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PROBLEMS AND CHALLENGES FACING FINANCE HOUSES
IN THE NIGERIAN ECONOMY
TABLE OF CONTENTS
Title Page
Approval Page
Dedication
Acknowledgement
Abstract
Table of Contents
CHAPTER ONE
1.0 Introduction
1.1 Background of the Study
1.2 Statement of Problem
1.3 Objectives of the Study
1.4 Research Question
1.5 Statement of Hypothesis
1.6 Scope of the Study
1.7 Significance of the Study
1.8 Limitation of the Study
1.9 Definition of Terms
CHAPTER TWO
2.0 Literature Review
2.1 Introduction
2.2 Function of Finance Houses in Economic
Development of Nigeria
2.3 The Achievement and Cost Associated with mortgage
Banking in Nigeria
2.4 The Impact of Finance House in Economic Development of
Nigeria: A Case Study of
Mortgage Bank Owerri
2.5 Challenges Facing Mortgage Bank in the Development of
Nigeria Economy
2.6 The Comparative Analysis of Finance House and Deposit
Money Bank in Nigeria
2.7 The Role of Supervisory and Regulatory Body of Finance
Houses in the Ensuring Economic Development
2.8 Measures Employed to Address the Challenges
CHAPTER THREE
3.0 Research Design Methodology
3.1 Introduction
3.2 Research Design
3.3 Sources/Methods of Data Collection
3.4 Population and Sample Size
3.5 Sample Techniques
3.6 Validity and Reliability of Measuring Instrument
3.7 Method of Data Analysis
CHAPTER FOUR
4.0 Data Presentation and Analysis
4.1 Introduction
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4.2 Analysis of Data
4.3 Test of Hypothesis
4.4 Interpretation of Results
CHAPTER FIVE
Summary, Conclusion and Recommendation
5.1 Introduction
5.2 Summary of Findings
5.3 Conclusion
5.4 Recommendations
References
Appendix
CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND OF THE STUDY
One of the universally accepted norms in the present day
economic system is that functionality and survival of an
economy is dependent on its financial system.
Financial
system workability depends on the viability of existing financial
institutions.
Financial institutions are establishment that
handle monetary affairs and include banks (commercial,
merchant, saving, mortgage and development) institution.
Investors,
insurance
companies,
finance
and
investment
companies and discount houses.
Adekanya (1968:224) defines finance houses as privately
owned
investment
companies
which
gives
assistance
companies, which are unable to finance the purchase
to
or
leasing borrowing and hire purchase, but service provide by
present day finance houses are numerous. Finance house are
most often referred to as investment companies or houses.
Mortgage Banking is the mobilization of financial resources
especially shares, savings and deposit from surplus economic
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units for financing housing investment needs of the deficit units
in the economy. All banks participate in mortgage banking, but
only mortgage finance institutions specialize in mortgage asset
creation.
The banks provide loans to mortgagor while the
mortgage finance institutions give mortgages (i.e. legal change
to property or asset) to the primary mortgage institution
include:
1. Saving and loans companies.
2. Building societies.
3. Mortgage societies.
4. All of which specialize in financial intermediation for
housing development.
Only mortgage banking institutions are allowed by law to
have or to accept interest only in land as security.
National
Housing Co-operatives are housing finance institutions only but
not mortgage finance institutions because they do not collect
deposits and savings and funds are mainly distributed by
members.
And state housing corporations depend on state
government
development.
budgetary
allocations
for
direct
housing
Lastly local thrift institution are not mortgage
bankers because there properties and rarely accepted as
collateral.
Black
and
Daniel
(1981:59)
have
the
definition
of
investment companies as devices which allow budget surplus
units to pool their fund and purchase investment in a
diversified portfolio or financial claim by ways of an ownership.
Investment company, Nwokolo (1991:79) said finance house
constitute an aspect of non banking institutions.
The
study
requires
significant
intermediation
effort
because financial houses institution are expected to lend on
long term even through their funds may be mobilized on a
short term basis (BFLs) which are mainly in the banking of
borrowing from and lending to the public. The definition on its
own centers on borrowing and lending.
A clearly definition of finance houses given by Central
Bank of Nigeria (CBN). In its guideline on the establishment of
finance house issue on October 9, 1991, the guideline definition
a finance houses as a person licensed to carry on finance
company business.
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1.2 STATEMENTS OF PROBLEM
So many individuals and organization are aware of the
challenges such as
1. Lack of adequate legislation guiding their operation.
2. They services are very expensive
3. Many individuals and organization see them as jokers and
may be fraudulent.
4. The concentration of the finance companies in trade
density urban area is also challenge.
1.3 OBJECTIVES OF THE STUDY
The objectives of this research is to explain what finance
houses actually are, their service, challenges and problems in
an economy so that the general public will go further into the
economic development function performed by finance house.
1.4 RESEARCH QUESTION
1. Do you think the public has derived any Benefit from
finance house?
2. Does your company participate in the Nigeria Stock
Exchange?
3. Do you accept funds of any kind?
4. Does
the
existence
of
finance
houses
contributed
immensely in the area of employment?
5. Do you think that finance houses have significant effect on
the country’s GDP?
6. Do you think the establishment of finance houses has lead
to increase in industrialization
7. Were there any measures adopted to encourage Nigerians
to invest in the Commercial Bank?
8. Do you accept funds of any kinds?
9. Do you think that existence of finance houses in Nigeria
has impacted positively to the emergence of small and
medium scale enterprises?
1.5 STATEMENT OF HYPOTHESIS
It can simply be defined as an assumption or statement
made well in advance of observation (or actual collection of
data) about what can be expected to occur concerning one or
more populations under stated or given conditions.
These
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assumptions or statements when accepted to be true become
theories and laws.
The following hypotheses are stated in their positive null
form:
Hi:
The establishment of finance houses in Nigeria has
impacted positively to the emergence of small and
medium scale enterprises, thereby lending to economic
development of the country.
H2: The
existence
of
finance
houses
has
contributed
immensely in the area of employment, thereby increase in
industrialization.
1.6 SCOPE OF THE STUDY
The scope will cover the role of finance houses, the
development
significant
of
Nigeria
intermediation
economic.
efforts
The
because
study
requires
financial
house
institutions are expected to lend on long term even though
their funds may be mobilized on a short term basis.
1.7 SIGNIFICANCE OF THE STUDY
One of the keys to sustainable long-term economic
development and democratic stability is the cultivation of an
understanding of business and economy among policy matters
business leaders and the public at large in this respect the
media most play essential role in disseminating the critical
introduction in a clear accurate and professional way.
Unfortunately journalistic in many developing countries
must covers a wide range of the subject including business
topic, yet in many case have little exposure to or training in
market economic.
1.
This work is in partial fulfillment of the requirement for
the award of Higher National Diploma (HND) in Banking
and Finance.
2.
The work will be of immense help to future researcher
who will make their investigation into the subject area.
1.8 LIMITATIONS OF THE STUDY
In a research work as this, a lot of problems are
encountered. However, some of them are adjusting.
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 TIME:
Was a serious factor functioning their research
work due to short duration at time, the submissive needed
much pressure.
 FINANCE:
A lot of money is needed collection in
assembling.
 The researcher equally has problems and lecturers to
attend to and it was not easy for me.
1.9 DEFINITIONS OF TERMS
1.
LIQUIDATION:
This means winding up company or
business organization.
When a business liquidates, the
business ceases to exist. It may be due to bankruptcy or
a purpose for which it was founded has been completed as
in the case of partnership.
2.
MATURITY DATE:
In a financial asset is the date at
which that asset is converted for a specified amount of
money or physical assets e.g. the date at which an issuer
of a bond promises to repay fully.
3.
COMMERCIAL PAPER:
An unsecured debt instruments
specified maturity date. It is priced at a discount from par
and is redeemable at par on the maturity date.
4.
COLLATERIAL:
A form of security, usually on and on
which the lender has a claim.
5.
ILLIQUIDITY:
A company that lacks potential ability
inform of cash or asset that can be quickly coveted into
cash, to meet the demands of creditors. It is a state of
not being able to raise funds easily by selling assets.
6.
MORTGAGE BANKING:
This is the mobilization of
financed resources especially shares, savings, and deposit
from
surplus
economic
units
for
financing
housing
investment units of the deficit unit in the economy.
7.
DEFICIT:
Excess of expenditure over an income of a
business organization.
8.
INSOLVENT SITUATION:
Insolvent situation of a
business or a situation where the business has spent more
than it realized.
9.
SHORT-TERM DIRECT LOAN INSTRUMENT: These are
instruments used for or arising from the direct relationship
between a borrower and a lender that intermediaries are
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not necessary engaged they include direct bank loans of
not more than one year duration, non-bank loan (i.e.
individuals and institutions).
Banks loan can be with
stipulated maturity and repayment condition. They are in
the form of loans over draft credit lines discounting of
bills.
10. PRUDENTIAL GUIDELINE:
Regulates how interest on
loans and advances and other risk assets should be
recognized and disclosed in the financial statement and
how loan losses should be calculated.
11. CASH RESERVE RATIO:
This is the minimum level of
cash to be deposited with the Central Bank of Nigeria
expressed as a ratio of the banks total deposit liabilities.
12. INTERNAL ENVIRONMENT: This can be regarded as all
variables within the organization with effect strength or
cause weakness to the organization.
13. FINANCIAL RISK:
Risk associated with introduction of
debt capital in a capital structure, which is the risk that a
company will not have adequate cash flow to meet
financial obligations.
14. CURRENT RATIO:
Is the ratio of current assets to
current liabilities. It assesses the extent of cover of the
total liquid and illiquid assets over all short-term liabilities.
This ratio is a measure potential ability of a firm to meet
its short maturity obligation out of its gross working
capital.
15. LETTER OF CREDIT:
A document issued by a bank or
other financial institutions to a prospective borrower, to
an agreed amount and for a definite or indefinite period.
16. CREDIT POLICY:
As summarized should set out the
bank’s lending philosophy and objectives including the
modalities for implementation monitoring, appraisal and
review. It should be in writing to act a sign post to guide
management and lending officers the primary purposes of
a written credit policy is to provide a framework of
standards and points of relevance within which individual
lending personnel can operate independently and with
relative uniformity and flexibility while making their
individual
decision
within
their
respective
delegated
authority.
The absence of this clean cut guideline may
lead to characteristics in the application of credit polices
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by the credit officer or the concentration of all decision
making in respect of approval of credits in the hands of
one or two person at the top.
17. CAPITAL ADEQUACY: Total amount of capital that must
be maintained by financial institution in order to withstand
potential risk.
18. CORPORATE GOVERNANCE:
Covers the system and
structure by which companies are directed and managed
in the best interest of owners and investors.
It
emphasizes the role and the responsibilities of the board
of directors, exclusive and non executive members and
shareholders night.
19. EFFICIENCY:
Seeking to ensure that the maximum
output is obtained from the resources developed to a
department (or programme), or conversely ensuring that
the minimum level of resources is devoted to given level
of output.
20. INVESTMENT:
An organizational or an individual share
holding in another business. It involves putting money in
a business enterprise in anticipation of return or income or
profit over a given period.
21. LEASE PURCHASE:
A lease that includes a provision,
whereby the lease holder may purchase the leased asset
during the term of the lease usually at a favorable price.
22. LIQUID ASSETS:
These are resources of a firm which
are either held in the form of cash within the accounting
period or the operating cycle of the business.
23. RETAINED EARNING: This is the amount of money held
in a business after its owners have taken their share of
the profits and transfers have been made to appropriate
reserves.
24. REVIEW OF FINANCIAL STATEMENT: A review made
in accordance with generally accepted audit guidelines to
given
assurance
that
financial
statements
are
in
accordance with generally accepted accounting practice.
25. INSOLVENCY:
The inability of a company or an
individual to meet maturing debts or obligations as they
are due because liabilities for exceed the value of at the
asset.
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26. LIQUIDITY RATIO: Liquidity ratio measures the ability
of the firm to meet its current maturing obligation. A firm
should ensure that it does not suffer from lack of liquidity,
and also that it does not have excess liquidity. The failure
of a company to meet its obligation, due to lack of
satisfactory liquidity, will result in poor credit.