CHAPTER ONE

INTRODUCTION

1.1      BACKGROUND OF STUDY

Credit policies are rules and regulations as well as other consideration that guide a bank or other financial institution credit decision taking includes who receives the credit, the amount of credit and organization structure for it’s distribution, Robere (2007), states that a bank credit policy should set out the bank lending philosophy and objectives including, appraisal for implementation, monitoring, appraisal and review.

In a rational profit maximizing world, banks should maintain a credit policy of lending if only if borrowers have positive net present value projects. Why then are changes in credit policy seemingly correlated with changes in condition of those demanding credit? . this paper argues that rational bank managers with short horizons will set credit policies that can be influenced by other banks and demand side conditions. Nwakwo (2008) to facilitate lending, reduce risk and maintain standard in economic development, the loan policy or bank should specify the quantity of loan to be made, which loan should be secured and which should not, the type and quality of acceptable securities and the loan security that are in admissible, some of the factor to consider in drawing up a credit policy include the risk associated with various types of loans, the need for diversification to spread the risk liquidity consideration, type of customers, the capability of the personal and the relative profitability of the various types of loans.

1.2      STATEMENT OF THE PROBLEM

Despite the effort made at providing finance and ensuring that regulating environment in conducive, through the repealing of regulations that where inimical to orderly growth and development of Nigeria economic there are still areas that have not beer addressed. These are the credit delivery of financial system to the economy. This instability of the banking sector is adversely affecting business. This is because they lack adequate collateral securities for the credit facilities as such as credit policy affect the development of the economy.

1.3      PURPOSE OF THE STUDY

The purpose of the study is to examine the effect of credit policies of financial institution and its relevance to economy development and to further examine the following:

-              To examine whether credit policy of financial institution affect aggregate output and productivity in Nigeria economy.

-              To know whether credit policy of financial institution is favorable to economic development.

-              To identify the various credit policies scheme and their effect on the growth at economic development.

-              To examine whether lack of collateral security has hindered business from credit facilities.

-              To examine whether government policy on credit administration is favorable to business.

1.4      RESEARCH QUESTIONS

For the purpose of this study, the following research questions were raised

1.          Does the credit policy of financial institution affect aggregate output and productivity in Nigeria economy?

2.          Does the credit policy of financial institution favorable to economic development?

3.          Does government policy on credit administration favorable to business growth?

4.          Does small and medium scale enterprises have any contribution to the growth and development of country’s economy?

1.5      STATEMENT OF HYPOTHESIS

H1:   There is relationship between credit policy and financial institution and economic growth.

H0:   There is no relationship between credit policy and financial institution and economic growth

Hypothesis ii

H1: Credit policies of financial institutions has led to better performance of the institution.

H0:   Credit policies of financial institution has not led to better performance of the institution.

1.6      SIGNIFICANCE OF THE STUDY

The research work will give possible explanation to various difficulties of financial credit that of a long with financing small/medium scale and large scale enterprises in Nigeria and it will reveal the various credit schemes, available to small/medium and large scale enterprise. It is any intension that the following group of people will benefit from the study.

a.           Other researcher.

b.          Government and the monetary authorities

c.           Small scale, medium and large scale investors.

d.          Economic and financial analyst.

e.           Students and the general public.

1.7      SCOPE OF STUDY

The scope of this study is credit policy of financial institution and it’s relevance to economic development in Nigeria. The study is restricted to first bank Nigeria

1.8      LIMITATION OF THE STUDY.

The study is limited due to time constrain which was grossly inadequate, financial constrain and difficulties in obtaining relevant data as many people were reluctant to give information to student researcher as for relates to bank.

1.9   DEFINITION OF TERMS.

For adequate clarity some special words and technical terms used in this study were contextually define.

-              Bank: financial organizations were people keep money to lend money to people and must be licensed by the central bank of Nigeria.

-              Financial Institution: An institution that lend money to people to people or business.

-              Entrepreneurship: Entrepreneurship is the process of creating something new with value by devoting the necessary time and effort, assuming the accomplishing financial psychic and social risk and receiving the resulting rewards of  monetary and personal satisfaction and independence.

-              Small Scale Enterprise: An enterprise with the total capital employed not more than 1.5 million including working capital but excluding cost of land and /or  a labour size of not more than 11.100 workers.

-              Medium scale enterprise: An enterprise with the total capital of over N50 million but not more than N200 million including working capital but excluding cost of land and/or a labour size of 101-300 workers.

-              Large scale enterprise: An enterprise with the total capital employee of over N200 million, including working capital but excluding cost of land, and /or labour size of over 300 workers.

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