Management of Bad Debt in Microfinance Banks in Nigeria (6 Selected Micro Finance Banks in Anambra)
CHAPTER ONE
OBJECTIVE OF STUDY
The purpose of this study is to ascertain the procedure for management of bad debts in Micro Finance Banks (MFB), especially the purpose of the study is to:
- Ascertain the effective credit and bad debts management on Micro Finance Banks
- To identify the danger signals on bad debts and doubtful debts in Micro Finance Banks
- To examine causes of bad debts on Micro Finance Banks
- To ascertain the implication of huge bad debts on Micro Finance Banks
CHAPTER TWO
LITERATURE REVIEW
This chapter is concerned with the review of related literature to the topic study. The review was organized under the following headings;
- Credit and bad debts management on micro finance banks
- Danger signal or bad and doubtful debts
- Causes of bad debts on Micro Finance Banks
- Implications of bad debts in Micro Finance Banks
- Minimization of bad debts by the Micro Finance procedure to take on account belonging doubtful.
CREDIT AND DEBIT MANAGEMENT
The place of banks in national economy is a significant one, which acts as prime mover of the economic life of any nation. The importance and significance of banks with respect to economic and social development of a nation cannot be under emphasized. Banks are known to perform many functions of deposits; mobilization and tending which is perhaps to most significant of their functions. Indeed the two prime functions portray banks as the agent who redirects funds from the surplus sector to the deficit sector while earning a comfortable margin surplus sector and then selvey for their services as the intermediaries. Whole deposit mobilization can be categorized as a relatively executing activity. Lending is essentially a logical follow up of deposit mobilization. The banks are responsible for the safety of funds entrusted to them, while also responsible for channeling the funds to the owners. The quality of the banks fund lending decision significantly determines the banks ability to effectively play the role they have assumed. Apart from the fact that lending is a significant function of the banks. For the above reason, loans and advance have been found to constitute the largest proposition of the banks assets and assets possess the highest rate of return released to the other alternative investment. This is to determine the various techniques of methodologies of credit, the appropriate combination of these techniques so as to achieve success and minimize losses were not in banks credit and lending activities, this basic aim offers the opportunity to bridge the gap between savings and investment in the economy.
Credit management also involves monitoring of operations of account at the branch bank have been taken for a ride in the past by “smart” customers, who give the impression that turnover was being done, granted by then, where all that was being done kite flying or cash recycling. Adekowary (1986) acquired that a customer who indulges in this practice usually have two or more accounts at two or more different banks or branches he draws a cheque on his account. The bank knowing fully well that there are no funds in that account with the bank, he then draws all the uncollected funds out at bank “P” and immediately deposits in bank”x” another cheque drawn on non-existence funds in his account by bank “T”. This is a simple example of kiting, by this, it means a customer can fraudulently make use of bank funding without proper authority. Bank staff must therefore watch program operation on customers’ account closely and report unusual activities to their managers. However, some indication of kiting suspect as recently enumerated by Kotawa of (Savana Bank) as an experienced operating officer are;
- Consistent increase in deposit amount
- Excessive account activities in relation to type of account, that is, high turnover with constant daily balance.
- Depositors usually concern with daily states of account
- A pattern of daily deposit made to cover cheque received for payment on the current day and finally
- Frequent purpose of the customers related to company or other banks
CHAPTER THREE
METHODOLOGY
This chapter is based on the method the researcher adopted to ensure that the study is carried out successfully. The procedure is structured under the following lending;
- Research design
- Area of study
- Population of the study
- Sample and sampling technique
- The instruments used for data collection
- Validation of instrument
- Method of data analysis
RESEARCH DESIGN
According to world encyclopedia (1977), “design is intended arrangement of material to produce a certain result or effect” research design according to Nwanna (1981) is used to describe a number of decision which need to be taken regarding the collection of data.
Therefore, the researcher employed a descriptive survey and instrumentation in order to obtain information necessary to solve the research problem.
AREA OF THE STUDY
The study covers five Micro Finance Banks in Anambra State.
CHAPTER FOUR
In this chapter, the researcher presented the data that was collected from the questionnaire given to the respondents. They also analyzed the data. The data were arranged and presented in tables according to research questions.
Research question 1
What are the major goals of credit and bad debt management in Nigerian Micro Finance Banks?
In Table 1 above, the respondents expresses regard on all the items as the major goals of credit and bad debt management in Nigerian micro Finance Bank. These items have new mean values of 4.34, 4.09, 4.49, 4.41 and 4.47 respectively which are above the cut off point of 3.5.
CHAPTER FIVE
DISCUSSION OF FINDINGS
This chapter include
- Discussion of findings
- Implication
- Recommendation of study
- Suggestion for further studies and
- Conclusion
DISCUSSION OF FINDINGS
The findings of this study is based on the management of bad debts in micro finance banks with particular reference to six micro finance banks in Anambra State.
From the analysis and interpretation of the data collected, the researcher had many findings in relation to the research question. And the inferences made are summarized as follows.
In research question one, it was found that the major goals of credit and bad debt management in Nigeria Micro Finance Banks is to ensure the study of fund through customer’s ability to repay on maturity time, this justifies the view of Truett (1987) who said that debt is regarded as evil.
Emarson (2002) admonished that every avenue through which bad debts should be in cut out to be sealed up. In general, people believe that the presence of bad debt indicate useful or universe spending.
As a result the banks should cultivate the habit of following credit guideline in giving out loans to customers.
In research questions two the researcher observed the danger that signal on bad doubtful debts, these dangers that signal are excessive rigidity in the account, the evidence of delays in payment of trade account, long delay producing financial statement particularly auditing account and also heavy borrowing from other sources contributed to bud and doubtful debt.
In research question three, the researcher observed that the causes of bad debt in Micro Finance Banks are as a result of lack of knowledge on credit and bad debt management by the bankers before granting loan to customers, causes bad debt that is why Olashore (1990) argued that a good lending officer must be able to interpret financial data borrowing customers in determining the coherent and ability of such customers to services and facilities granted.
In research question four, the researcher found out that the implication of bad debt in micro finance banks is that it can lead to liquidation of the bank because of un-restrained and unauthorized lending at most micro finance banks has death serious blows on their liquidity position.
IMPLICATION
This study focuses on the management of bad debts in micro finance banks, therefore the implication of the finding is that;
- It makes micro finance banks not to be over lending thereby incurring bad debts.
- I aids them to show how to manage the incurred bad debts that has not been recovered.
RECOMMENDATION
Based on the findings, the following are therefore recommended.
- Banks should adopt a clear and manageable credit policy, the goals of which should be clearly stated and appreciated. Efforts should be made to abide by laid down policies and negative strenuous influence must be strongly resisted.
- Bank managers who are professional with past records of prudent behavior should be protected from senior officials who are bank owners who may want to commit financial crime through them.
- Adequate security and collateral be obtained for all categories of credit. The security should be protected and monitored on regular basis.
- All credits should be closely monitored as well as the borrower and his business in this way, any danger signal will be noticed early enough for preventive actions to be taken.
- A code of conduct should be prescribed for all workers especially credit personnels and managers.
- Lending to risky and new ventures should be avoided, these have cracked a lot of bad debt for banks.
LIMITATIONS OF THE STUDY
In the execution of this project, the researcher encountered number of constraints which affected this work such as unco-operative attitude of some bank staff and due to the code of conduct of secrecy they have to the customers, they refuse to make available some important information concerning customers who are debtors.
Secondly, the inability of some workers staff to disclose their personal data
SUGGESTION OF FURTHER STUDIES
As a result of the limited duration of the research and also financial problems, the research could not cover a very wide area of study at a time and as such could not go beyond micro finance banks in Anambra state.
Further investigations should be carried out to test the reliability and acceptability of this study. The researcher suggest the following for further research.
- Modalities for the determination of fraud embezzlement
- The application of cost benefit approach in micro finance banks.
- Loans Port-folio planning techniques in micro finance banks
CONCLUSION
In this research work, it has been a world wide venture to examine how to identify and manage bad debts In Micro Finance Banks. Consequently, the research then suggested on how to identify and solve the problem arising so as to minimize bad debt in Micro Finance Banks. Bad debts could be on the increase if administration of lending and exerting loans and advances are not met efficiently and this would harm the existence of banks. It could so increase the incidence of bad debts.
Undoubtedly, it takes many thing to achieve a level i.e lending where the sum lent could be saved to achieve this level, a good appraising technique policy should be implemented and a good policy must therefore guide the lending to achieve earnings objectives while also meeting appropriate, credit needs maintain proper credit standards, minimize loses, evaluate new business opportunities, objectives and adjust to channels in the regulatory environment. The necessary books for recovery must be provided to enhance supervision and inspection must be on continuing basis.
REFERENCES
- Adekanya, F. (1991): Practice of Banking Onitsha F.E.A Publisher Limited
- AdekonwanyeJ.O. (1986) Financial management in EducationalInstitution. Vol 2 January
- Central Bank of Nigeria (2005) Regulatory and Supervisor guidline for Micro Finance Banks
- Emerson’s E. A. (2002): Effective Credit Guidelines, Onitsha. Cape Publisher International Limited.
- NwannaO.O (1981) Introduction to Educational Research, Ibadan Hevenemann Educational Publishers.
- Olalusi F. (1986): The Practice of Banking, Lagos U.U.T.P Publisher
- Olakuri O. O. n(1995): Problems of cash and Credit Studies in Banking System 12(3) 210-216
- Olayemi R. K. O. (1986) Lending Finance Practice of Banking Vol 2, Collins Accademic and Professional Test.
