BAD DEBTS MANAGEMENT IN MICRO FINANCE BANKS IN NIGERIA
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BAD DEBTS MANAGEMENT IN MICRO FINANCE BANKS IN NIGERIA
MANAGEMENT OF CREDIT AND DEBIT
Banks play an important role in the national economy, acting as the fundamental mover of any country’s economic life. The importance and significance of banks in terms of a nation’s economic and social growth cannot be overstated. Banks are recognised to provide a variety of deposit-related services, the most important of which is deposit mobilisation and management.
Indeed, the two primary functions show banks as the mediators who shift capital from the surplus sector to the deficit sector while making a comfortable margin in the surplus sector. The mobilisation of whole deposits is a relatively executing effort. Lending is a logical extension of deposit mobilisation.
Banks are responsible for the security of funds entrusted to them, as well as for channelling the funds to their owners. The quality of a bank’s fund lending decision has a substantial impact on the bank’s ability to effectively play the role they have taken on. Aside from the fact that lending is an important function of banks.
For the reasons stated above, loans and advances have been discovered to be the greatest part of the bank’s assets, and assets with the highest rate of return available to other alternative investments. This basic goal offers the opportunity to bridge the gap between savings and investment in the economy by determining the various credit techniques and methodologies,
as well as the appropriate combination of these techniques, in order to achieve success and minimise losses in banks credit and lending activities.
Credit management also entails monitoring account activities at branch banks, which have been taken for a ride in the past by “smart” customers who give the idea that turnover was being done,
granted by then, while all that was done kite flying or cash recycling. According to Adekowary (1986), a consumer who engages in this practise usually has two or more accounts at two or more different banks or branches from which he draughts a cheque.
Knowing full well that there are no funds in that account with the bank, he withdraws all uncollected funds at bank “P” and promptly deposits another check made on non-existent funds in his account by bank “T” in bank “x.” This is a simple example of kiting; it indicates that a consumer can fraudulently use bank financing without proper authorization.
Bank employees must therefore regularly monitor programme operation on clients’ accounts and report any strange activity to their management. However, as an experienced operational officer, Kotawa of (Savana Bank) has enumerated certain indications of kiting suspects:
Increase in deposit amount on a consistent basis
Excessive account activity in relation to account type, i.e. high turnover with constant daily balance.
Depositors are typically concerned with daily account balances.
A daily deposit made to cover a cheque received for payment on the current day, followed by
Customers’ most common reason for visiting the company or other banks
ANOTHER TECHNIQUE FOR QUANTITATIVE CREDIT MANAGEMENT
Control is exercised through loan disbursement and other drawn-down conditions. Olalusi (1989) suggested that no loan should be made available to a customer if the relevant agreement forms have not been completed or the security document has not been signed.
According to Osiayemia (1981), there are risks in giving a personal or corporate body with too much or too little money at any given time. Because loan disbursement is tied to the flow cycle of the consumers, a suitable disbursement mechanism must be used.
Certain empirical disbursement criteria will also be used, as well as consideration for certain types of credit such as house loans, agricultural loans, and overdrafts for specified purposes.
DISBURSEMENT SECURITY CONSIDERATION INCLUDES
Loans should not be disbursed until all security requirements have been met. The risk of enabling him to draw down the loan while still failing to comply with the security papers cannot be overstated.
When the money has not been pulled down, the customer is more inclined to cooperate in order to complete the appropriate documentation, which is not always the case when the money is available.
There should be no payout against anticipated approvals. Before distribution, valid approvals from the approving authority must be obtained since jumping the gun on loan disbursement is risky because the bank’s position may be jeopardised by selecting for a fail accomplished posture.
Finally, all payments should be made through the customer’s current accounts.
DANGER SIGNAL ON BAD AND UNCERTAIN DEBTS
Danger signals are usually not in short supply, yet they can sometimes appear as a sudden foundation without previous notice to those who have developed an aptitude for recognising and spotting problems.
The following points will help you formulate a question:
Excessive rigidity in the accounts, such as problems acquirin
g check cover, dividing monthly savings, or a lack of account turnover.
Evidence of trading account payment delays
Long debt in the production of financial statements, especially audited accounts
Significant borrowing from other sources
Inability to make loan payments
Increase in the number of cheques jopped at customer locations or returned due to a lack of money
Current assets of poor quality
Failure to honour banks, instill the need to come for discussion, especially among consumers who used to make enforcement calls at the bank in the first place.
BAD DEBT CAUSES IN MICROFINANCE BANKS
In the Nigerian context, there has been an increase in bud and questionable loans in banks, bankers, and their shareholders, and government officials are trying to express concern on this issue by issuing announcements emphasising the need to fix the situation.
However, for effective coverage on organised reviews, the following are the reasons of bad debts in microfinance banks:
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