Full Project – Design and Implementation of a Computer Based Loan Assessment System

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CHAPTER ONE

1.1  INTRODUCTION

It is important to know that financial institution does not produce goods as manufacturing firms do, nor do they transport and distribute goods, rather one thing they do which is a very vital activity is that they help in clearing payment for the participant in the economy, and this facilitates the division of labor. Banks being a financial institution, is engaged in the acceptance of deposit of money, granting of credit (by means of loan, overdraft) and other transactions such as the discount of bills, foreign exchange etc.

Loans being one of the transactions being done in the bank are a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower. The borrower initially does receive an amount of money from the lender, which he has to pay back, usually but not always in regular installments to the lender. This service is generally provided at a cost referred to as interest on the debt. A loan is of the annuity type if the amount paid periodically (for paying off and interest together) is fixed.

Since computer in business has risen above the detailed clerical automation, to providing decision-making assistance at a highest level of management. The ability of computer to store, retrieve and analyze data at tremendous speed at low cost has made it imperative for large corporation and industry to depend on its accuracy and efficiency in it’s operation. With the environment at fast pace, viewing this development as an opportunity to increase their influence and control the data processing of the organization. Business carried out in some organization is now totally dependent on the accurate operations of computers. The banking industry is no exception to the capabilities the computer provides especially in the area of loan and advances, which in no small measures contribute to the financing of individuals and business and to enhance economic development.

The need for a computerized loan assessment in Nigeria banks is to provide prompt, efficient and better quality services for customers and to ensure competitiveness in banks.

1.2  BACKGROUND OF STUDY

A bank can be defined as a financial institution that engages in acceptance of deposit of money, granting of credits (loans, overdraft, etc) and other transaction such as discounting of bills, foreign exchange etc. one of the basic functions of a bank is to issue out loans to competing users. There are two types of loans that are being issued out to customers; they are secured loans and unsecured loans.

• Secured loans-: are loans backed by a pledge of some specific valuable items, known as collateral, which can be seized by the lender should the borrower fail to repay the loan.
• Unsecured loans:-are loans that require no collateral, or security. In this type of loan, the bank relies on the general credit record and the earning power of the borrower. To increase their returns on such loans, as well as to obtain some protection in case of default most banks insist that the borrower maintain some minimum amount of money at the bank while the loan is outstanding. Such a deposit is called a compensating balance, meaning that while a borrower pays interest on the full amount of a loan, a substantial portion of that loan is kept on deposit in the bank.

1.3  OBJECTIVES OF THE STUDY

This project aims at developing a computer program that aids in assessing client worthiness, provides complimentary electronics assistance to the loan officer, through availability of computerized information system. This helps to increase the speed of data processing as to enable the system execute various services given to their numerous customers. It also provides a system that is cost effective, efficient, severed and reliable. Finally, in computerizing the loan calculation.

1.4 STATEMENT OF THE PROBLEM

Loan assessment from the data processing point of view has generated many problems, which include the following.

• Vital document stands the risk of exposure to ill motivated hands, hence rendering the authenticity of such document to be questionable.
• Operations ranging from routine task to highly sophisticated task must be carried out in banks there by necessitating a considerable programming effort to ensure that all requirements are properly taken care of.
• File assessing, maintenance, updating and referencing operation requires a day-to-day basic activity.

The time between time of generating and producing of actual hardcopy of the documents can create room for falsification. Since the document move from hand to hand and from office to office.

Input and output operations are normally performed in large quantity and these constitute a considerable burden on the personnel and equipment.

1.5  SCOPE AND LIMITATION OF STUDY

The scope of this study was narrowed down to storage of client personal data, calculation of interest on loan, and credit-rating. They study could not go beyond the above limit due to the following constraint.

Confidentiality of the bank, Bank is known to maintain high policy on some confidential documents.

1.6  SIGNIFICANCE OF STUDY

This study is designed to make the computer system to increase its speed, work effectively and efficiently. It will also help in accessing and securing client’s information through the use of password, and also backlog of job will be a thing of the past.

1.7  DEFINITION OF TERMS

1) AUTOMATION:-This is an electronic or computer based application that is used to execute a task.

2) CLIENT:-This refers to a customer that needs the services of a bank.

3) COLLATERALS:-This refers to the properties which is normally pledge as a guarantee for the payment of loan.

4) CREDIT PERIOD:-This is the length of time a credit customer has to pay money in full.

5) CREDIT RATING:-This is the rating of a client’s income to a given duration.

6) CREDIT TERMS:-states the condition under which a client is required to pay a bank for a loan extended to it.

7) DATA:-are raw facts collected from different source with-out a meaningful conclusion.

8) DATA PROCESSING:-it is a method of collecting, manipulating and disseminating data.

9) LOAN:-sum of money that is lent to somebody of an organization by a bank or financial institution.

10) PERSONAL LOAN:-This is a type of loan collected by an individual for personal effect.

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Full Project – Design and Implementation of a Computer Based Loan Assessment System