THE ANALYSIS OF LOAN ADMINISTRATION IN FINANCIAL INSTITUTION IN THE NIGERIA ECONOMY (A CASE STUDY OF NIGERIA AGRICULTURAL CO-OPERATIVES AND RURAL DEVELOPMENT BANK)
This study step out to analyze the loan administration in the financial institution in the Nigeria economy ( a case study of he Nigeria agricultural cooperatives and rural development banks ( NGCRDB). The project is intended to focus on the adequacy of credit supply to he sector of the economy by NACRDB loan disbursement. The researcher attempted to find answer to the following research question. Viz to what extent has NACRDB contributed to the development of Nigeria economy through this loan administration? What is the adequacy of NACRDB sectoral allocation towards agricultural development in Nigeria ? what is the influence of the interest rate on loan administration by NACRD?
The researcher relied extensively on data and information-collected form the NACRDB of Enugu and Awka zone. The study is covered by the period of 2000 – 2002. the researcher also employed the percentage analysis and used table to illustrate the trend analysis carried out. To carry out this study is a directive framework. Four research questions were formulated. The four questions attracted a total of 7 questions in the questionnaire. The questionnaire is made up of three section (ABC). Section “A” deals on the general information, which was not tested while section B&C were tested. Four hypothesis were drawn and was tested using the chi – square method and formular. Questionnaire were designed, typed and distributed to the area of study, which involve both the costumers and the staff of financial institution of the study. This was to gather vital information on the topic in question. The stratified random sampling was used in the in the selection of the respondent in the financial institution (NACRDB). The reason to enable or make it easier for the researcher to get a comprehensive use of the population of the study. A total of 70 questionnaires were administered and out of this figure, 40 were returned, and 30 were unreturned. A table is used to illustrate the return of the questionnaire; percentage method was used in analyzing the research question. The outcome or the result of the research question or the hypothesis shows that loan administration in financial institution NACRDB in the Nigeria economy is very vita in the sense that it contribute to a very great extent in the growth and development of the country.
However, NACRDB have to be helping farmers by giving them enough loan and advances so as to boost the agricultural sector, which is the major source of food supply in the economy. As a result, more food will be produced and the export rate will increase. After collection and analysis of data, the researcher was able to give some suggestion on how the NACRDB farmer relationship in financing could be improved. It is recommended that the federal government should continually provide the enabling environment for the NACRDB to perform by providing rural area with basic amenities and as well ensure adequate funding of the institution (NACRDB). Finally, conclusions were drawn based on the findings and recommendations. It encompasses all the area writing in the project work.
TABLE OF CONTENT
1.1 The background of the study
1.2 Statement of problems
1.3 Purpose of study
1.4 Significance of study
1.5 Limitation of study
1.6 Definition of terms
2.0 Review related to literature
2.1 The important of loan administration to the financial institution in Nigeria
2.2 structure of the Nigeria agricultural co-operatives and rural development bank
2.3 The co-operative concept opportunities of the abia co-operative federating in a 2.4 function of the Nigeria agricultural co-operatives and rural development bank
2.5 Nigeria agricultural co-operative and rural development bank operations.
2.6 Source of fund
2.7 Loan administration by nacrdb
2.8 Problem of loan administration by nacrdb
Research design and methodology
3.1 Source of data
3.2 Primary data
3.3 Sample procedure
3.4 Sample size
3.5 Completed questionnaire
3.6 Method of analysis
4.1 Data presentation, analysis and interpretation
4.2 Test of hypothesis
5.1 Summary, findings, conclusion and recommendation
5 .5 Biography
Loan administration is one of the external mean of financing many sector of the economy especially the agricultural sector. This is due to the fact that the agricultural sector is the major source of the food production and supply in the country. This loan is been administered through the financial institution established by the federal government of Nigeria. It (loan administration) is been introduced so as to help rural farmers and small-scale business financially in their various businesses. This enhances and increases the agricultural productivity. Loan administration in the financial institution is also one of the elements that determine the extent of economic growth and development in the country. Financial institution in 1990”s do not properly administer their fund to the major sector of the economy which is the agricultural sector and this led to the importation of food to the Nigeria making the country so much dependent on other country for food. Thus the agricultural sector could not boast of food production due to the fact that it was not adequately financed. In Nigeria, up to 75% of its production engage in agriculture which is the major source of food supply in the country and most of them are poor and rural farmers which have limited fund to produce the input and technological required in carrying out their agricultural business. This lack of fund lead to reduction in the food supply in the country and at the same time retard economic growth and development. Therefore, agricultural sector need to be adequately funded through the use of loan administration so that the economy can boast of being independent of other countries and also can develop.
Do to the problem of lack of capital experience in the agriculture sector; especially in the rural farmers and small-scale traders, the federal government of Nigeria took a major concern on the issue of loan administration to enhance development in the country’s economy through financial institution. This led to the establishment of the Nigeria agricultural co-operatives and rural development bank (NACRDB), family economic advancement programme (FEAP), the Nigeria agricultural cooperative and rural development bank (NACRDB). This establish in January 200 but was dually confirmed by the federal executive council of Nigeria in November 200. the bank is been supervised by the federal ministry of agriculture. But it renders its financial report to the federal bank of Nigeria (CBN). Its function is not only in financing agriculture but also other sector e.g. small-scale business. It also contributes in financing rural project and rural development programme. The major aspect that promotes the economic development and growth of the country is the loan administration. In so many ways in Nigeria in the past years, the loan provided by the financial institution is based on the short term, medium ands long-term bases. This is because the financial institution is established for profit. This financial institution charge small of high interest on this loan disbursed and little or no collateral might also be requested as security for the loan.
In some cases, the problems of default in the repayment of loan hinder the ability of financial institution in the provision of loan and this leads to poor productivity in the country. This is because that is discouraged the financial institutions in administering loan. In this case of Nigeria agricultural cooperatives and rural development bank (NACRDB), its loan is focus mainly on promoting agricultural and enhancing loan administration to the rural farmers and small scale farmers. If loan are been properly administered by this bank, rural urban migration of the farmers will be reduced and this will as well boost the economic growth and development especially in the agricultural sector. His is because no country can survive without agriculture, and that is why adequate finance is needed through proper loan administration by financial institution in the case of NACRDB.
1.2 STATEMENT OF PROBLEM
Loan administration by the financial institution in Nigeria both in the past and even in the recent time has not been adequate and as a result Nigeria has been experiencing poor performance in economic growth and development. This inadequacy in loan administration in the financial institution of the economy is coursed by the same problems arising from both the institution and the borrowers. In the case of the institution, it is caused by high interest rate, lack of adequate finance, lack of accessibility and reluctance in the part of the staff in performing the function, strict and rule guiding the administration of the loan by financial institution. Them the part of the borrowers, there is problem of default in the repayment of loan. Some borrowers do not repay their loan at the exact date or period required. Borrowers also Atimes divert the loan borrowed to their ventures other than the proposed project as decided by the institution. These problems hinder the agricultural development since non-viable project are being embanked on instead of the viable once. This issue of collateral security is another problem that militates against the provision of loan by financial institution. Poor impression about the federal government established financial institution makes it often difficult in the county to convince people that cooperative and financial institution are veritable instrument for agricultural development. Also in the case of Nigeria agricultural cooperation and rural development bank (NACRDB) most of their beneficiaries are rural farmers and they are not enlightened. So they find it difficult to understand the benefit of the bank. Atimes, people fail to meet up with the bank rules and guidelines. Done to the recent merging of banks (NACRDB). Most of the banks; NACRDB, PEN, FEAB, lack trust and as such are discouraged from banking with the new bank (NACRDB). Also most borrowers of (NACRDB) dose not honor the invitation of the banks. As a result of merging, the bank is finding it difficult to recover the outstanding loan of former NACB, PEN, and FEAP. This hinders smooth funding of the bank in carrying out its loan administration in the sector of the economy.
Furthermore, bank are observed to really meet up with the central bank of Nigeria (CBN) credit guidelines on the economy allocation of loan to the Nigeria economy (especially in the case of (NACRDB) ). The provision of loan to all sector of the economy is very important in enhancing economic growth and development.
1.3 OBJECTIVE OF THE STUDY
The general objective of this study is primarily to analyze and study how loan is administered in financial institution in Nigeria with particular reference to (NACRDB). It tends to find out in what ways the Nigeria agricultural cooperatives and rural development bank has contributed to the development of the Nigeria economy through its loan administration. This study adopt a general approach in studying the role of the Nigeria agricultural cooperative and rural development bank in financing every sector of the economy, especially agricultural sector through this loan administration. The objective of this research will specifically address the following;
- To ascertain the extent to which the (NACRDB) has contributed in the development of the Nigeria economy through its loan administration.
- to establish whether or not the ( NACRDB) has adequate fund for performing the task of lending to agricultural sector.
- to determine the influence of interest rate in loan administration by ( NACRDB)
- To determine the repayment rate among borrowers of ( NACRDB)
- To highlight the factors that militate against the credit supply by (NACRDB)
1.4 SIGNIFICANCE OF THE STUDY
The study is significant to several groups. It is of greater relevance to all financial institution especially in the case of (NACRDB) whose lending performance and loan administration is been delayed. The study will only be meaningful with some indication of its value for other immense befit to all Nigerians economy. This research work on loan administration be agricultural cooperatives and rural development bank ( NACRDB) will also be of a benefit to the agricultural sector of the economy and rural area in terms of development. It will beneficial mostly to the farmers in terms of recommendation and suggestion giving are been seen by the financial institution in their administration especially ( NACRDB). There will be sufficient fund made available to the farmers to help enquire more farm tools, equipment and other input. This will of course lead to an increase in the agricultural productivity. Moreover, this research study is vital in that adequate financing will enable development and mobilization of the agricultural sector and even the Nigeria economy at large. This will make the sector very attractive to greater majority of Nigerian citizen thereby creating more employment opportunities. In addition, the manufacturing sector of the economy will be able to procure raw material form the agricultural sector, which they will use in the production of material needed in the economy. This reduces the rate of reliance on the imported raw material. Finally, Nigeria can be in the position to increase her export, which she use to finance the long term projects. Loan administration is the key element in the mobilization of the economy. It remove he financial constraint and accelerate the process of adoption of loan which consequently help to reduce our external dept, burden and as well increase our foreign exchange and investment.
1.5 RESEARCH QUESTION
The following research questions were tested;
- What are the activities of the Nigerian agricultural cooperatives and rural development bank (NACRDB) ?
- What are the problems facing (NACRDB)?
- What are the objective of the society?
- What are the benefit of the research to the members of Nigeria agricultural cooperative and rural development bank (NACRDB)?
1.6 SCOPE OF THE STUDY
This study will have its focus on the way and manner loan are been administered in the financial institution. The study has to do the analysis of loan administration in financial institution to the agricultural sector of the economy through its loan administration. And an analysis of the sectoral disbursement of loan to agriculture in vi-va-sal other sectors. However, some limiting factor. The scope has to be limited to (NACRDB).
1.8 DEFINITION OF TERMS
- Lending: this is the act of making money available to someone who is in need (borrower) by the lender (banks or the financial institutions) for personal or commercial use
- Capacity: this is concern with the source of repayment. Economic condition plays a part in the decisions on lending and the rigidity of the lending bank invariably affect its general policies on advances.
- Sectoral allocation: these parts of the central bank of Nigeria advance which is allocated to the various sector of the economy (NACRDB) most especially to the agricultural sector.
- Interest rate: this is the amount charge by a bank to a customer by the bank. A costumer can as well earn interest for money deposited in the bank.
- Economic development: this can be seen as the economic advancement of a country in terms of providing basic amenities to the citizen and also creating employment opportunities.
1.9 REVIEW OF THE RELATED LITERATURE
The importance of loan administration in the financial institution in Nigeria
Loan administration by financial institution is of a great importance as it contributes towards the economic development of Nigeria as a country. Every aspect of the Nigeria economy require adequate finance, and most especially the agricultural sector which is the most essential sector of the economy since it is the major source of food supply in the economy. This function of financing can only be archived through the administration of loan by the financial institution. The economy is able to increase her agricultural productivity through this loan administration. And these increases in productivity invariably reduce the rate of importation of food and raw material from other countries. Through loan administration, the exchange rate, foreign investment and the employment rate in the economy is increased. The issue of loan administration in the past was not seriously implemented by financial institution and this why Nigerian is still importing most of her raw material instead of been self independent. Loan administration should be well implemented and in the financial institution so that the country can boast of been economically independent. This finance can be in form of short term, long terms and could be employed for consumption or productive purpose.. Short-term loan are those with short repayment period of one year. It is usually used in financing capital or intermediate life project such as livestock, machinery, poultry etc. it been giving to the small scale farmer whose annual income is not more than 30,00 to aid in financing their agricultural business.
Long-term loan are those with long repayment period of 3 years and above. The beneficiaries of this type of loan are usually large-scale farmers whose annual income is above 1m. this loan is used either for enquiring new technology or commercialization of the rural economy development. Medium term loan has a repayment period of one to two years. It is therefore clear that there is conscience of opinion on the need and the important of credit in the economic growth and development.
Generally, loan administration affects positively the level of money supply in the economy.
THE PROBLEMS OF LOAN ADMINISTRATION IN THE FINANCIAL INSTITUTION
Loan administration that is not properly implemented dose not encourages economic growth and development and there are some factors that hinder its implementation in the financial institution. In Nigeria between 1990 and 1998, the Nigeria financial institution was critically hit by masses failure, distress resulting from poor loan portfolio which is a consequences of the stiff competition in the market i.e. Risk and return relationship were never given serious thought in the disbursement of loan. And this did not ensure efficient loan disbursement. Most borrowers are discourage due to increase in the lending rate. Is sometime hindered though to mop-up of liquidity. Times. Atimes available credit will be diverted to the available sector, which may not be profitable of viable for credit expansion. There is also the problem of reduction in the capital allowance on financial operator contingent liabilities, e.g. equipment leasing. Also non-payment of project dept to banks time hinders effective loan administration by the bank. Loan administration can also be limited by the external environment factors either directly or indirectly. This may arise as a result of the activities of the users of the financial service, management crisis, and political and socio-cultural climate.
It is however essential to state that there are no computer codes or programme for successful lending rather each loan request is treated according to its merit base on the sound lending principle, laws and regulation impose by the marketing authorities which affects the bank lending. According to Clark, 1989, the following are the principal reason why bank has expose themselves more to problem of loan distraction as a result of the procedural breakdown within their own system, this are;
- Insufficient underwriting and lack of prior background knowledge and the investigation of the potential borrowers.
- Inadequate analysis of the real purpose and use of the loan proceeds and the source of payment.
- Lack of undertaking of the borrowers through financial need and how the fund will benefit them.
- Conceived loan form extended by the banks
- Poor review and the audit of the marginal loan.
- Inexperienced loan officers which incorrectly approve loan because they do not have necessary expertise to analyze and evaluate loan and credit or because they might sought for necessary counsel on making such loan including neglecting to properly evaluate, document and collateral loans. Finally, some rural people fling it difficult to pay the interest required do their low level of poverty. Also a time, financial institution is not well funded by the federal government and such cannot carryout the function of loan administration effectively.
Structure of the Nigeria agricultural and rural development bank (NACRDB)
Nigeria agricultural and rural development bank (NACRDB) are establish as a result of the merger between the NACB, PBN, and FEAP. The pronouncement was made I January 2000, but was duly confirmed by the federal executive counsel in November 2000, the major quarter level and also on 31 December 20002 it (emerge) was done done at the zonal office level. The main aim of he merging was to combine or integrate the activities of the above mention banks.Nigeria agricultural and rural development bank (NACRDB) at the moment has the largest branches network in Nigeria with 185 branches across the country. These are minimum of 5 branches of (NACRDB) in each state. The headquarter of the bank is at Kaduna. The bank (NACRDB) is divided into six zones in the country, this are
- South east zone, has its headquarter at Enugu
- South, south zone, has its headquarter at port-Harcout
- South west zone, has its headquarter at Kaduna
- North central zone, has its headquarter at Abuja
(NACRDB) was been established and easy sponsored by the federal government of Nigeria. The federal ministry of agriculture is the supervising body but it renders its report to the central bank of Nigeria (CBN). The bank exist without income by the CBN as commercializing it rater it existing as a purely on the law of the federal executive counsel of Nigeria.