Management of Bad Debt in Microfinance Banks in Nigeria : Current School News

Management of Bad Debt in Microfinance Banks in Nigeria



Management of  Bad Debt in Microfinance Banks in Nigeria.


An attempt will be made in this introductory chapter to give a general outline of bad debts in microfinance banks. Schall and Harley (1987) in Anolve (2001) defines finance as a body of facts, principals, and theories dealing with raising and using funds, it is said to be operating in the area of finance banks and other financial institutions that provides financial services.

Both debts can be defined as those debts which are not recoverable. Fit is a credit review that is not recoverable. It is a credit review borrower from a pure lender who may be a formal or informal financial institution against borrowers’ promises to make future payments. When a company grants credit to its customers, there are usually a few customers who do not pay. The account of such customers are called bad debts and are at the expense of selling on credit.

You might ask why do merchants swell on credit if bad debts result? The answer is that they sell on credit in order to increase sale and profit.They are willing to take a reasonable loss from bad debts in order to increase sales and profits. Therefore, bad debts losses are incurred in order to increase the full or partial recovering is considered doubtful and uncertain. In Nigerian context, there have been increased bad and doubtful trends of debts in the banks.


In 2005, The Federal Government, through policy guard lines established  Micro Finance Banks (MFB)in replacement of community Banks, But the most huge amount of money they lose through bad debts. The implication is that there is no more confidence in some bank customers who have calculated scientific ways of defrauding the banks.

Liquidity in the banking sector also makes banking unable to meet repayment obligations in severe cases, there are the introduction of technology insolvency. These situations were brought about by the following among others. Indiscriminate and unprofessional lending practices.

Poor Management which finances long-term loan assets with short term inabilities. The problem, therefore, is to attempt to examine the debt management techniques of the named banks and suggest ways for a healthy and efficient debt portfolio management.


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