An Examination of the Impact of Collateral Requirements on Loan Accessibility: A Case Study of Polaris Bank, Delta State
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Background of the Study:
Collateral requirements serve as a fundamental risk mitigation tool in retail banking, ensuring that banks have security in the event of borrower default. In Delta State, Polaris Bank uses collateral as a key criterion in its loan approval process. While collateral can reduce credit risk and improve loan recovery rates, it may also pose a barrier to loan accessibility for many potential borrowers—particularly small business owners and low-income individuals who may lack sufficient assets to pledge. Polaris Bank’s loan products are designed to balance risk management with inclusivity; however, stringent collateral requirements can inadvertently exclude creditworthy borrowers who do not possess valuable collateral assets (Adeniyi, 2023). The bank has attempted to address this challenge by offering collateral-free or low-collateral loan products, but the uptake of such alternatives remains limited. In addition, collateral valuation and legal enforcement procedures add complexity to the lending process, potentially delaying loan disbursement and increasing administrative costs. This study investigates the impact of collateral requirements on loan accessibility at Polaris Bank, exploring how these requirements affect borrower eligibility, loan approval rates, and overall financial inclusion. By examining data and case studies from 2023 to 2025, the research aims to provide a nuanced understanding of how collateral influences lending decisions and to propose policy adjustments that can make credit more accessible without compromising risk management (Ibrahim, 2024).
Statement of the Problem:
Collateral requirements, while essential for mitigating credit risk, often serve as a double-edged sword by restricting access to loans for many potential borrowers at Polaris Bank in Delta State. The stringent nature of these requirements excludes a significant portion of the market, particularly entrepreneurs and individuals who lack substantial assets. This barrier not only limits the bank’s ability to extend credit to underserved segments but also hampers small business growth and economic development. Furthermore, inconsistencies in collateral valuation and delays in legal enforcement contribute to inefficiencies in the loan approval process. These procedural challenges lead to prolonged waiting times and reduced customer satisfaction. As a result, many creditworthy borrowers may seek alternative lenders or informal financing, which can be more expensive and less regulated. The problem is compounded by the bank’s limited flexibility in adjusting collateral requirements to accommodate the diverse needs of its clientele. This study seeks to examine the extent to which collateral requirements impact loan accessibility, identifying the key factors that deter borrowers and exploring alternative models that could enhance inclusivity. The goal is to bridge the gap between risk management imperatives and the need for wider access to credit, thereby promoting financial inclusion and stimulating local economic activity (Okafor, 2023).
Objectives of the Study:
• To assess the effect of collateral requirements on loan accessibility at Polaris Bank.
• To identify barriers faced by potential borrowers due to stringent collateral demands.
• To propose alternative lending models or modifications to collateral policies that enhance credit access.
Research Questions:
• How do collateral requirements affect loan approval rates at Polaris Bank?
• What are the primary barriers that borrowers encounter due to collateral demands?
• What policy modifications can improve loan accessibility without compromising risk management?
Research Hypotheses:
• H₁: Stringent collateral requirements significantly reduce loan accessibility among small borrowers.
• H₂: Alternative lending models with relaxed collateral conditions increase credit uptake.
• H₃: Enhancing collateral valuation procedures improves the efficiency of the loan approval process.
Scope and Limitations of the Study:
This study focuses on the impact of collateral requirements on loan accessibility at Polaris Bank in Delta State, utilizing borrower surveys and internal loan data. Limitations include potential underreporting of collateral challenges and variations in asset valuation practices.
Definitions of Terms:
• Collateral Requirements: The assets pledged by borrowers to secure a loan.
• Loan Accessibility: The ease with which borrowers can obtain credit from financial institutions.
• Financial Inclusion: The process of ensuring that all segments of the population have access to affordable financial services.
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