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PROJECT TOPIC- THE EFFECTIVENESS OF CREDIT FACILITIES IN MICRO FINANCE BANKS

PROJECT TOPIC- THE EFFECTIVENESS OF CREDIT FACILITIES IN MICRO FINANCE BANKS

Abstract

The study examines the effectiveness of credit facilities in micro finance banks in Nigeria. To this as in-depth examination of the credit evaluation process of the bank (Some selected Micro Finance Bank in Etsako West Local Government Area Edo State) were made paying particular attention to the character, capacity, capital, collateral and condition of credit evaluation. The exploratory research method was adopted for this study. Data was collected from textbooks, journals, internet, conference papers and questionnaires were administered to banks’ staffs and their customers coupled with oral interview. The findings revealed that there is problem encountered by banks and their customers in the course of demanding and granting credit, as well as the benefits derived in borrowing. Based on the findings, the study revealed that many customers of the bank enjoyed credit facilities which would have stimulated business entrepreneurship skills and recommends among others that the bank should avoid making strengthful demand on prospective borrowers in terms of types and numbers of form to be completed with high collateral securities and other protocols as this hinders economic development.      

CHAPTER ONE

INTRODUCTION

  • Background to the Study

Robust economic growth cannot be achieved without putting in place well focused programmes to reduce poverty through empowering the people by increasing their access to factors of production, especially credit in may 2003. Government of the country decided to transfer community banks into microfinance institution in order to stimulate growth and development at the grassroot level. The banks are to promote small scale business activities.

Banks are the cornerstone of the economy of a community. The encyclopedia of the America International Edition succinctly points the position thus economic activity as it is known could not be smooth sailing without the continuous flow of money and credit. Basically, the business of banking entails the growing of depositors funds.Community Bank Ltd (now Microfinance Bank) takes some risk in the course of granting credit to customers.

The major risk is that credit thereby affecting the ban credit portfolio. In anticipation of such default, micro-finance bank for bad and doubtful debt. Considering the adverse effect which huge provision for bad dept have in micro-finance bank profit and capital each micro-finance bank management exercise subject as opposed to objective judgement in classifying debt to bring about uniformity and effectiveness in classification of credit facilities and ensure identical provisioning for anticipated loan and overdraft losses.

The Central Bank of Nigeria (CBN) on 31st December 2005 issued a prudential guideline of re-capitalization of bank in the country so as to increase the effective of banks of which micro-finance banks is not an exception. Following this policy, the CBN on August 27th, 2011 gave an approval to 749 banks to begin operation in the country as it was expected that by the end of December 2007 deadline for all community banks to migrate to micro-finance bank must been enhanced.

PROJECT TOPIC- THE EFFECTIVENESS OF CREDIT FACILITIES IN MICRO FINANCE BANKS

  • Statement of Problem

The private sector is a major sector of the economy in respect of development of business activities. It is well known by those who own entrepreneur power that has the financial resources to part into practical operation. Hence there is the need to borrow money from bank management analyst have agreed that people do not appreciate bank management the impact of credit facilities granted by Nigeria commercial banks as well as microfinance banks (MFBs).

An inherent problem encountered on the borrowing process is the credit facility to be profitable and also, the sense of fulfillment on the borrowers aids the extent of paying back the credit facilities as provided in the agreed period.

  • Research Questions
  1. Is it proper to assess the character and capacity of the loan?
  2. Are the loans collected directed to different purpose other than the purpose for which they were borrowed?
  • Are customers making good their in order for the bank to minimize the occurrence of bad debt?
  1. Has the borrower been able to provide adequate security to back up the loan?
    • Objective of the Study
  2. To find out if it’s proper to assess the character and capacity of the loan.
  3. To ascertain whether the loan collected are not directed to appropriate purpose initially made for.
  4. To find out if customers make good their loans obtained in order the banks to minimize the occurrence of bad debt.
  5. To find out if the borrowers are to be able to provide adequate security to back up the loan.
    • Statement of Hypotheses

Hypothesis One

Ho:  There is no significant between credit and bank worthwhile?

Hi:   There is significant between credit and bank worthwhile?

Hypothesis Two

Ho:  Microfinance bank are not independent of credit facilities.

Hi:   Microfinance bank are independent of credit facilities.

  • Significance of the Study

The significance of this research work is the pay special attentions to the effectiveness of credit facilities in Auchi MFB Ltd. How it can be reasonably manage in order to have an effective banking operation within Auchi community.

With the increasing nature of business activities, seeking finance for their business, I find it necessary to study the mode of credit facilities granted by bank and which I believe that at the end of this work it will serve to satisfy my need and also as a reference to other students.

  • Scope of the Study

As a particular case study involved, this research study will be limited to selected microfinance banks in Estako West Local Government Area. Only aspect of credit facilities granted to customers by the banks will be dealt with in this research work or  study is mainly concerned with the advances and current account officers of the bank.

  • Limitations of the Study

A serious limitation of the study was in the area of data collection. Specific data from Auchi MFB on the total amount of credit facilities given to private businessmen and their frequency was not available. Bank by their peculiar nature considered all the dealings and information as strictly confidential and are very highly sensitive to their affairs.

Some businessmen who appeared not to know the relevance of the study were very reluctant to give our information as to actual amount of credit they really enjoyed from Auchi MFB and of what use the loan was put. Again, illiteracy on the part of some customers and language difference hindered some customers also from providing answers and interacting with me in English language that I understand.  

  • Definition of Terms
  • Credit Facilities: Loans advance granted to a customer by a bank for a specific period of time with interest payable along with the capital on maturity.
  • Collateral Security: A tangible or intangible asset presented by a customer to sign for loan before it is being granted which would be taken by the bank in the case of default in repayment of the loan by the customer.
  • Portfolio: The total amount of capital holding by a particular business enterprise.
  • Bad and Doubtful Debts: Debts granted to a customer which cannot be recovered again (bad) and debts of which there repayment or recovering is doubtful to the bank (doubtful debts).
  • Private Sector: A sector of the economy in which the control and management of resources is fully owned and exercised by individuals, firms or corporate bodies other than the government (public).
  • Management: A social processed entailing responsibility for the effectiveness and economic planning and regulation of the operation of an enterprise in fulfillment of a given task or objective loan portfolio. The total amount of money available to a business enterprise which are to be given as credit to customer.
  • Robust: Healthy of sound situation a healthy economic environment.
  • Re-capitalization: The raising of capital from its previous amount to its current amount or specified amount which will form the minimum capital base of operating business enterprise.
  • Significant Relationship: A meaningful connection between two variables.

PROJECT TOPIC- THE EFFECTIVENESS OF CREDIT FACILITIES IN MICRO FINANCE BANKS

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