CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Finance is an indispensable element for the continuity and maintenance of any meaningful business enterprises. For instance, any business organization whether new, old, large, medium, small needs various kind of assets to commence its operation and also for the long run survival of every business organization finance entails the original amount with which a person entered a business. The classes of assets that a business organization would require include cash assets which are needed for working capital, inventories, building and land to purchase or rent, raw materials but to mention but few.

Also, financial institutions provide the necessary finance needed not only for economic development but also for industrial development. Therefore, the existence of these banks serve as a common practice that bank are usually called upon to assist towards economic development which in turn provide available services by financing through medium and short term lending and advisory functions.

The banking sector is as old as the industry. Mints (1970, P. 9) suggests that "attempts in English speaking countries to explain the operations of financial institution began with the inception of these institutions, that is to say, in the second half of the seventeenth century in Great Britain and in the 1780s in the United States." It was not until much later and beginning with the seminal work of Schumpeter (1934) that attention began to be focused on the relationship between the financial system and economic growth and development. As in most economic debates there have emerged many schools of thought on this issue and particularly on the role of the financial system in the process of economic growth. This almost traditional tendency to dissent among economists has been helped in this case by the plethora of interacting variables that act jointly to determine the size, nature and pace of economic growth. The most contentious point in these debates today, however, is the weight to be assigned to the contribution of the financial system in economic development rather than the fact of the correlation of the two sectors (see Cameron, 1972).

The production of goods and services in a most efficient manner has continued to be the only viable and reliable option for growth, development, and survival of world economies. Despite the importance of production, it is impossible to attain a high productive level without a well-developed industrial sector. Industries normally operate either on a large or small scale both in the public and private sector. Akinola and Iordoo, (2013) In Nigeria for example, the private enterprises cover a wide range of different types of industries as distinguished by various criteria such as size, sector, ownership structure, employment and technology

1.2 STATEMENT OF THE PROBLEM

Financial institutions in Nigeria are set up to render some services among which is funding of business, granting of credit facility to their customer, however, there have been some problem associated with this services that they render to customers, problem of banking in Nigeria is as a result of the absence of adequate collateral security by customers, of borrowers collateral security is something that the banks is willing to hold against the loan it gives the customers.Generation of business idea abounds in Nigeria and with present level of poverty, ideal things should have been embracement of entrepreneurship even if at micro level by all and sundry but one of the major hindrances is the availability of finance. Existing business’ growth or otherwise also depends by and large on funding. This is because, the implementation of new innovation (new method; new processes; new materials; new markets; new products or new organizational structures) cannot be without research which thus requires adequate funding.

Also financial institutions is also affected by mass illiteracy of the people, especially in the rural areas of the economy, people proffers to hoards or keep new money at home instead of saving them. Loan defaulter is rampant because they have no much knowledge about it, the rate of interest is too high for them to be able to repay.

1.3 OBJECTIVES OF THE STUDY

There is nothing without an objective, the objective of undertaking this research work is to provide answers to the questions that will bring confidence in the mind of the management in any financial institutions.

The objectives are;

i)     To find out whether loans are used for the purpose for which the beneficiaries collected them

ii)   To find out the standard followed before loans are given out

iii)  To find out if customers default in the repayment of the loans and reasons for such defaults.

1.4 RESEARCH QUESTIONS

In every research work carried out, there must be research questions which proof the researcher to carry out the research work effectively. Below are the research questions for this study;

1.   What is the main source of credit facilities available to financial institutions?

2.   At what rate did First Bank grant credit?

3.   Do financial institutions offers loans to their customers?

4.   Does financial institutions experience inadequate funds?

5.   What is the amount of income of financial institutions?

1.5 STATEMENT OF HYPOTHESIS

Statement of hypothesis are drawn from statement of the problem which the researcher want to test the hypothesis and identified areas of problems.

H0:  The rate of interest charged on loans granted by the first bank are too high

H1:   The rate of interest charged on loans granted by the first bank are not too high.

H0:  financial institutions doesn’t experience inadequate funds

H2:  financial institutions does experience inadequate funds

1.6SIGNIFICANCE OF THE STUDY

The findings in this study would be of significance in the following ways:It will assist the reader and decision maker within banking sector to know and identify the problems militating the operational activities of financial institutions. The economic constitutions of the banking sector can be easily be appreciated. It also offered management to give loan to customers that meet the requirement of loan.These groups and other stakeholders stand to benefit from the findings of the study in the following ways:

Small-Scale Enterprises: Through the findings of the study, promoters of small scale enterprises (SSEs) will be able to understand better the varieties of ways to access funds from micro finance 21 banks and other MFIs in Nigeria. The study will also enable them understand the intricacies of micro financing and how to surmount accessibility and other problems associated with the operations and/or administration of micro finance in Nigeria. Micro Finance Institutions/Conventional Banks: The result of this study is expected to benefit operators of conventional banks and micro finance banks in fashioning out appropriate lending strategies, which will improve the accessibility of micro finance by small scale enterprises and other micro credit users. The study will also provide necessary information that will aid them in overhauling their entire system/apparatus of micro financing. Government Agencies/Policy Makers: The outcome of this study is expected to be of benefit to policy makers such as government and its agencies, in providing a platform for implementing in its entirety the micro finance policy, regulatory and supervisory framework. The study will then put appropriate structures that will improve upon the accessibility of micro credit from micro finance institutions by small scale enterprises and other users of micro credit. Also, the research will determine whether the growth or expected benefits of micro financing activities reflect on the expansion of the informal sector on the empowerment of economically active population. Future Researchers: The result of this study will help future researchers by providing reference materials that could guide them in enlarging their scope of study or taking a different course of action. There are a lot of issues bordering on micro finance in Nigeria. This study has only provided a platform for more studies and other researchers are expected to key in on this study, to unravel other problems associated with micro financing management in Nigeria.

1.7 SCOPE AND LIMITATION OF THE STUDY

The scope of this research work is limited to the use of questionnaire and observation made in the field. It is noted however that all banks in Kogi State cannot be studied. Therefore, effort is geared towards examining First Bank Plc, Diamond Bank And Eco Bank all in Kogi State.During the course of carrying out this research work, the research is confronted with many problems among which are;

Financial constraints: It stand as a big constraints during the course of exercise which almost threatened the success of this work.

Attitude of the respondents: Lack of cooperation of some respondents who were to supervise or give relevant information in most case, they decided thereby making the whole process a complex exercise.

Time constraints: Lack of time have also made all the activities to become default to be embarked upon by the researcher.

1.8 DEFINITION OF TERMS

During the course of this study, the researcher have come across some terms/words which the research want to give meaning to these words and terms.

Appraisal:An appraisal is a valuation of property, such as real estate, a business or an antique, by the estimate of an authorized person. To make a valid appraisal, the authorized person must have a designation from a regulatory body governing the jurisdiction of the appraiser. Appraisals are typically used for taxation purposes or to determine a possible selling price for the property in question. The appraiser can use any number of valuation methods to determine the appropriate value to assign, including the current market value of similar properties, quality of the property and valuation models.

Business:A business (also known as an enterprise, a company or a firm) is an organizational entity and legal entity made up of an association of people, be they natural, legal, or a mixture of both who share a common purpose and unite in order to focus their various talents and organize their collectively available skills or.

Funding:Funding is the act of providing financial resources, usually in the form of money, or other values such as effort or time, to finance a need, program, and project, usually by an organization or government.

Pattern:A pattern, apart from the term's use to mean "template",is a discernible regularity in the world or in a manmade design. As such, the elements of a pattern repeat in a predictable manner. A geometric pattern is a kind of pattern formed of geometricshapes and typically repeated like a wallpaper.

Financial institutions:Financial institution or Depository institutions – deposit-taking institutions that accept and manage deposits and make loans, including banks, building societies, credit unions, trust companies, and mortgage loan companies; Contractual institutions – insurance companies and pension funds.

1.9 ORGANIZATION OF THE STUDY

This research work is organized in five chapters, for easy understanding, as follows Chapter one is concern with the introduction, which consist of the (overview, of the study), statement of problem, objectives of the study, research question, significance or the study, research methodology, definition of terms and historical background of the study. Chapter two highlight the theoretical framework on which the study is based, thus the review of related literature. Chapter three deals on the research design and methodology adopted in the study. Chapter four concentrate on the data collection and analysis and presentation of finding.  Chapter five gives summary, conclusion, and recommendations made of the study.

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