Topic: MANAGEMENT OF BAD DEBTS IN MICRO FINANCE BANKS

Chapter One

INTRODUCTION

1.1 Background of the Study

An attempt will be made in this introductory chapter to give a general outline of bad debts in micro finance banks. Schall and Harley (1987) in Anolve (2001) defines finance as a body of facts, principals and theories dealing with raising and using funds, it is said to be operating in the area of finance banks and other financial institutions that provides financial services. Both debts can be defined as those debts which are not recoverable. Fit is a credit review which are not recoverable. It is a credit review borrower from a pure lender who may be a formal or informal financial institution against on borrowers promises to make future payments. When a company grants credit to its customers, there are usually a few customers who do not pay. The account of such customers are called bad debts and are at expense of selling on credit. You might ask why do merchants swell on credit if bad debts result? The answer is that they sell on credit in order to increase sale and profit. They are willing to take a reasonable loss from bad debts in order to increase sale and profits. Therefore, bad debts, loses are incurred in order to increase the full or partial recovering is considered doubtful and uncertain. In Nigerian context, there has been increased bad and doubtful trends of debts in the banks, however, banks and their shareholders, government officials and most Nigerians have shown a lot of concern to bad debts. In this country by making pronouncement and insisting on the need to arrest the situation by proclaiming that who ever grants an irrecoverable loan will be made to repay. The regulatory and supervisory guard lines for Micro Finance Banks in Nigeria (2005) defines Micro Finance Banks(MFB) as any company licenses to carry on the business of providing micro finance services that are needed by the economically active poor, Micro, Small and Medium Enterprises to conduct on expand their business provision of Micro credit is one of the vital function of Micro Fina

1.2 Statement of Problem

In 2005, The Federal Government, through policy guard lines established Micro Finance Banks (MFB) in replacement of community Banks, But most huge amount of money they lose through bad debts. The implication is that there is no more confidence on some bank customers who have calculated scientific ways of defrauding the banks. Liquidity in banking sector also makes banking unable to meet repayment obligations severe cases, there are introduction of technology insolvency. These situations were brought about by the following among others. Indiscriminate and unprofessional lending practices. Poor Management which finances long-term loans assets with short term inabilities. The problem therefore is to attempt to examine the debt management techniques of the named banks and suggest ways for a healthy and efficient debts portfolio management.

1.3 Aim and Objectives of the Study

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