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.