EFFECT OF LENDING AND LOAN RECOVERY ON THE PERFORMANCE OF MICROFINANCE BANK

Description

TABLE OF CONTENTS
Title page                                                                                                    i
Approval                                                                                                     ii
Certification                                                                                                iii
Dedication                                                                                                   iv
Acknowledge                                                                                              v
Abstract                                                                                                      vi
CHAPTER ONE: INTRODUCTION
 

• Background of the Study 1
• Statement of the Problem                                                 4
• Objectives of the Study                                                           5
• Research Questions                                                           5
• Statement of Hypothesis           6

1.6     Significant of the Problems                                                       6
1.7     Scope of the Study                                                                          7
1.8     Limitations of the Study                                                           7
CHAPTER TWO: REVIEW OF RELATED LITERATURE
2.1     Conceptual framework                                                              9
2.1.1  Concept of Micro-Finance                                                        9
2.1.2  Microfinance in Nigeria                                                            11
2.1.3  Loan performance                                                                     13
2.1.4  Causes of loan repayment default                                              15
2.1.5  Five Cs of Credit Management                                                  17
2.2.0  Theoretical Literature                                                                19
2.3     Financial Constraint Theory and Model Generation                    23
2.4     Financial growth theory                                                            26
2.5     Empirical Literature                                                                 27
2.6     Summary of the Literature Review                                             30
CHAPTER THREE: RESEARCH METHODOLOGY
3.1 Introduction                                                                                  32
3.2 Research Design                                                                           32
3.3     Sources of Data Collection                                                       33
3.3.1 Primary Source of Data                                                              33
3.4.2 Secondary Source of Data                                                          34
3.4 Tools for Data Collection                                                              34
3.5 Population of the Study                                                                35
3.6     Sample and Sampling Techniques                                             36
3.7     Instrument for Data Collection                                                 37
3.8     Reliability and Validity of Data and Test Instruments                38
3.9     Data Analysis Techniques                                                        39
CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS OF RESULTS
4.0      Introduction                                                                              40
4.1     Presentation of data                                                                   40
4.2     Analysis of Data                                                                      40
4.3     Discussion of Results                                                               65
CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSIONS AND RECOMMENDATIONS
5.1     Introduction                                                                              66

• Summary of Findings           66
• Conclusion           66
• Recommendations 67

5.5     Area for Further Research                                                       67
REFERENCES                                                                                  68
APPENDIX                                                                                       71

CHAPTER ONE
INTRODUCTION
 
1.1     Background of the Study
The word microfinance is being used very often in development vocabulary today. Although the word is literally comprised of two words: micro and finance which literally mean small credit; the concept of microfinance goes beyond the provision of small credit to the poor.

Christen (1997) defines microfinance as ‘the means of providing a variety of financial services to the poor based on market-driven and commercial approaches. However microfinance practices today still focus on micro-credit: providing the poor with small credit with the hope of improving their labour productivity and thereby lead to increment in household incomes.

Microfinance bank as noted by (UNDP 2003) is a set of innovative and alternative financial service to the poor who do not have access to formal institution, it is a banking institution established to provide financial aid in the areas of micro credit, micro insurance to individuals, group and institutions, non-governmental organization for the purpose of development.
According to CBN (2005), “microfinance is about providing financial services to the poor who are traditionally not served by the conventional financial institutions’. Microfinance bank is featured by three distinguishing factors these are:

1. The absence of asset-based collateral.
2. The smallness of loans advanced and or savings collected.
3. Ease of operations.

Microfinance is strictly based on providing of timely, affordable, diversified, and dependable financial services to the active poor which otherwise would have little or no access to financial services. It is a financial intervention that focuses on the low income group of a given society.

Microfinance perceived as a financially sustainable instrument meant to reach significant number of poor people of which most are not able to access financial service because of the lack of strong retailing financial intermediaries. Access to financial services is imperative for the development of the informal sector and also helps to mop up excess liquidity through savings that can be made available as investment capital for national development (World Bank-Africa Region, 1999). Microfinance as a sector has the potential to reduce poverty by bringing a significant improvement in the lives of the active poor who are largely women.

The introduction of microfinance into the Country has made it possible for operators of small businesses to access credit facilities which hitherto were difficult to access due to difficult modalities by the formal financial institutions. Even though the amount involved are modest not huge, it supports their businesses to some extent….

CHAPTER TWO
REVIEW OF RELATED LITERATURE
The review of related literature focused on four areas namely:

1. Conceptual framework
2. Theoretical framework

• Empirical review

1. Review Summary

2.1     Conceptual framework

2.1.1  Concept of Micro-Finance
         

Over the years, the government had embarked on series of policy and institutional reforms aimed at enhancing the flow of finance from the banking system to small and medium scale industries (SMIs) as well as those involved in the petty business (Micro) activities and to entrepreneurial ventures at the informal level in particular; the important objective of boosting the performance of the entrepreneurial activities has not materialized.

Banks perceive micro activities as bad risk, hence the very low funding to the sector coupled with issues of high costs and short tenor. Since a 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 credit, the Central Bank of Nigeria (CBN) as part of its reform agenda embarked on the micro-finance institutions aimed at providing financial services to entrepreneurs who are not served by the conventional financial institutions.

There are several definitions to the concept of micro-finance. It is about providing financial services to the poor and micro entrepreneurs not served by the conventional financial institution. It is the provision of very small loans (micro-czredit) to the micro entrepreneurs to help them engage in new productive business activities. It includes a broader range of services, mainly credit savings opportunities, insurance money transfers and other financial products targeted to the poor and entrepreneurs.

Micro-financing is not a new phenomenon in the Nigerian society as evidenced by cultural economic activities such as “ISUSU”, “Adashi”, “Otataje”, “Aje” etc which were practiced to provide funds for producers in our rural communities. The effort of government in Nigeria is to modernize micro-finance in our rural and urban communities to improve the productive capacity of the rural and urban entrepreneurs, enhance their economic standing which alleviates the level of poverty and aggregates to improve development of the national economy.

In Nigeria, the formal financial system provides services to about 35 percent of the economically active population while the remaining 65 percent are excluded from access to financial services. The majority of the population was served by the informal sector through non-governmental organization that is micro-finance institutions….