FINANCIAL RECORD KEEPING AND CHALLENGES IN MICRO FINANCE BANKS

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND TO THE STUDY

Micro-finance is the supply of loans, savinsgs, and other basic financial services to the poor. People living in poverty, like everyone else, need a diverse range of financial instruments to run their business, build assets, stabilize consumption, and money transfer services.

Financial services for the poor have proved to be a powerful instrument for poverty reduction that enables the poor to build assets, increases, and reduce their vulnerability to economic stress. However, with nearly one billion people still lacking access to base financial services, especially the very poor, the challenges of providing financial services to them remains. Convenient, safe and secured deposit services are a particularly crucial need.

Nonetheless, these financial institutions have challenges in keeping their financial records. Financial record keeping is so important in any financial organization that is, it forms the foundation stone in which a business is laid and it determines the survival and continuity of that business. It gives direction and flow of activities and it brings to light a good record which initiates business ideas.

Financial record keeping in business ranging from the smallest business activities up to the complex multi-national business, cannot be overemphasize. It relates the internal business activities such as policies, plan and finances as well as inter-business activities to the external world.

The relevancy of record-keeping is statutory back by the provision of CAMA 1990, BOFID and other regulatory pronouncement such as SAS, GAAP etc.

However, financial record-keeping geared toward Micro-financing aspect, a necessary adjunct in business financing which provides an elementary survey of trends in the previous and recent development in micro-activities in Nigeria.

The poor, to a greater extent heavily reliance on micro-finance and on special credit evidently seen in the support of the government and private sector initiatives to support small scale enterprises. The traditional financial system which to a large extent have supported the course have began to wane off recently due to conflict of interest between borrowers and lenders due to risk and uncertainty such as death of borrower, lack of collateral security due to limited (or no) assets and most importantly lack or record-keeping (borrower) and track record of borrowing by lender (Haile 1998).

(Mayeuax 1998) describe micro-finance as a contributing factor to the process of empowerment through enhancing worries productive and enabling them facing the challenges within the household. Bengston 1997 states that micro financing for women aims to make micro financing enterprise more financially rewarding. This should contribute in not small measure to economic empowerment within the family and in social and political spheres. (Bengston1997).

Not withstanding as Cheston and Kutun (2002) would see micro-finance as a house-hold bank, have evidently reduce domestic violence and checkmate potential rise in poverty hence, the bulk of evidence and experience thus seems to conclude that participation in micro-finance have strengthen and improves family ties (relationship) and community uplift as members feel secured in his/her ability to contribute productively to the economy.

Micro-finance institutions have also assisted in the area of organizing workshop for farmers, in introducing new area such as snail, rabbit, grass-cutler, fish rearing. And other skill acquisition, soap making, tailoring, electrical etc. and giving first hand knowledge to propel the business. At this juncture, micro financing can be regarded as an extension worker in field of financial assistance to the economy. In other word, they take service to the grassroots and as well nurture their growth.

Record keeping as regard to micro-financing cannot be sourced from the individual benefactors, as they are numerous. The micro-finance outlets (Banks) which have a first hand knowledge of the pool of activities information’s on record, challenges, the effect, effectiveness of the campaign activities to which this project work is narrowed in line becomes a subject of reference.

1.2 STATEMENT OF RESEARCH PROBLEM

In pointing out the problem of this very important task, the statement will allow the researcher to pay more attention to the problem, and provide him with a very close guidance or direction through out the study. The major problem of this study is therefore to critically evaluate the financial recording process and procedures in micro-finance bank.

To resolve this problem, the study will also seek answers to the following specific questions.

Does financial record-keeping help to facilitate credit, savings and loan facilities?

Does the type and degree of challenges facing financial recording system in micro-finance banks have impact in the economy?

Does the establishment of micro-finance banks have positive or negative impact in the economy?

1.3 OBJECTIVES OF THE STUDY

As a result of the recent increase of micro-finance banks, it has become very important to find out their mode of operations, system of record-keeping and the effect on the welfare of the people.

Hence, one of the objectives of this study is to determine the interest cover rate by borrowers or cost of capital cover by household business.

The study will bring to light, what extent the poor masses seek credit facilities from these financial institutions.

It is also aimed at examining, if the inability of the government to operate it financial institutions to full capacity is responsible for the poor economy.

Finally the study will unveil, if the international monetary fund has correlation with the local micro-finance bank.

1.4 HYPOTHESIS OF THE STUDY

Hypothesis is a tentative answer to a research questions awaiting validity.

Formulation of hypothesis using H0 and H1

H0 = (Null hypothesis) – ive

H1 = (Alternative hypothesis) + ive

HYPOTHESIS I

H0: Financial record-keeping has no significant effect in micro-finance bank.

H1: Financial record-keeping has significant effect in micro-financing.

H0: The interest rate of micro-finance banks has no significant impact in micro-financing.

H1: The interest rate of micro-finance banks has significant impact in micro-financing.

H0: Micro-financing has no significant impact in the economy.

H1: Micro-financing has significant impact in the economy.

1.5 RELEVANCE AND SIGNIFICANCE OF THE STUDY

This project is directed toward binging to light those factors in micro-financing that militate against the smooth running of micro-finance bank.

This work will also serve as a reservoir of knowledge for future researching students of the university, on how best to carry out research within a related subject of study.

In the future, it is hope that the finding and recommendation on this study will be of assistance and benefits to both the individual, government, existing entrepreneur, nor governmental organization who play supportive role to elevate poverty.

1.6 SCOPE OF THE STUDY

Geographically, the scope of this study will be restricted to Benin City. Edo State; this will show what is also obtainable in other states in Nigeria.

The scope of this study will also be restricted to the research questions of the research.

1.7 LIMITATIONS OF THE STUDY

This study is limited by some useful information in the internet and in some other vital places.

As earlier pointed out, our major area of concern necessitates delivering information about recording process of micro-finance bank. In other to avoid going beyond the scope of the project, comprehensive and sensitive technical issues such as legal guild of micro-finance bank would not be given in details base on the general sceptism of micro-finance industry in Nigeria and the public on information dissemination. The Bureaucracy of management in restricting information.This make primary data sourcing difficult. However, whatever such problem is encountering, reliable secondary data collection will be employed.

1.8 DEFINITION OF TERMS

It could be very important for me to define clearly some of the terms used in the study to enable the reader realize quickly what is being written to avoid any controversial interpretation of terminologies or phrases.

NGOs: Non Governmental Organization

Micro-Finance: This can be described as the provision of credits, loans and other financial assistance in small amount to mainly low income ability to savings as well as considered unwilling and unable to pay transaction cost.

BOFID: Bank and Other Financial Institution Decree.

CAMA: Company and Allied Matters Act.

SAS: Statement of Accounting Standard.

GAAP: General Accepted Accounting Programme.

H0: Null Hypothesis (Negative).

H1: Alternative Hypothesis (Positive).

Interest: A price paid for the use of borrowed funds over the term of the loan.