This research is titled Accounting Problems in Microfinance Banks A study of selected microfinance banks in Abakaliki metropolis of Ebonyi State.” This study analyzed the various categories of accounting problems facing microfinance banks. This was achieved through the use of survey research design and methodology which included questionnaires, oral interviews, discussion and study of related literature, inference and conclusion. In the test of hypothesis, chi-square technique was used. Some findings were made after proper analysis of data which include that Accounting problems affect the performance of Microfinance Bank. The researcher made the following recommendations: proper teaching and training of staff, provision of conducive environment both staff and customers, employment of qualified personnel in terms of education and experience in their field, and use of modern mechanize and computerized machines to facilitate the operation of microfinance banks.
TABLE OF CONTENTS. vii
LIST OF TABLES. ix
CHAPTER ONE. 1
1.1 BACKGROUND OF THE STUDY. 1
1.2 STATEMENT OF THE PROBLEM. 4
1.3 OBJECTIVE OF THE STUDY. 5
1.4 RESEARCH QUESTIONS. 6
1.5 STATEMENT OF HYPOTHESES. 6
1.6 SIGNIFICANCE OF THE STUDY. 8
1.7 SCOPE AND LIMITATIONS OF THE STUDY. 9
CHAPTER TWO. 13
REVIEW OF RELATED LITERATURE. 13
2.1 CONCEPTUAL FRAMEWORK. 13
2.1.1 What is bank? 13
2.1.2 What is banking? 14
2.1.3 What is microfinance? 15
2.1.4 HISTORICAL EVOLUTION OF BANK. 16
2.2 EMPIRICAL REVIEW.. 17
2.3 THE THEORETICAL FRAME WORK. 19
2.4 CAPITAL, OWNERSHIP AND MANAGEMENT STRUCTURE OF MICROFINANCE BANK 21
2.5 THE RELATIONSHIP BETWEEN MICROFINANCE BANK AND COMMERCIAL BANK 22
2.6 MONITORING MEASURE AVAILABLE. 23
2.7 OBJECTIVES OF MICROFINANCE BANKS. 24
2.8 FUNCTION OF MICROFINANCE. 25
2.9 PROBLEMS OF MICROFINANCE BANK. 26
CHAPTER THREE. 30
3.1 RESEARCH DESIGN. 30
3.2 AREA OF STUDY. 30
3.3 POPULATION OF THE STUDY. 31
3.4 SAMPLING TECHNIQUE AND SAMPLE SIZE DETERMINATION. 32
3.4.1 Sample Size Determination. 32
3.4.2 Sampling techniques 33
3.5 SOURCES OF DATA. 33
3.5.2 Secondary source. 34
3.6 METHOD OF DATA GENERATION. 34
3.7 RELIABILITY OF INSTRUMENT. 35
3.8 VALIDITY OF INSTRUMENT. 36
3.9 DATA ANALYSIS TECHNIQUES. 36
CHAPTER FOUR. 39
4.1 QUESTIONNAIRE ANALYSIS OR DATA PRESENTATION AND ANALYSIS. 39
4.2 TESTING OF HYPOTHESES. 49
CHAPTER FIVE. 55
DISCUSSION OF FINDINGS. 55
5.1 DISCUSSION. 55
5.2 SUMMARY OF FINDINGS. 55
CHAPTER SIX. 58
CONCLUSION AND RECOMMENDATIONS. 58
6.1 CONCLUSION. 58
6.2 RECOMMENDATIONS. 59
6.3 SUGGESTION FOR FURTHER STUDIES. 62
APPENDIX I 65
APPENDIX II 66
APPENDIX III 67
Table One: Analysis of general characteristics of respondents 39
Table Two: Sex of Respondents 39
Table Three: The highest level of formal education completed by the respondents 40
Table Four: The types of accounts maintained by the studied microfinance banks 40
Table Five: Evaluation of whether the accounting problems affect the performance of microfinance banks 41
Table Six: Evaluation of whether the respondents bank has ever had accounting problem 42
Table Seven: Evaluation of board members influence on the activities of microfinance banks 42
Table Eight: Evaluation of series of supervision by NBCB and CBN towards solving accounting problems of microfinance banks 43
Table Nine: Evaluation of establishment and communication of corporate and departmental objectives and government policies to the workers 43
Table Ten: Evaluation of the use of computers and other modern accounting devices to detect errors in microfinance. 44
Table Eleven: Evaluation of whether there could be jeopardy on microfinance banks activities if proper accounting policies are not properly adhered 44
Table Twelve: Determination of whether the use of semi and unskilled staff can create problems in microfinance banking. 45
Table Thirteen: Identification of whether the accounting problems have effect on the profitability and confidence response on microfinance banks 45
Table Fourteen: Evaluation of the performance of staff of microfinance banks in relation to other banks such as commercial banks 46
Table Fifteen: Examination of whether poor attention on treatment to customers of microfinance bank discourages them.. 46
Table Sixteen: Evaluation of whether the organizational structure of the microfinance bank makes it possible for internal control 47
Table Seventeen: Evaluation of whether conducive working environment has any effect on staff performance of microfinance bank. 47
Table Eighteen: Evaluation of whether the staff of microfinance bank maintained the professional ethnics like those of commercial banks 48
Table Nineteen: Evaluation of whether the accounting problem hinders or retards the operations of the microfinance banks 48
Banking has hitherto been very essential to human invention and economically aid to the society as far as business transactions are concerned. Thus, bank can be seen as a service-oriented to individual and the society at large. That is the reason Peterson (2007) viewed banks as the agencies or institution which are service-oriented to individual, companies and various organizations etc. Bank is giving at various financial services such as deposit collection, credit delivery and dealing with negotiable instruments and securities in issue of service charges, interests etc. Similarly, a bank is also seen as an institution or a person licensed as such whose major business is to accept deposits that are repayable on demand or at short notices and as well lending it out with a view to make profit in return.
Based on these analyses, Anyanwaokoro, (2001) emphasized that the main aim and objective of banks is that of deposit collection and credit delivery while all other services that banks render are complementary to these two sides of financial intermediation-deposit collection and credit extension.
Bank services can be traced back to the operation of the early London goldsmith who accepted gold deposit from the London merchant and keep them for safe custody and upon and agreed charge on demand. That is to say that the charge is payable whenever they draw their money or gold. However, the development of Nigeria banking services has its origin from the colonial days. The activities of the colonial merchants in the former West African colonies and the establishment of settled territorial government created the need for local based financial institutions.
The establishment and activities of the colonial banks and even those of the non-indigenous banks have been urban oriented-the phenomenon over the years made the banking services sound strange to those who dwelled in the rural areas. This there were no banking operations from the grass root of the economy. Although peoples bank was set up in 1989 to meet the credit need of the rural and urban poor farmers, artisan, carpenters etc, hence its supply led and heavily depended on subvention from the federal government for its operation, the economy of loan has not been very efficient and it is facing problem of undercapitalization as the result of heavy overheads that outstrip earning which led many people to high level of poverty. To address this issue the need for the establishment of various microfinance banks were conceived to solve some of the observed weaknesses in credit delivery to the grass root levels.
In Nigeria the idea of microfinance banks are not completely new. Before 2005, community banks were in place in Nigeria, operating and performing the function of micro financing. However, microfinance banks came into existence in Nigeria in December 2005 following the inauguration of microfinance policy regulatory and supervisory framework for Nigeria through the erstwhile President Olusegun Obansanjo administration.
The policy that was inaugurated urged the existing community banks (CBS) to immediately convert to microfinance banks within a time frame of two years which ended December 2007. According to the policy framework, the transformation of community banks to Microfinance Banks was necessary in order to overcome limitation of the community banks.
Based on the appraisal of existing microfinance oriented institutions in Nigeria the justification for conversion of community banks to microfinance banks include weak institutional capacity, weak capital base, the existence of a huge un-served market and to promote the economic empowerment of the poor, employment generation and poverty reduction, the need for increased savings opportunity. The interest of local and international communities in micro-financing and utilization of Small and Medium Enterprises Equity Investment Scheme (SMEEIS) fund among other factors (CBN, 2005).
Despite the fact that Abakaliki is an urban city of Ebonyi State which is filled with various classes of financial institutions that offer financial services to the agriculturalists, industrialists and businessmen there in, these institutions have not been able to satisfy the banking needs of urban and rural dwellers, hence the need for microfinance banks to forward their work operation and services.
The problem further lies on the fact that few of the microfinance banks that exist are faced with different accounting problems, that tends to hinder the efficient and effective operation of the microfinance banks. The qualities of services through what microfinance banks render to their customers always attract criticism from people that make use of it in their work of life. Some of the fallibility of working equipment, distressed conditions of some microfinance banks, lack of infrastructural facilities, lack of trained and experienced staff, incompetent board and accounting personnel.
The statement of the problem lies in the fact that though microfinance banks were established to offer specific services, their existence is seriously threatened by poor accounting procedures.
The main objective of this study is to evaluate the opportunities of microfinance banks thriving in this country Nigeria, through a sound operational framework which would lead to efficient and effective operation of microfinance bank.
The specific objectives include the following:
- To determine the various accounting problems that hinders the operations of microfinance banks.
- To determine the effect of accounting problems on the performance of microfinance banks in Abakaliki metropolis.
- To determine the effect of accounting problems on the profitability and confidence reposed on microfinance banks.
- To determine the effect of accounting problems on accounting ratios and its profitability performance.
This research work carringout will try to find answers to the following:
- To what extent do the various accounting problems hinder the operations of microfinance banks?
- To what extent do the various accounting problems affect the performance of microfinance banks in Abakaliki metropolis?
- To what extent is the effect of accounting problems on the profitability and confidence reposed on microfinance banks?
- To what extent are the effects accounting problems on accounting ratios and its profitabilitys performance?
In order to ensure proper and successful execution of the study, the following hypothesis will be experimented or tested.
H0: Accounting problems do not hinder the operation of the microfinance banks.
H1: Accounting problems hinder the operations of the microfinance banks.
H0: Accounting problems do not have effect on the profitability confidence reposed on microfinance banks.
H1: Accounting problems have effect on the profitability and confidence reposed on microfinance banks.
H0: Accounting problems do not affect the performance of the microfinance banks.
H1: Accounting problems affect the performance of the microfinance banks.
H0: Accounting problems do not have effect on the accounting ratios and its profitability performance.
H1: Accounting problems have effect on accounting ratios and its profitability performance.
The benefit of this research work lies on the fact that the establishment of microfinance banks is a step in the right direction towards economic growth, development and as well as proper standard of living both to the urban and rural dwellers. More importantly, this project will make it easy for government, microfinance managers and their customers to direct their mind to the best way of operating and managing microfinance banks in Abakaliki metropolis Ebonyi State.
Moreover, the implementation of the finding and recommendation of this work will ameliorate, if not absolutely eradicates the accounting problems of microfinance bank at Abakaliki metropolis in Ebonyi State.
Furthermore, the attitude of the equity holders and the creditors of the microfinance banks will be boosted by the finding and recommendation of this research.
It will provide the best way of managing microfinance banks. It will be of great merit to the research by showing the scope of his knowledge of microfinance banking.
Finally, the future researchers will stand to benefit from the study, as it will be useful and helpful to them since it can serve as a reference point.
There were many factors that limited the successful execution of this research study. Some of these factors include the following: time, cost, lack of infrastructural facilities to meet up the business of the bank and other respondents phobia.
- Time Constraint: The execution of this project alongside other school activities pose a great challenge and this exerted a great deal of hindrance to this project.
- Cost Constraint: The financial strength of the researcher at the time of this work was too poor. Walking from one location to another in search of facts and data collection was a high cost task with regards to the present economic situation of the state especially in this Abakaliki metropolis Ebonyi State.
- Lack of Infrastructural Facilities: It was quite very difficult to get reliable sources of materials considering the type institution the research was carried on. As the result of that, it was discovered that the available literature on microfinance was too poor. Because, people concentrate more on commercial and the bankers, (CBN). Base on this issue microfinance bank lacks so many amenities that will attract customers to patronizing their business. On that note, they cannot boost themselves.
- Other Respondent Phobia: Consequent upon the deficiencies of the most of the microfinance bank staff, they express fear towards answering question thrown to them to answer which will enable them to provide solution to the problems or challenges were confronting them. And the researcher found it very difficult convincing interviewee, as some of the staff was not ready to release some vital information that will prove the welfare of the microfinance in Nigeria.
DEFINITION OF TERMS
- Banking: It is an agency that were responsible for accepting and safeguarding money owned by other individuals and entities, and then lending out this money in order to earn a profit.
- Unit Banking: The banking system which precludes establishment of branches.
- MFBN: This stands for micro finance bank in Nigeria.
- MFI: Micro finance institution is the set up organs of microfinance bank that were responsible for providing resources to finance small scale investment of poor individuals or groups.
- Capital Base: This is the authorized minimum deposit requirement for establishment of microfinance bank.
- Metropolis: This is a developed large city 1 part of a geographical area, urban.
- UMP: This stand for urban management programme.
- Management: According to this context, it is treated as a function. Hence, it is the act of getting things done through the effort of others, such as man, money, machine and different materials that were needed for boosting the affair of the bank.
- Correspondent Banking Relationship: This is a situation where the established decree requires the microfinance banks to maintain at least three correspondent banking relationships with commercial banks nearest to them for the purpose of clearing their cheques.
- CBN: This means central bank of Nigeria. It is the bank of all banks that were responsible for money circulation around the country, which also equipped microfinance bank differ from deposit money banks in three major areas since (2005).
Evaluation of Accounting Problems in Microfinance Banks A study of selected microfinance banks in Abakaliki metropolis of Ebonyi State