CHAPTER ONE
1.0 BACKGROUD OF THE STUDY
The significant role played by the financial institution cannot be over emphasized. Their primary functions includes creation of funds for production purposes, generation of employment opportunities leading to improvements of the standard of living.
Financial institution which is broadly divided into Banking institutions and Non-bank financial institution as financial intermediaries must make sure that deposits savings held with them are paid as at when due or whenever required by the depositor. They safety that part of the deposits that are not immediately required by the owners.
This financial institution is a very important sector of the economy and it can be described as “Power house” or “engine-room of the economy” and a pivot upon vital role (financial intermediation), which involves resources allocation, there must be some regulations to guide their mode of operations because of their sensitivity in the economy.
Cooperative societies need a lot of controls and regulations both from within and outside, to manage the members funds and make adequate returns to them, the more reason why government cannot but intervene or play a significant role in ensuring the achievement of this diverse focus/objectives. Interest rates play a crucial role in the role allocation of resources and its primary role is to help in the mobilization of financial resources and to ensure the efficient utilization of such resources in the promotion of economic growth and development.
The historical path of the various interest rate policy adopted show that deregulation of interest rated was as a way of achieving positive real rate of interest and as a means of encouraging depositors to make more deposits which will be used in generating investments as an antidote to the anomalies created during the period of fixing interest rates, which discourage depositors to deposits funds, therefore bringing instability in the cost of borrowing.
A number of studies have been carried out on the role and contribution of cooperative societies, which have significantly the importance of cooperative societies in our economy.
This research work hitherto attempts to give an overview of the effect of zero interest rate principle on cooperative societies, activities, as a newly emerging dimension in the interest-based economy contrary to the core practice of co-operative societies which has its main sources of surplus from the interest charge on loan/credit granted to their members.
1.1 STATEMENT OF RESEARCH PROBLEM
A number of interest based cooperative societies that were established in the early 70’s were crumbling or are rather adjudged sick and crippled. An average income earner, requires a viable and stable co-operative societies to provide a pole to learn on for their economic survival.
Apart from being social unjust, these inequalities have distorted the allocation of resources through the provision of business capital to artisans, at a very exorbitant interest rate, not minding what becomes the outcome of such capital making the rich to get richer and, the poor to become more poorer. Zero-interest rate financial principles and institution is now spreading across several Muslim and non-Muslim countries of the world, Nigeria not being left out. Many studies testify to the great success of zero-interest rate financial principle.
People have recently taken the bull by the horn to establish zero-interest rate co-operative societies which is perceived impracticable or impossible in many quarters to be operated and run without charging interest. We now have several of such zero-interest rate cooperative societies in our community coupled with the inherent potentials up zero-interest rate principles, it is necessary to investigate and find out the effect of this non-interest rate policy on cooperative societies performance measured by the volume of saving, shares and investments generated vis-à-vis loan granted or generated by these societies.
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