CHAPTER ONE

1.1    BACKGROUND OF THE STUDY

          In Nigeria, credit has been recognized as essential tools for promoting small and micro enterprises (SMEs). About 70 percent of the population are engaged in the informal sector or in Agricultural Production. The federal and state government have recognized that for sustainable growth development, the finance empowerment of the rural area is vital, being the repository of the predominantly poor in society, and in particular the small and micro enterprises (SMEs). It is to enhance the improvement of the living condition of the people.

          The small and medium scale entrepreneurs in rural areas lacks the necessary financial services, especially credit from the commercial banks, this is because they are considered not credit worthy. These programme range from Agricultural Development Project (ADP), the establishment of Agricultural credit bank to better life programme failed to achieve the desired result that lead to emergence of microfinance bank aimed at extending credit to micro enterprises and encourages entrepreneurship especially in semi urban and rural area.

          The microfinance bank was introduced in 1996 to promote banking habit at the gross root level and it was established by the president of the federal republic of Nigeria Gen. Olushegun Obasanjo. They are institution constructed as a company licensed to carry on the business of providing micro finance services such as collection of saving loans provision, insurance money transfer services and other non financial services that are needed by the poor. The client of microfinance banks are typically self employed low income entrepreneur in both urban and rural area.

          Currently, micro-finance banks are of two forms, as all licensed community bank in Nigeria that meet CBN guideline have been transformed to microfinance bank.

1.2    STATEMENT OF THE PROBLEM

          In carrying put a research on management of micro finance banks loans and customer default. We discovered that some micro finance bank especially Isoko micro finance bank have brought development to he economic of Isoko. But the micro finance bank is faced with numerous problems of customer default which are as follows. Lack of stable government and enacting of new degree and policy to be implemented affects the micro finance bank loan and customer default, there is shortage of skilled professionals who can understand technology as well as well as the micro finance industry, power and communication infrastructure is inadequate in Isoko micro finance bank, Economy sabotage and strike by the labour union affect the banking industry and lack of business firm and industries in the urban area of the country do not establish branches in these area.

1.3    OBJECTIVES OF THE STUDY

The broad objective of this research is to study the management of micro finance bank loans and customer default while the specific objectives include:

i.             To investigates the various socio- economic problem which banks encounter in the management of loans to the borrowing business world.

ii.            To explore avenue through which the banker customer relationship can be intensify

iii.          To ascertain some conception which the public have against the micro finance banks especially Isoko micro finance bank with respect to its lending loans and recovering policies.

iv.          To know how the study have assist the government and individual to bring development and economic growth in rural areas.

1.4    RESEARCH QUESTION

      i.        Has bank loans lead to the development of rural area?

     ii.        What does the bank consider most in granting loans and advance to customer?

    iii.        What are the services altered by micro finance in rural area which are likely to be the greatest use to personal customer?

   iv.        In your opinion what do you think should be done to reduce influence of bad debt?

1.5    SIGNIFICANCE OF THE STUDY

The significance of the study is to provide an explanation of the various difficulties connected with the management of loan portfolio in Nigeria micro finance banks and then make useful decision so as to arrived at an appreciable level of understanding among the parties involved and it can be beneficial in the following ways:

1.   It will be a benefit to the general public that will be educated on the importance of loan repayment.

2.   It will also help the micro finance bank to attained more policies and strategies for checking default

3.   It will also help in creating employment opportunities for the rural population.

4.   It is also aimed at collecting all forms of deposits from the people and thereby investing such deposit for huge financial returns.

5.   To assist the rural dwellers in cultivating better banking habits.      

6.   To help in eradicating or reducing poverty among the rural populace

7.   It also provides investment advice to their customer in their area of operation.

8.   They also assist in accepting small deposit of lesser amount from customers in their area of operation.

9.   They grant credit facilities in the form of loans, overdraft to small scale business entrepreneurs who maintain account with them.

1.6    SCOPE OF THE STUDY

          This research was conducted from the angle of deposit received by banks and how bank manage those deposits in the form of disbursement under different headings such as loan, advances and overdraft. It also includes the provision for bad and doubtful debts. It is important to note that these disbursement are deposit owned by customer which are payable on demand. Thus funds have to be managed properly by the banks that have obligation to give proper account for whatever money given out.

1.7    LIMITATION OF THE STUDY

In carrying research about this study, so many problems were encounter by the researcher in terms of inadequate finance, inadequate information and also some of the respondents were reluctant in filling out questionnaire as they complained of time constraint due to work.

1.8    DEFINITION OF TERMS

          For the purpose of presenting clear and precise use of concept, the following terms are defined in the context of this work

i.             MICRO – FINANCE BANK: This is a self sustaining financial/ institution that supply loans, savings, opportunities, insurance, money transfer and other basic financial services to the poor.

ii.            MICRO – FINANCE BANK LOAN: These are loans bankers give to their local business customer.

iii.          DEFUALT: this the failure to pay debt

iv.          SECURITY: it is a certificate showing the ownership of the property.

v.           SAVINGS: It is refer to as income which is not spend on the purchase of goods and services. It is also the amount of money not consumed out by current income and after current consumption expenditure has been made or it is the amount set aside out of current income for future use.

vi.          OVERDRAFT: This is a lending facility to current account holder on an agreed condition. It can be short term credit; it is used in financing the working capital requirement of a firm.

vii.         INTEREST: This is simply regard as the price which has to be for liquid capital. Interest is expressed at a rate.

viii.       DEBTORS: This is one or organization that owes money or is one who owes money or other value done through purchase.

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