MANAGEMENT OF MICROFINANCE BANK LOANS AND CUSTOMERS DEFAULT

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MANAGEMENT OF MICROFINANCE BANK LOANS AND CUSTOMERS DEFAULT

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND TO THE STUDY

In Nigeria, credit has been recognized as an essential tool for promoting small or micro enterprises (SMEs). About to percent of the population are engaged in the informal sector or in agricultural production. The federal and state government has recognized that for sustainable growth and development, the finance empowerment of the rural area is vital, being a repository of the predominantly poor in society and particularly the 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 comerical bank. This is because they are considered not credit worthy. These programmes range from agricultural development (ADP), the establishment of agricultural credit bank to better life programme for rural women and others.

Unfortunately, most of the programme failed to achieved the desired result that lead to emergence of micro finance bank aimed at extending credit to micro enterprises and encourages entrepreneurship especially in semi urban and rural areas. The micro finance bank was introduced in 1996 to promote banking habit at the grass root, level and it was established by the formal president of federal republic of Nigeria Gen. Olusegun Obasenjo they are institution constructed as a company licensed to carry out the business of providing micro finance services such as collection of savings loan provision insurance money transfer service and other non financial services that are needed by the poor. The client of micro fiancé bank are typically self employed, low income entrepreneur in both urban and rural area. Currently, microfinance banks are of now forms as all licensed community bank in Nigeria that met CBN guidelines have been transmitted to micro finance bank they include: Micro finance bank (MFBS) licensed to operate unit.

These are letter to community banks licensed to operate branches and cash centres subjected to meeting the prescribe prudential requirement and availability of free fund for opening branches/cash centre. The minimum paid up capital for this category of banks in N20 billion for each branch. Micro finance bank licensed to operate in a state. This are MFBS licensed to operate in all parts of state at once without recourse to gradual coverage’s as in unit. The minimum paid up capital for this category of banks is N 1 billion. About 600 community bank have migrated to micro finance banks by January 1st 2008 and there are several others that have licensed to operated (CBN 2008). The management of microfinance bank loans and customers default extended are use expand existing business and in some cases to start new ones. According to CBN (2008) micro finance loans granted to clients had increase from 2007 to date. The role of microfinance bank is to promote industries such as credit delivery.

Boosting small enterprises, employment generation and facilities/poverty alleviation. The CBN recognized micro finance bank as an important too/for poverty alleva8iton through empowering the micro and small entrepreneur. The CBN wanted to see sustainable financial services available to those who don’t have access to formal financial resources and these objectives are being promoted to be commercially viable through an appropriate policy and regulatory frame work.

1.2 STATEMENT OF PROBLEM

In carrying out a research on management of micro finance loans and customer default. We discovered that some micro-finance banks especially Isoko Micro Finance Bank have brought dev elopement to the economic o Isoko. But the micro finance is faced with numerous problem of customer default which are follows: i. Lack of stable government and enacting of new decree and policy to be implement affects the micro finance loan and customer default ii. There is a shortage of skilled professionals who can understand technology as well as microfinance industry. iii. Power and communication infrastructure is inadequate in Isoko Micro Finance Bank iv. Economy sabotage and strike by the labour union affects the banking industry. v. Lack of business firm and industries in the urban area of the country does not establish in this area.

1.3 PURPOSE OF THE STUDY

i. The purpose of the study is to investigate the various socio-economic problems which bank encounter in the management of loans to the borrowing business.

ii. To explore avenues through which banker customers relationship can be intensify

iii. To ascertain some conception which the public have against the micro finance bank 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 to rural area.

1.4 RESEARCH QUESTIONS

The research question are based on management of micro finance loans and customer default of IC-Global Bank Oleh. As such, respondent would be asked the question.

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

2. Does management of loan increase loan default

3. Does management of bank loan increase loan facilities

4. Does microfinance bank loan increase investment.

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