditing of societies book of account and to measure the prospect of good credit management policy and the customer. A total of 77 responses were received and validated from the enrolled participants where all respondents were drawn from selected cooperative societies in Lagos. Hypothesis was tested using Chi-Square statistical tool (SPSS).
In conclusion, the research demonstrates that good credit management is a critical factor in the success and sustainability of cooperative organizations. By adopting responsible credit policies, implementing effective monitoring systems, and fostering a culture of financial prudence, cooperatives can optimize their financial performance, enhance member trust, and contribute positively to the communities they serve. These findings emphasize the importance of continuous improvement in credit management practices within cooperative organizations, ultimately leading to their long-term success and positive impact on the cooperative movement as a whole.
- Cooperative organizations should develop comprehensive credit policies and guidelines that outline responsible lending practices, credit assessment criteria, and risk management strategies. These policies should be communicated to all members and staff.
- Cooperatives should invest in member education and training programs focused on financial literacy, credit management, and responsible borrowing. Informed members are more likely to make prudent financial decisions.
- Cooperative organizations should enhance their credit assessment processes, including thorough financial analysis of borrowers, collateral evaluation, and credit scoring mechanisms. The goal should be to accurately assess creditworthiness.
- Regular and proactive monitoring of loan performance is crucial. Cooperatives should establish effective systems to track repayments, identify early signs of delinquency, and take timely corrective actions to mitigate potential losses.
- Cooperatives should diversify their loan portfolios to spread risk. This includes offering various types of loans (e.g., agricultural, consumer, housing) to reduce dependence on a single sector.
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