Problems And Prospects Of Microfinance Banks

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Problems And Prospects Of Microfinance Banks


Abstract


The study examines the problems and prospects of Gyelesu Micro-finance bank on small and medium scale enterprise. The study was carried out in Zaria local government area of Kaduna state. A survey research design was adopted for this study. The findings indicate that the causes of unpaid debt are the inability of the bank to properly evaluate loan proposals as well as the unwillingness of borrowers to pay back loans. The techniques used in evaluating loan proposal in Gyeleasu microfinancia bank are basic quantitative and qualitative techniques and risk evaluation technique. The problems arise from problem of default in loan payment leading to high bad debt and their inability to effectively evaluate loan proposal and the problems of using unqualified and unskilled staff. Based on the research findings, the following recommendations are made based on the re-search findings so as to facilitate the possibility of improving the management.


Chapter One


Introduction

1.1 Background of the Study

A microfinance institution is a semi formal organization. It can be non government al or community development initiative. It is a subset of flexible structures and system which provide a wide range of financial and saving needs of small scale enterprises in developing countries where top town formal financial institutions have failed to address the credit need off the real sector of the economy.

The Nigeria microfinance institution have come along way, a central bank study has identified as at 2001, 160 registered microfinance institutions in Nigeria with aggregate savings worth N99.4m and outstanding credit of N649.1m indicating huge business transactions in the business (Anyanwu, 2004). Institutional structures for the provision of micro credit vary and may be government, NGO supported, traditional, or mixture of two or more of these, there are all those that operate on the line of informal models. They are credit and savings association which are based on the traditionally experience, they provides savings and credit services to their members.

Despite the availability of microfinance and the establishment of microfinance institutions in Nigeria, there are yet no established government policies and mechanisms for regulating and supervising activities in the sector (Anyanwu, 2004). In 2000, a national conference on microfinance was organized by the federal government of Nigeria and the world bank recommended that the central bank of Nigeria to take up the responsibility of developing an appropriate Policy as well as regulatory and supervisory frame work for the operation of microfinance institutions. The workshop recognized that the development of appropriate microfinance policy was critical to the development of sustainable microfinance institutions and by implicated through micro enterprises in Nigeria. (CBN, 2001).


1.2 Statement of the Problem

The establishment of microfinance banks in Nigeria provide an additional finding source to small and medium scale enterprises on lending basis. This is so because the microfinance banks have grassroots orientation and greater expertise in financing small and medium scale enterprises. But inspite of the prospect of microfinance banks in financing small and medium scale enterprise, they are constraint with myriad of problems ranging from managerial to their inability to properly evaluate loan application and improper credit risk management which has resulted to a high degree of unpaid debt and consequently the closure of so many micro finance bank in the recent past. It is against this that the subject matter is seen as a empirical problem worthy of being investigated.


1.3 Objectives of the Study

  1. To find out the causes of unpaid debt in Gyelesu Microfinance bank.
  2. To identify the techniques used in evaluating loan application and credit management in Gyelesu Microfinance Bank.
  3. To examine the prospect of Gyelesi Microfinance bank in financing small and medium scale enterprises.
  4. To identify the constraint militating against the effect management of Gyelesu micro finance bank and recommend workable solution.

1.4 Significance of the Study

The study would be beneficial to microfinance bank and government agency incharge of microfinance institution and capacity building for small and medium scale enterprises, especially and they utility the finding of this research as basis for policy formulation. The study would also contribute to the existing knowledge on the problem and prospect of microfinance bank in financing small and medium scale enterprises. The study will also be a spring board for further research.


1.5 Research Qquestions

  1. What are the causes of unpaid debt in Gyelesu microfinance bank
  2. What are the techniques used in evaluating loan application and credit management in Gyelesu micro finance bank.
  3. What are the prospect of Gyelesu micro finance bank in financing small and medium scale enterprise?
  4. What are the constraint militating against the effective management of Gyelesu micro finance bank and how can it be solved?

1.6 Scope of the Study

The study covers the examination of the problems and prospect of Gyelesu micro finance bank scale enterprises. To this end investigation would be made into the prospect of microfinance bank in financing small and medium scale enterprises as well as the problems militating against microfinance bank in financing small and medium scale enterprises. The study shall cover a time from 2007 to 2011.


1.7 Limitation of the Study

For the fact that the study is restricted Gyelesu micro finance and the survey design as well as questionnaire is used as the research design as well as instrument of the study, it is no certain if the study is conducted on other area or other design and instrument is used would yield the same result, other constraint arise from the uncooperative attitude of some respondents as well as constraint in access literatures on the subject matter.


1.8 Definition of Key Terms

Microfinance Banks:

This are small scale bank that specializes in giving loans and mobilizing savings from small and medium scale enterprise as well as low income earners.

Small Scale Enterprise:

A firm that is independently owned and operated on a small and which is not dominant in its field of operation.

Medium Scale Enterprise:

A firm that is higher than a small scale but not up to a large scale enterprise. A firm with a total capital employed of not more than N50 million including working capital.

Loans:

These are advances giving to individual or lenders by financial institution

Economic Growth:

The nations expansion capacity to produce goods and services.

Risk Management:

This are precautionary measures taken to prevent default in loan and losses.

Loan Appraisal:

This are criteria used in evaluating the loan proposal.


Chapter Five


Summary, Conclusion and Recommendation

5.1 Summary

The study examines the problems and prospects of Gyelesu Micro-finance bank on small and medium scale enterprise. The research questions that guided the study were; what are the caused of bad debt in Gyelesu microfinance bank? What are the techniques use in evaluating loan application and credit management in Gyelesu Micro-finance bank? What are prospect of Gyelesu Micro-finance bank in financing small and mediums scale enterprise? What are the constraints militating against the effective management of Gyelesu Micro-finance bank and how can it be solved?

A survey research design was adopted for this study. Questionnaire constitute instrument of data collection as well as source documents. The statistical mean scores was used to analysis data obtained from the field with a total population of 21persons all adopted as the sample size. The findings indicated that Gyelesu Micro-finance bank give small and medium scale entrepreneur quick access to loan as well as good incentive to save their meager income. However Gyelesu micro finance bank is constraint with the problem of their inability to effectively evaluate loan proposal resulting to high debt and also bank of skilled worker and expert to prevent and manage credit risk.


5.2 Conclusion

Based on the research findings, it is concluded that Gyelesu bank if well managed will contribute to the development of small and medium scale enterprise. This is owning to its potentials of financing a handful of small and medium scale enterprise written it domain.


5.3 Recommendations

The following recommendations are made based on the re search findings so as to facilitate the possibility of improving the management of Gyelesu Micro-finance bank:

  1. Employees of Gyelesu in credit department should be trained and retrained on various techniques of evaluation loans proposal. This will help them to know loan prospects that are high risk.
  2. Gyelesu Micro-finance banks should endavour to employ eth eservices of risk management expert to help in risk prevention and management. This will also help the bank to reduce the problem of bad debt.
  3. Gyelesu Micro-finance banks should also partnership with government agency such as small and medium enterprise agency of Nigeria in order to promote entrepreneurship. This will enable them source fund From government in order to give more loan access to small and medium scale enterprises.
  4. Gyelesu Micro-finance banks should endeavour to employ qualified individual not based on paper qualification but to merit and ability of such individual.

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