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.
TABLE OF CONTENTS
Title Page i
Table of Contents vi
Chapter One: Introduction 1
1.1 Background to the Study 1
1.2 Statement of Problem 3
1.3 Research Questions 4
1.4 Objectives of the Study 4
1.5 Statement of Hypotheses 5
1.6 Significance of the Study 5
1.7 Scope of the Study 6
1.8 Limitations of the Study 6
1.9 Definitions of Terms 7
Chapter Two: Review of Related Literature 10
2.1 Introduction 10
2.2 What is micro finance? 11
2.3 Overview of micro finance activities in Nigeria 12
2.4 Roles of Micro Finance Banks 15
2.5 Microfinance Client 16
2.6 Microfinance Loan 17
2.7 Permissible Activities 18
2.8 Prohibited Activities 19
2.9 Licensing Requirements 20
2.10 Other Requirements 26
2.11 Summary of Literature 32
Chapter Three: Research Method and Design 37
3.1 Introduction 37
3.2 Research Design 37
3.3 Description of Population of the Study 37
3.4 Sample Size 38
3.5 Sampling Technique 38
3.6 Sources of Data Collection 38
3.7 Method of Data Presentation 39
3.8 Method of Data Analysis 39
Chapter Four: Data Presentation, Analysis and Interpretation 41
4.1 Introduction 41
4.2 Presentation of Data 41
4.3 Data Analysis 42
4.4 Hypothesis Testing 50
Five: Summary of Findings,
Conclusion and Recommendations 55
5.1 Introduction 55
5.2 Summary of Findings 55
5.4 Recommendations 58
1.1 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, microfinance bank for bad and doubtful debt.
Considering the adverse effect which
huge provision for bad dept have in microfinance bank profit and capital each
microfinance 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 microfinance banks is
not an exception.
Following this policy, the CBN on August
27thh, 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 microfinance bank must been enhanced.
1.2 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.
1.3 Research Questions
Is it proper to assess the character and
capacity of the loan?
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?
Has the borrower been able to provide
adequate security to back up the loan?
1.4 Objective of the Study
To find out if it’s proper to assess the
character and capacity of the loan.
To ascertain whether the loan collected
are not directed to appropriate purpose initially made for.
To find out if customers make good their
loans obtained in order the banks to minimize the occurrence of bad debt.
To find out if the borrowers are to be
able to provide adequate security to back up the loan.
1.5 Statement of Hypotheses
Ho: There is no significant
between credit and bank worthwhile?
Hi: There is significant between credit and bank
Ho: Microfinance bank are
not independent of credit facilities.
Hi: Microfinance bank are
independent of credit facilities.
1.6 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
1.7 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.
1.8 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
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.
1.9 Definition of Terms
Facilities: Loans advance granted to a customer by a
bank for a specific period of time with interest payable along with the capital
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.
The total amount of capital holding by a particular business enterprise.
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).
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).
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.
Healthy of sound situation a healthy economic environment.
raising of capital from its previous amount to its current amount or specified
amount which will form the minimum capital base of operating business
Relationship: A meaningful connection between two