THE CRITERIA OF BORROWING AND REPAYING BUSINESS LOAN AS A GUIDE TOWARDS ECONOMIC DEVELOPMENT ( A CASE STUDY OF FIRST BANKS OF NIGERIA PLC ENUGU MAIN BRANCH

CHAPTER ONE

1.      INTRODCTION

The rigous and strains of borrowing, especially in Nigeria and Africa in general are not doubt enormous.

          The fault is not that of the lenders (banks) alone as critics claim that the borrowing public are partly responsible for the frustrations. A large portion of the borrowing public are substantially under-educated (about borrowing with this regard, they approval heir prospective lenders unprepared and largely ignorant of the why’s and what’s of their request.  A substantial number of people who approach banks for loans have no business going to the banks to borrow in the first place.  If at all their business and needs are gerund, perhaps they should have tried their friends, relatives or associates first before going to bank to borrow.  No one can fault the bank (lender) on their criteria because the banks is also in business ot stay and grow.

          Among all other activities of the banks lending is the most vital bank undertaking which should be carefully emphasized, may because it is the most profitable undertaking of the bank or its contribution to the economic growth of the country in general

          The federal reserves system,. Financial intermediaries, government and business can be thought of making up the financial environment within which we all strive to achieve our goals but which largely is beyond the control of any single decision unit. Due to the lack of substantial knowledge about the behaviour of this financial environment, however, we are advised to enhance that knowledge.  It seems clear to me that we all have an interest in the development of empirically substantiated theories of behaviour of a financial economy.  After-all, failure of broad section of the economy, whether  in the form of inflation’s, mass bank failure or in dispread business closing is a situation whereby large portion of the borrowing with the result that they approach their prospective lenders unprepared.

          The burden of proof is therefore in the prospective borrows  should be educated, and get educated is there fore the message of this topic.  It is a further contribution to the promotion and development of an improve business culture by helping to educate the borrowing public. The most critical Turing in a loan proposed are really simple ordinary things that many borrowers especially first time borrowers and small scale enterprises regard as unnecessary and in consequential. The borrower should know that the loan officer cares about the neatness of the documents presented, the language of ht proposal, its substance, the character of the promoters and borrowers is of consequence to the loan offer decisions criteria because he associates.  These with the ability of the borrower to perform maintain control and achieve the designed results and finally to pay back the loan.

          Areas of general interest to lenders include,

·         Personal credit record of the borrower

·         Financial history of the business

·         Growth of the business

·         Profitability of the business

·         Physical condition of the facilities and equipment

·         Experience of the key managers to reduce risks, lenders required some of the following

·         An equity pledge by the owner to the lender

·         A personal asset pledge by the owner to the lender

·         A consigning of the loan by  all principle or guarantors

·          A lien on all assets and personal property of the owes

This study represents a modest effort to provide substantial information about that part of the financial environment which is the criteria of borrowing and repaying business loan as a guide towards economic development

1.1     BACKGROUNDS; THE DEVELOPMENT OF BANKS IN NIGERIA

          The development of banks may be divided into three period, partly arbitrarily as any such periodization may be.  A preparatory period ending in 1950 to 1960’s during which time the essential features of banking as we know them developed.

          At the turn of the century, the range of institution included those that specialized in exchange and merchant operation, individual money lenders, rotating credit associations and bank of British west Africa founded in 1980 by sir Alfred Jones.  Not until the beginning of the fifties, banking in the main was largely rudimentary, differing greatly from present day institutions not only in size but also in sources and use of their funds.

          Banking operations are more of less continued to large centers of overseers trade and even then, the banks had little contracts with nature public  except for a small amount f savings business.

          In 1957, the two expatriate banks   BBWA and ber days bank had in all forty-six branches in west africa-adding about six indigenious bank was found in 1933 and athe beginning of 1951, five more were formed and in the fifteen months between Febrary 1951 and May 1952, not less than 18 indigenous banks were registered with one exception, they had all leased operation by 1945

          Bank failure such as these, weekend public confidence in indigenous banks.  The failure of these banks appeared  to be the cause many Nigerians decided to be keeping their savings at home or in other isntruments seeing banks as unreliable. Nevertheless, rapid expansion and evience of past financial heritable continued and by 1962, there were over two hundred banks offices in Nigeria.  From this, one can then say that the banking system has made undertaken over this short periods,  a remarkable penetration into domestic business and be hold it continuous operation.

          The total number of indigenous banks and other banks was 18 at the of August 1976 with 459 branch offices including offices of the six merchant banks.  The earliest attempt ot regulate the business of banking was made only in may 1952 when the first banking ordinance was passed. This ought to have been done earlier.  By then, a greater number of he public had been induced to deposit money in the banks of indigenous ownership and questionable reliability.

          The most of these pseudo-banks failed mainly as a result of dishonestly and incompetent management, inflicting considerable hardships on the unfortunate.

At the time of ordinance, banking in Nigeria was mainly in bank of the two British banks between then, they had a total of 26 branch located mainly in the large towns and although they had even in those days many thousands of African customers maintaining small interest bearing savings, accounts.  African current account holders were comparatively few

          The business of the British banks at that time consists of conducting the government account and those of British trading companies together with personal accounting civil servants and commercial and professional  people, mostly expatriates.

          The two British banks did not confine their expansion merely to the numerical total of their contract with African customers became more closer.  Not only did they in bother their new and old field press forward their essential tasks of attracting more deposits, they also moved with increasing mention into the much more advantions field of indigenous lending.

          Here, their tasks were made more difficulties and  hazardours then they would otherwise here been by the almost completed absence of acceptable tangible security for advances. For example, Nigeria has Never had a modern system of land tenure or registration most of the hadn were still communicably owned and such cannot in law be assigned to a foreigner except by government consent even where forms of registration exist.

          The lack of  active interest on the African community was the subjet of much  African criticism they had in succeeding year.  Thought the much of the criticism was ill-formed and unjustified, there is no doubt that it played a part in influencing the banks in later years to undertake a more deliberate and forceful penetration into African business.

          It was one factor in the tremendous subsequent expansion of the number and spread of their branches throughout the country..

          By 1958, ending a sizeable chain of British bank branches had been established.  These undoubtedly, proved a solid value in the general advance of the economy.  Without then, it would have been far more difficult if not almost impossible for the marketing boards for example to have arranged the orderly purchasing from the peasant growers in the remote district of steadily increasing volume of export crops which also market the period

          Meanwhile, some expansion, on a comparatively small scale took peace in those few indigenous banks which weathered the storms of the early and middle fifties.