CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

The advent of computer innovation has rescued humankind from the dull ages forced by non-

accessibility of mechanical expertise and imperative aptitudes for undertaking assignments.

Today, mechanical elements can be connected in essentially all feature of human undertaking to

whip complexities without any difficulty and accomplish most extreme efficiency considerably

quicker. According to Mbam (2002), the use of PCs to the different aspects of human

undertakings has improved those callings by diminishing the time expected to achieve a given

assignment and subsequently amplifying efficiency and throughput (OKI, 2019).

In the dynamic landscape of modern finance, lending institutions face a multitude of

challenges and opportunities. One of the paramount challenges is managing the ever-expanding

portfolio of loan applications efficiently while mitigating credit risk. Simultaneously, the advent

of advanced technologies, coupled with regulatory pressures and evolving customer

expectations, has paved the way for the design and implementation of computerized loan

management systems. These systems leverage credit risk and evaluation models to facilitate the

approval or rejection of loan requests.

Digital lending has become increasingly popular in recent years as it allows borrowers to

apply for loans and access funds quickly and easily without having to visit a physical bank or

lender (Ravikumar, 2019). Digital lending platforms typically use data analysis and algorithms to

evaluate borrowers' creditworthiness, assess risk, and determine the terms of the loan. This

allows lenders to make faster lending decisions and offer loans to a wider range of borrowers

who may not have access to traditional banking services. Digital lending platforms may offer a

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variety of loan types, including personal loans, business loans, student loans, and mortgage

loans. Borrowers can often apply for loans online and receive a decision within minutes, and if

approved, receive funds directly to their bank account. However, it's important to note that

digital lending can also carry risks, such as higher interest rates and fees, and potential for data

breaches or fraud. As with any financial decision, it's important to carefully consider the terms

and risks before borrowing through a digital platform. (Arun et al, 2023).

As financial institutions continue to diversify their product offerings and extend their reach to

a broader customer base, the number of loan applications they receive is on the rise. This surge

in loan requests necessitates a systematic and streamlined approach to processing and decision-

making. Traditional manual methods have proven inadequate, prone to errors, and incapable of

keeping pace with the demand.

Credit risk management lies at the heart of lending operations. Lending institutions must

navigate the delicate balance between providing access to credit and ensuring that loans are

disbursed to borrowers who are likely to meet their repayment obligations. The financial stability

of these institutions hinges on the efficacy of their risk management strategies. Therefore,

assessing credit risk with precision is paramount.

The financial industry operates within a complex regulatory framework, where adherence to

compliance requirements is non-negotiable. Regulatory bodies impose strict guidelines to protect

consumers and maintain the integrity of financial markets. This regulatory landscape places an

additional burden on lenders, requiring them to not only make prudent lending decisions but also

ensure that their processes align with legal obligations.

In today's digital age, borrowers have come to expect a seamless and user-friendly lending

experience. They demand quick decisions, minimal paperwork, and transparent communication

regarding their loan applications. A well-designed computerized loan management system can

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meet these expectations, providing borrowers with a smoother and more efficient application

process.

By automating various stages of the lending process, financial institutions can significantly

improve operational efficiency. This includes reducing manual data entry, paperwork, and

processing time. Such efficiency gains translate into cost savings, which can enhance the

institution's bottom line.

One of the pivotal features of modern loan management systems is their ability to leverage

historical loan data to develop predictive credit risk models. These models take into account a

wide array of factors, including an applicant's credit history, income, employment status, and

more. By considering this information comprehensively, lenders can make informed decisions

that balance risk and reward.

Advanced systems can take personalization to new heights by tailoring loan offers to

individual applicants. Through sophisticated algorithms, these systems can match loan terms to

an applicant's unique financial profile. This personalization not only increases approval rates but

also maintains risk management standards.

1.2 Statement of the Problem

Currently, most financial institutions have to rely on manual procedures which is time

consuming and doesn’t calculate the credit risk evaluation in case of bankruptcy because they do

not have any automated system to help manage the data of customers applying for Loans, Grants

and Investments with credit risk evaluation. This manual procedure doesn't maintain customer

records with proper security and can’t track details easily. It doesn’t allow the customer to check

their loan request, submit bank account statement if need be. The Existing manual procedure

isn’t equipped with basic functionalities of fast access to information such as customer details

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and maintenance of all the loan details so it involves lots of paperwork. Apart from

administrative task being cumbersome, manual system of registration is also long and error-

prone. The design and implementation of a computerized loan management system, with a core

focus on integrating credit risk and evaluation models, represent a pivotal step toward addressing

these challenges.

1.3 Aim and Objectives of the Study

The aim of this study is to design and implement a computerized loan management system for

rejecting or approving loan request.

The specific objectives include:

i. Develop a robust system architecture.

ii. Integrate credit risk evaluation models.

iii. Implement regulatory compliance features.

iv. Create user-friendly interfaces.

v. Strengthen security measures.

vi. Automate the loan application workflow.

vii. Generate comprehensive reports.

viii. Establish a monitoring and maintenance schedule.

1.4 Motivation of the Study

The design and implementation of a computerized loan management system with integrated

credit risk and evaluation models represent a comprehensive approach to addressing the

inefficiencies, risks, and challenges faced by lending institutions. This study is motivated by the

pressing need to address these issues while seizing opportunities for efficiency gains, risk

mitigation, regulatory compliance, and enhanced borrower satisfaction. Ultimately, it seeks to

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contribute not only practical solutions to industry challenges but also valuable insights to the

financial sector's body of knowledge.

1.5 Limitations of the Study

The limitations of the study include constraints like resource availability, potential data

limitations, and possible challenges in generalizing the findings. Additionally, technological

dependencies and variations in regulatory environments may impact the system's effectiveness.

User adoption, external factors, data privacy, scalability, and long-term maintenance are also

aspects that may not be fully explored within the study's scope.

While computerized loan management systems offer numerous advantages, it is crucial to

recognize and address their limitations. Financial institutions should carefully assess their

specific needs and consider factors such as implementation costs, ongoing maintenance,

customization, integration challenges, data security, user training, regulatory compliance,

scalability, and the potential pitfalls of overreliance on technology. By understanding and

proactively addressing these limitations, institutions can make informed decisions to maximize

the benefits of these systems while mitigating their associated challenges.

1.6 Definition of Terms

i. Loan Management System: An LMS is a software solution designed to automate and

streamline the loan origination, servicing, and management processes within a financial

institution. It facilitates tasks such as loan application processing, approval, disbursement,

repayment tracking, and reporting.

ii. Computerized Loan Management System: A computer-based software application

designed to automate and manage various stages of the loan application process, from

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 submission to approval or rejection, with the capability to integrate credit risk assessment

models.

iii. Credit Risk Assessment Models: Mathematical algorithms and statistical techniques

used to evaluate the creditworthiness of loan applicants. These models analyze various

factors, such as credit history, income, and employment status, to predict the likelihood

of loan repayment.

iv. User Interface (UI): The graphical and interactive components of a software application

that users interact with. In the context of this study, it refers to the interfaces through

which borrowers, loan officers, and administrators engage with the loan management

system.

v. Security Measures: Protective measures and protocols implemented to safeguard

sensitive data and information within the loan management system. These measures

include access controls, encryption, and data protection strategies.

vi. Workflow Automation: The use of technology to automate sequential and repetitive

tasks within the loan application process. This includes automating document

verification, data entry, and decision-making stages.

vii. Data-Driven Decision-Making: The practice of making informed decisions based on

data analysis and insights. In the context of lending, it involves using historical loan data

to assess applicant creditworthiness and make lending decisions.

viii. Personalized Lending: Tailoring loan terms, interest rates, and repayment schedules to

match the individual financial profiles and needs of borrowers while maintaining

responsible lending practices.

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ix. Compliance with Industry Standards: Ensuring that the loan management system

aligns with established best practices and standards within the lending industry, including

guidelines set by industry associations and regulatory bodies.

x. Documentation: The creation of comprehensive documentation that encompasses system

architecture, workflows, configurations, and compliance documentation. This

documentation is vital for system transparency and understanding.

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 CHAPTER TWO

LITERATURE REVIEW

2.0 Introduction

The literature provides a comprehensive overview of the field. It delves into the key historical

development, key concepts, technological advancements, best practices, challenges and

regulatory considerations related to these systems. Furthermore, the review identifies gaps in

existing knowledge and sets the stage for further research. Overall, it serves as a foundational

resource for understanding and advancing computerized loan management systems in the

financial sector.

2.1 Loan Management System

According to Guard Software Company (2010), a loans management system is a unique software

solution designed for one complex task of managing loan receivables and loan funding. Key

feature of a loan management system are its entity management, contract management, payment

collection, finance remittance facility and extensive reporting (Akampurira&Namyalo, 2011).

Based on Sahota &Jha (2019) work, a Loan Management System (LMS) is like a helpful tool for

banks and financial companies. It helps them keep track of loans and customer information. With

a good LMS, banks can quickly approve loans and make customers happy by giving them money

fast. The system also reduces mistakes, makes it easy to check the loan status online, and

improves customer satisfaction with new services. Overall, it's a useful way for banks to manage

loans and keep customers happy.

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2.2 Computerized Loan Management System

A Computerized Loan Management System (CLMS) is a software-based solution used by

financial institutions and lenders to streamline and automate various aspects of the loan

origination, servicing, and management process. It offers a centralized platform for managing

loans, allowing for greater efficiency, accuracy, and compliance.

Managing mortgage loans is risky, so it's important to have a good system. The existing system

has problems like weak data security, slow processing, and inefficiency. That's why there is the

need for a computerized system that is easy to use, securely stores data, processes information

fast, and reduces errors. The system should handle different types of loans, allowing adding,

editing, and retrieving customer information, managing new loans, and adjusting loan rates

(Arunkumar&Privietha).

2.3 Information System

An Information System (IS) is like a team of people, data, processes, and tools working together

to help a business run smoothly. It also helps managers and users solve problems and make

decisions. Whitten et al. (2000) explained that an IS, even without computers, can be there to

manage loans, but when you add computers, it greatly increases the capabilities of the system

(Akampurira&Namyalo, 2011).

With information system technology, a company can be competitive throughout its interactions

with customers. The Customer Resource Life Cycle Model helps identify strategic opportunities

and guides the development of specific applications. The model focuses on how a company's

relationship with customers can be improved using information system technology. This

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research, mainly from Harvard Business School, builds on Michael Porter's ideas about industry

analysis and competitive strategy formulation (Ives & Learmonth, 1984).

2.4 Conceptual Review

2.4.1 Credit Management

Uwuigbe et al. (2015) thoroughly examined the influence of credit management on the

performance of banks in Nigeria. They analyzed the audited annual financial statements of 10

listed banks spanning from 2007 to 2011. Employing descriptive statistics and econometric

analysis, the researchers used panel linear regression methodology with both periodic and cross-

sectional data to estimate the regression equation. Their assessment of credit management

involved applying four key management principles - planning, organizing, directing, and

controlling - to the credit concept.

Effectively managing customer credit lines is crucial for successful credit management. To

reduce the risk of bad debt and bankruptcies, companies need to have a deep understanding of

customer financial strength, credit score history, and evolving payment behaviors. The ability to

enter new markets and engage with customers relies on making informed credit decisions

swiftly. Credit management spans from the initial sale to ensuring full and final payment. It is

integral to the entire transaction, as emphasized by Mot et al. (2012), to the extent that a sale is

not considered complete until the money has been collected.

2.5 Review of Theories

2.5.1 Credit Risk Theory

Credit risk can be defined as ‘the potential that a contractual party will fail to meet its obligations

in accordance with the agreed terms’. Credit risk is also variously referred to as default risk ,

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performance risk or counterparty risk. These all fundamentally refer to the same thing: the

impact of credit effects on a firm’s transactions (Brown & Moles, 2014).

Two main modeling approaches for credit risk exist: structural and reduced-form. The structural

approach, based on Merton's seminal paper (1974), assumes the firm's asset value follows a

geometric Brownian motion, with capital structure consisting of zero-coupon debt and common

equity. While conceptually elegant, the structural approach faces implementation challenges due

to unobservable asset values and unknown model parameters, as highlighted by Jarrow and

Turnbull (2000) and Duan et al. (2005).

2.5.2 Credit Risk Evaluation Models

Financial credit risk assessment plays a crucial role in evaluating credit admission and

anticipating potential business failures. It aims to take early actions before an actual financial

crisis occurs. The assessment involves determining the risk associated with financing,

specifically the possibility that a borrower may default on payments.

According to Ghodselahi & Amirmadhi (2011), credit risk is a significant challenge for financial

institutions. Credit scoring, especially with the application of artificial intelligence, has become a

key technique for evaluating credit risk. The study suggests that the use of hybrid ensemble

models, particularly the support vector machine, improves classification accuracy and

performance compared to other credit scoring methods. Even a small enhancement in credit

scoring accuracy can lead to substantial loss reduction.

Agarwal et al. (2020) emphasize that creditors, such as mortgage lenders, assess borrowers'

creditworthiness to approve or reject mortgage applications. If rejected, customers must seek

mortgages from other lenders. This approval process sets mortgage market search apart from

searches in markets for standard goods. The study highlights that a similar approval process is

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common in obtaining credit cards, student and small business loans, auto loans, and in the

insurance industry, where applicants are screened for underlying risks.

2.5.3 Integration of Credit Risk Evaluation Models into Loan Management Systems

In dealing with the information gap between lenders and borrowers, banks require a mechanism

to assess default risk and address moral hazards. Customer Relationship Management (CRM)

plays a crucial role in optimizing the performance of financial institutions (FIs). The paper by

Richard et al. (2008) focuses on analyzing the CRM system of a commercial bank in Tanzania, a

region with a less developed financial sector. It proposes a research model for further

examination.

Chijoriga (1997) emphasized the significance of quantitative models in numerically determining

factors influencing default risk. These models help evaluate the relative importance of these

factors, enhance default risk pricing, improve the screening of loan applicants, and facilitate the

calculation of reserves needed to cover expected future loan losses.

2.5.4 Credit Risk Management Practices

Credit risk management practice is a prearranged approach to managing uncertainties through

risk assessment, analysis, monitoring and developing the strategies to mitigate the risk. The

credit risk management strategies basically focus to transferring, avoiding, reducing the negative

impacts of the risk (Kattel, 2015).

i. Loan Portfolio

Credit risk is a significant concern for commercial banks, impacting their stability. The

risk stems from the potential loss of loans if debtors cannot fulfill financial obligations.

To assess credit risk, banks use models to estimate the likelihood of borrowers defaulting

on their commitments. Effectively managing credit risk aims to maintain an acceptable

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 risk level in the loan portfolio (Mileris, 2012). Losses in the loan portfolio are the sum of

individual position losses, including instruments, counterparties, and sub-portfolios

(Rosen & Saunders, 2010). Credit risk in the loan portfolio is a crucial aspect of risk

management, particularly for banking institutions striving to enhance the quality of their

portfolios (Jakubik, 2007).

ii. Credit Risk Management

Effectively managing credit risk is a complex task with various quantitative and

qualitative approaches. The key is to understand and predict the likelihood of specific

credits defaulting on their obligations. Higher probabilities of loss indicate greater credit

risk, considering both the probability of default and the expected loss given default

(Brown & Moles, 2014).

Credit risk management is crucial for the long-term success of banking organizations

(Nelson & Schwedt, 2006). It involves assessing, strategizing, and mitigating risks

through various approaches like transferring, avoiding, reducing negative effects, or

accepting consequences. Unlike traditional risk management, which often focuses on

physical or legal risks, credit risk management, as discussed by Huizinga & Demirgue

(2010) and Kibui & Moronge (2014), is specific to uncertainties related to credit

transactions.

iii. Risk Identification

Kattel (2015) highlights the significance of identifying the sources of credit risk as the

second step in credit risk management. Banks establish a comprehensive framework to

control credit risk, employing various techniques tailored to different situations, products,

portfolios, and individual borrowers. The development of such a risk management

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 framework is deemed crucial for sustainable growth in the banking sector (Greuning &

Bratanovic, 2003; Richard et al., 2008).

iv. Risk analysis and Assessment

Consumer credit risk assessment involves using tools to manage a borrower's account

from application screening to account management and potential write-off. Logistic

regression models are commonly used, although support vector machines show promise

in accuracy. However, data quality issues may limit practical application (Crook et al.,

2007).

Financial credit risk assessment is crucial for evaluating credit admission and potential

business failure. It aims to predict the likelihood of a company belonging to a high-risk

group or going bankrupt based on financial variables (Chen et al., 2016).

v. Credit Approval

Agarwal et al. (2020) emphasize how creditors, like mortgage lenders, assess borrowers'

creditworthiness, impacting loan approvals. This approval process is crucial, not only in

mortgages but also in obtaining credit cards, student loans, and more. Edward Altman,

known for the Z-score, developed a powerful metric for predicting bankruptcy.

The Z-score is used by lenders like Murthy et al. (2018) to gauge a company's financial

health. A higher Z-score indicates lower financial risk, increasing the chances of credit

approval, while a lower score signals higher risk, possibly leading to credit denial or

stricter terms.

vi. Credit Risk Control and Monitoring

Ejoh et al. (2014) recommend that deposit money banks establish robust internal controls

to monitor risk control mechanisms, ensuring adherence to the bank's philosophy.

Maintaining a balanced deposit-loan ratio is crucial to avoid asset-liability mismatches.

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 Effective management of credit and liquidity risks is tied to banking technology

development, enhancing decision speed and reducing risk control costs. Nwude and

Okeke (2018) define risk management as identifying, assessing, and prioritizing risks,

followed by coordinated resource application to minimize their impact, ultimately

contributing to bank profitability.

2.6 User-Centered Design

According to Abras et al. (2004), 'User-centered design' (UCD) involves end-users influencing

the design process, employing a range of methods. Users can be consulted about their needs at

specific design stages, like requirements gathering and usability testing. Donald Norman,

credited for originating UCD in the 1980s, suggested four key design principles: making actions

clear, rendering things visible, facilitating system state evaluation, and ensuring natural

mappings between intentions and actions.

User-Centered Design (UCD) is essential in developing a Computerized Loan Management

System (LMS) for the following key reasons:

i. User Satisfaction: Enhances overall user satisfaction by designing an intuitive and user-

friendly LMS.

ii. Reduced Errors: Minimizes the likelihood of errors or data entry mistakes, ensuring

precision in financial processes.

iii. Efficiency: Streamlines workflows for faster loan processing and more efficient decision-

making.

iv. Adoption and Acceptance: Increases user adoption by considering their needs in the

design process.

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 v. Risk Mitigation: Identifies potential issues early, preventing costly problems in the

future.

vi. Accessibility and Inclusivity: Ensures the LMS is accessible to diverse users, promoting

inclusivity.

vii. User Feedback: Encourages continuous improvement by collecting user feedback

throughout the design process.

viii. Scalability: Designed with scalability in mind to accommodate organizational growth

and changing needs.

2.7 Application software

This might be described as "end-user" software where programs are designed to address general

purpose and special-purpose applications.

General-purpose programs are widely used in nearly all career areas. They are the kind of

programs the user has to know to be considered computer component. Example of these basic

application programs is a browser to navigate, explore and find information on the internet.

Special application programs are the ones that the user has to be trained for in order to use the

computer effectively, according to Timothy J. O'Leary and Linda I. O'Leary 2002(3). In his

context, he continues to say that users of the system use computer application software to

manipulate, store, retrieve and process data kept in the database for future reference by the

systems analyst or use by administrators (Akampurira&Namyalo, 2011).

2.8 Case studies and Empirical Evidence

In Adam Olorunlomerue's (2018) project, there's a notable increase in information about capital

investments, profit-sharing, and dividends within cooperative societies in Nigeria. The project

introduces a Web-Based Centralized Cooperative Information Management System, enhancing

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cooperative tasks by allowing societies to register, view financial reports, and manage various

aspects. While the system demonstrates benefits for data compilation and planning, OKI (2019)

points out a gap—lacking a front-end webpage hinders communication and access to updated

information for society members and staff.

Empirical research by Altman et al. (2017) explores the use of credit scoring models in assessing

credit risk. Their study assesses the predictive power of credit scores in identifying borrowers at

risk of default, contributing to the development of credit risk assessment tools.

Empirical research by Berger and DeYoung (2001) explores the relationship between loan

portfolio diversification and risk. Their study reveals that diversification can enhance loan

portfolio performance and reduce credit risk. This finding underscores the importance of

diversification as a risk management strategy for banks.

2.9 Database

According to Thomas Connolly, Carolyn Begg, and Annestrachan (1996), a database is an

integrated and shared collection of logically related data designed to meet an organization's

information needs. John C. Shepherd (1990) notes that a database system is employed for

storing, organizing, retrieving, and managing data, especially when conventional methods are

costly, error-prone, and inflexible. Akampurira and Namyalo (2011) emphasize that a database

management system, a vital software component, provides a convenient and effective

environment for handling interrelated data and programs.

2. 9.1 Terminologies in database

i. Entity − An entity is a specific real-world thing or idea that we wish to represent and

keep data about. For instance, students, professors, courses, and departments might all be

considered entities in a university database

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 ii. Attribute − An attribute is a representation of a particular quality or trait of an entity. It

outlines the information about the entity that we wish to store. A student entity, for

instance, may include characteristics like a student ID, name, date of birth, and major.

iii. Key − A key is an entity's or an entity instance's particular set of properties that uniquely

identify it. For data integrity and effective data retrieval, keys are necessary. To ensure

that each student has a distinct identification, the student ID, for instance, may act as the

primary key in the student object

iv. Table − A relational database system's core structure for organizing data into rows and

columns is a table. Each table is made up of columns (attributes) and rows (records), and

it represents a single entity. For instance, a table called "Students" may have columns for

student data such as student ID, name, and major.

v. Primary Key − A primary key is a way for a table to be uniquely identified. It guarantees

that each row in the table can be identified individually. A single column or a group of

columns might serve as the primary key. The student ID column, for instance, may serve

as a primary key in the "Students" database.

vi. Foreign Key − A column or group of columns in one database that relate to the primary

key in another table is known as a foreign key. This creates a connection between the two

tables. For instance, to link students with the courses they are registered for, a foreign key

in the "Courses" database can make reference to the primary key in the "Students" field.

vii. Relational Database − A relational database is a kind of database system that arranges

information into tables and uses keys to create relationships between those tables. It

provides a systematic and effective method of managing data by adhering to the

fundamentals of the relational model. Popular relational database systems include

PostgreSQL, Oracle, and MySQL.

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viii. Query − Requesting data or information from a database is known as a query. It enables

users to obtain, manipulate, and manage data and is described using a query language like

SQL. For instance, a query may return a list of every student registered for a certain

course.

ix. Index − A database table's index is a type of data structure that accelerates data retrieval

processes. Based on the indexed column(s), it enables easy access to specified data. In the

"Students" database, for instance, an index on the student ID column would speed up

searches looking for students by their ID.

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 CHAPTER THREE

SYSTEM ANALYSIS, DESIGN AND IMPLEMENTATION

3.1 System Analysis

System analysis is an important phase in system development. It involves understanding project

goals, gathering requirements and assessing existing systems (if any). Functional and non-

functional requirements, data needs, business processes, and risks are analyzed. A cost-benefit

study and feasibility assessment determine project viability.

3.2 Existing System

The existing system for loan management is often referred to as traditional or manual system of

loan management. It involves a set of processes and practices that are carried out without the aid

of specialized software or computer systems. It relies on paper-based documentation and human

judgment for tasks such as data entry, credit assessment, approval/rejection, and record keeping.

The existing system of loan management faces several challenges and limitations, which can

significantly impact its effectiveness and efficiency. They include:

i. Manual Data Entry Errors: The reliance on manual data entry in the loan management

system increases risk of human errors. Mistakes in entering borrower information, loan

terms, or repayment schedules can lead to financial discrepancies, disputes, and customer

dissatisfaction.

ii. Limited Scalability: The current system may not be able to handle a growing volume of

loan applications, making it challenging to meet the increasing demands of borrowers.

This can hinder business growth and customer acquisition.

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 iii. Time-Consuming Processes: Manual loan processing and approval procedures are time-

consuming. This can result in delays in providing loans to customers, causing frustration

and potentially leading them to seek alternative lenders.

iv. Lack of Automation: The absence of automated processes for tasks like credit scoring,

document verification, and loan approval can lead to inefficiencies. Automation could

expedite loan origination and decision-making.

v. Reduced Efficiency: Manual processes, including document handling and

communication with customers, can reduce overall operational efficiency. This

inefficiency could lead to increased costs and decreased competitiveness.

vi. Inaccurate Risk Assessment: Without sophisticated data analysis and automated risk

assessment tools, the current system may not accurately evaluate borrower

creditworthiness. This can result in higher default rates and financial losses.

vii. Limited Reporting Capabilities: Inadequate reporting tools can make it challenging to

monitor and analyze loan portfolio performance, track trends, and make data-driven

decisions. This limits the ability to optimize lending strategies.

viii. Security Concerns: The existing system may lack robust security measures to protect

sensitive customer data. Data breaches can have severe consequences, including legal

liabilities and reputational damage.

ix. Customer Experience Delays: Complex processes and manual checks can lead to delays

in loan approval and disbursement, negatively impacting the customer experience and

potentially causing customers to seek alternative lenders with faster service.

x. Limited Accessibility to Records: Retrieving and accessing loan records and customer

data can be challenging in a manual system, leading to inefficiencies in customer service,

dispute resolution, and data analysis.

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3.3 Proposed System

The new loan management system is an advanced software platform designed to streamline and

enhance the management of loans within financial institutions. It incorporates cutting-edge

technology and best practices to provide a modern, user-friendly experience for borrowers and

lending institution staff. This new system offers a more efficient, secure, and customer-oriented

approach to loan management, leveraging the latest technology to improve decision-making,

reduce operational costs, and enhance the overall experience for both borrowers and lending

institutions. Some key features of the new system include:

i. User-Friendly Interface: The system will have an easy-to-use interface for borrowers

and staff, ensuring a smooth experience.

ii. Automated Loan Approval: Develop an automated loan approval process that reduces

manual work and enables faster decision-making.

iii. Secure Fund Transfers: Implement a secure and efficient system for transferring funds

to borrowers' accounts, ensuring transparency and security.

iv. Flexible Repayment Plans: Design customizable repayment plans to accommodate

borrowers' needs and preferences.

v. Customer Relationship Management: Develop a system to manage customer

interactions and provide support, utilizing chatbots or virtual assistants.

vi. Collateral Management: Implement a system to monitor collateral in real-time and

manage smart contracts effectively.

vii. Reporting and Analytics: Develop a reporting and analytics module to provide insights

and generate customized reports.

viii. Compliance and Risk Management: Ensure compliance with regulations and

incorporate risk management techniques to mitigate potential risks.

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 ix. Mobile Access and Integration: Enable mobile access and integration with third-party

APIs to enhance the system's functionality and accessibility.

3.3.1 Functional requirements for the computerized loan management system

i. User Registration and Authentication: Users will be able to create accounts and

securely log in to access the system.

ii. Loan Application Submission: Borrowers will be able to submit loan applications

online, providing necessary personal and financial information.

iii. Credit Scoring and Underwriting: The system will be able to assess the

creditworthiness of loan applicants using predefined criteria and algorithms.

iv. Interest Rate Calculation: The system will be able to accurately calculate interest rates

based on factors like credit scores and market conditions.

v. Loan Approval and Disbursement: The system will be able to support the approval or

denial of loan applications and facilitate the timely disbursement of approved loans.

vi. Loan Repayment Management: Borrowers will be able to make periodic loan

payments, and the system should track and manage these payments.

3.3.2 Non-Functional Requirements for the Loan Management System

i. Performance: The system will be fast and responsive, so loan applications and data

retrieval happen quickly.

ii. Availability and Reliability: The system will be available most of the time, with

minimal downtime. It will also be reliable, meaning it doesn't have many errors or

crashes.

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 iii. Security: The system needs to be secure to protect sensitive information. Only

authorized people will have access, and data should be encrypted to prevent unauthorized

access.

iv. Usability and Scalability: The system will be easy to use, with a friendly interface. It

will also be able to handle a lot of users and loan applications without slowing down.

v. Maintainability: The system will be easy to update and maintain. It will have clear

instructions and documentation for future changes.

vi. Data Management: The system will handle data properly, keeping it accurate and

organized. It will also follow rules for storing and deleting data.

vii. Documentation and Support: There will be clear instructions and support available to

help users understand and use the system effectively.

3.3.3 Data Requirement of a Computerized Loan Management System

i. Borrower Information: This includes personal details such as name, contact

information, identification documents, and employment history.

ii. Loan Details: This includes information about the loan itself, such as loan amount,

interest rate, repayment terms, and any collateral or guarantees associated with the loan.

iii. Financial Data: This includes the borrower's financial information, such as income,

expenses, credit history, and other relevant financial documents.

iv. Transaction Data: This includes details of loan transactions, such as disbursements,

repayments, interest calculations, and any penalties or fees associated with the loan.

v. Risk Assessment Data: This includes data used to assess the creditworthiness and risk

profile of borrowers, such as credit scores, financial ratios, and other risk indicators.

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 vi. Compliance Data: This includes data required for regulatory and compliance purposes,

such as anti-money laundering checks, Know Your Customer (KYC) information, and

other legal and regulatory requirements.

3.3.4 Hardware requirements

The server hosting the web application should adhere to specific hardware requirements. A 64-

bit system architecture is essential for modern computing capabilities. To support seamless

operations, a minimum of 2GB of RAM is recommended, providing the necessary memory for

concurrent tasks and efficient data processing. Additionally, the server should have at least 3GB

of storage space to accommodate the application's codebase, databases, and associated files.

In contrast, when considering the client-side requirements—pertaining to the users' devices

accessing the web application—the specifications are relatively straightforward. Users need a

standard device equipped with a modern web browser such as Chrome, Firefox, or Safari.

Additionally, a stable internet connection is essential for accessing the web-based loan

management system.

3.3.5 Advantages of the Proposed System

i. Enhanced Efficiency: The new system automates loan tasks, making things faster and

easier. It saves time and resources by automating loan origination, approval, disbursement,

and servicing.

ii. User-Centric Experience: Borrowers and staff will love the system's easy-to-use interface.

It's designed to be intuitive and user-friendly. Plus, borrowers can manage their loans

conveniently through a mobile app.

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iii. Compliance and Risk Management: The system uses automation to ensure that the lending

institution complies with regulations and reduces risks. It helps protect the institution and

ensures that everything is done according to the rules.

iv. High-Level Security: The system takes security seriously. It uses biometric authentication,

data encryption, and access control to keep sensitive information safe and secure.

v. Scalability and Cloud Deployment: The system can handle a growing loan portfolio and

user base. It's designed to be flexible and can easily scale up as needed. Plus, it's deployed in

the cloud, which makes it accessible, cost-effective, and adaptable.

3.4 System Architecture

The system architecture of a modern loan management system is a complex structure designed to

streamline lending operations. It comprises distinct layers, each with a specific function. The

client interface and presentation layer provide a user-friendly front-end, while the application

layer houses the core logic for loan origination, approval, disbursement, and servicing. Services,

data access, security, integration, and compliance layers collaborate to ensure the system's

efficiency, security, and compliance with regulations. Analytics and reporting capabilities are

handled in a dedicated layer. Blockchain integration, scalability, and cloud infrastructure are

integrated for transparency, adaptability, and accessibility, while environmental considerations

promote sustainability. This comprehensive architecture harmonizes the diverse components,

technologies, and security measures, creating a robust and user-centric platform for managing

loans, serving both borrowers and lending institutions effectively in today's dynamic financial

landscape.

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3.5 Security Design

Security design in software development is about making sure your application is safe from

threats and problems. It involves creating and putting into place measures and controls to protect

your software and its data. Two-Factor Authentication is the security measure used for this

project. It requires users to provide multiple forms of verification to access a system, application,

or account. 2FA significantly enhances security by adding an extra layer of protection beyond

just a username and password. In this project, the selected factors to be used are Secret question

& answer and biometrics.

3.6 Software Development Life Cycle

Software Development Life Cycle (SDLC) is a structured and systematic approach to software

development that guides the planning, design, development, testing, deployment, and

maintenance of software applications. SDLC is used to ensure that software projects are

completed successfully, on time, and within budget, while meeting the specified requirements

and quality standards. The following are the phases in the SDLC:

i. Planning: In this phase, project objectives are defined, requirements are gathered, and a

project plan is created. This phase sets the overall direction and goals for the project.

ii. Analysis: This phase involves a detailed analysis of the project requirements. It includes

defining the scope of the project, understanding user needs, and creating documentation

that outlines what the software will do.

iii. Design: In the design phase, the architecture and structure of the software are planned.

This includes designing the user interface, system architecture, and database schema.

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 iv. Development: This is the phase where actual coding and programming take place.

Developers write the code based on the design specifications, and the software starts to

take shape.

v. Testing: Software testing is essential to ensure that the software functions correctly and

meets quality standards. Different types of testing are performed, including functional

testing, integration testing, and user acceptance testing.

vi. Deployment: Once the software is thoroughly tested and ready, it is deployed to a

production environment where it becomes accessible to users.

vii. Maintenance: After deployment, the software requires ongoing maintenance and

support. This includes fixing bugs, making updates, and scaling the application as needed

to meet changing requirements.

3.7 System Design

System design is the process of creating a model of a system that will meet the requirements of

the users. This phase encompasses architectural decisions, database design, user interface

creation, security measures, and technology selection. It defines the system's structure, data flow,

and user interactions, ensuring a user-friendly and secure solution. To design the Loan

Management system, we will use Unified Modeling Language (UML) diagrams. UML diagrams

provide a standardized approach to representing software systems, offering visual depictions of

the website's structure and behavior. The UML diagrams we will utilize for the website design

include:

i. Use Case Diagram: A use case diagram is a visual representation of the interactions

between different actors (users or systems) and the various use cases (functional

requirements) of a system.

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 Visit Site

Apply for Loans

User View Loan Status

Loan Payment

Review Loan Application Loan Officer

Approve/Reject Loan Application

Manage User Accounts

Admin

Generate
Reports

Configure System Settings

Fig 3.7(i) Use Case Diagram of the system

ii. Class Diagram: A class diagram is a type of diagram that represents the structure and

relationships of classes and objects in a software system. It provides a visual depiction of

the classes, their attributes, methods, and the associations or relationships between them.

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 Loan Application Loan Officer Admin

- applicantName: String - officerName: String - adminName: String

- loanAmount: int - approveLoan( ): void - manageUser ( ): void
- status:LoanStatus - rejectLoan ( ): void - generateReports ( ):
+ applyForLoan ( ): void - monitorLoan ( ): void Report
+ checkLoanStatus ( ): - configureSystem ( ):
Status void
- makePayment ( ): void

Customer User

- customerName: String - username: String

- email : String - password : String
+ applyForLoan ( ): void
+ checkLoanStatus ( ):
Status
+ makePayment ( ): void

Fig 3.7(ii) Class Diagram of the system

3.8 System Implementation

To create this system, we utilized various technologies, programming languages, and

dependencies. Firebase was employed for the database, and the front-end was developed using

HTML, Cascading Style Sheets (CSS), and JavaScript.

i. Visual Studio Code: Visual Studio Code (VS Code) is a lightweight yet powerful code

editor. It supports a variety of programming languages and offers features like syntax

highlighting, debugging, and extensions. VS Code provides a user-friendly environment

for developers, enhancing productivity and making the coding process more efficient.

30
 ii. HTML and CSS: HTML (Hypertext Markup Language) and CSS (Cascading Style

Sheets) are like the dynamic duo of web development. HTML forms the backbone,

giving structure to a web page by defining its elements like headings, paragraphs, and

images. CSS, on the other hand, brings style and visual appeal, controlling how those

HTML elements look on the screen. Together, they create the foundation for building

attractive and well-organized websites, making the web a visually engaging and user-

friendly space.

iii. JavaScript: JavaScript is a versatile programming language that runs on web browsers.

It brings websites to life by enabling interactive features, animations, and dynamic

content. JavaScript is fundamental for creating engaging user experiences and is a key

technology in web development.

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 CHAPTER FOUR

RESULT AND DISCUSSION

4.0 Introduction

This chapter provides an overview of the results in the loan management system, detailing

the outcomes of the front-end implementations. The front-end was built using web

technologies such as HTML, CSS, and JavaScript.

4.1 Result of Front-end Implementation

The front-end implementation of the loan management system focuses on delivering a user-

friendly experience for borrowers, loan officers, and administrators. It includes a well-

designed loan application form, an EMI calculator with credit score adjustment,

straightforward loan repayment management, and a secure two-factor authentication system.

The responsive design ensures consistency across devices, and attention is given to visual

design, branding, error handling, and user feedback. Overall, the front-end aims to provide a

positive and intuitive interaction for users interacting with the loan management system.

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Fig 4.1: Two-Factor Authentication

Fig 4.2: EMI Calculator

Fig 4.3 and 4.4: Loan Form

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Fig. 4.5: Loan Repayment Form

Fig. 4.6: Log in Page

Fig 4.7: Receive Loan Payment Form

34
Fig 4.8 and 4.9: Sign Up or User Registration Form

Fig 4.10: About Us

35
Fig 4.11: Contact Us

Fig 4.12: Dashboard

4.2 Discussion of Result

The Two-Factor Authentication Page (Figure 4.1) serves as an exemplary implementation of

heightened security measures. Designed to provide an extra layer of security, users are

prompted to answer secret questions or authenticate using biometrics in addition to their

standard login credentials. This feature underscores our dedication to protecting user

accounts and preventing unauthorized access.

36
Moving to financial planning, the EMI Calculation Page (Figure 4.2) has been designed to

empower borrowers in making informed decisions. Users can input loan details such as

amount, interest rate, and term to obtain an estimated monthly repayment amount. This

functionality serves as a valuable tool for users to plan and manage their finances effectively.

The Loan Form Pages (Figure 4.3 and 4.4) play a pivotal role in streamlining the loan

application process. These pages facilitate the collection of comprehensive information from

users, covering personal details, loan preferences, and guarantor information. This ensures a

thorough and efficient application process, essential for the loan approval procedure.

In ensuring transparency and empowering borrowers, the Loan Repayment Page (Figure 4.5)

provides a comprehensive view of loan repayments. Users can access transaction history,

view amounts paid, and monitor remaining balances. This feature fosters transparency,

allowing borrowers to track and manage their loan repayments effectively.

As the gateway to personalized experiences, the Log In Page (Figure 4.6) allows users to

securely access their accounts. By entering their login credentials, users gain access to a

personalized dashboard where they can explore and utilize features tailored to their needs.

For administrative efficiency, the Receive Loan Payment Page (Figure 4.7) is likely

tailored for loan officers or administrators. It provides a platform to efficiently manage

received loan payments, streamlining administrative tasks associated with processing and

recording repayments.

The Sign Up Page (Figure 4.8 and 4.9) serves as the onboarding gateway for new users. By

providing necessary information and setting up login credentials, this page simplifies the

onboarding process, enabling users to seamlessly access and navigate the loan management

system.

37
The About Us page (Figure 4.10) page unveils our vision, values, and commitment to

providing transparent and inclusive financial solutions. Dive into our story, explore our

team's dedication, and understand how we strive to make a positive impact on the

communities we serve.

The Contact Us page (Figure 4.11) is used for connecting with us. Utilize the provided

contact options such as WhatsApp, Instagram, or direct phone contact.

The Dashboard page (Figure 4.12) is used for navigating. This serves as your control center,

allowing you to effortlessly access and manage your loan-related activities. From checking

your loan status to exploring repayment options, the Dashboard is designed for your

convenience, providing an intuitive and user-friendly interface.

38
 CHAPTER FIVE

CONCLUSION AND RECOMMENDATION

5.1 Summary

Through my thorough research, I discovered the challenges of moving from old-fashioned

manual loan systems to a modern computerized setup in finance. The examination of the

current manual system revealed issues like mistakes in data entry, limits to growth, and slow

processes. To address these problems, the new system brings in features like automatic loan

approval, secure fund transfers, and flexible repayment plans. The document outlines

essential system needs, covering both functional and non-functional aspects, along with

specific data and hardware requirements. The benefits of the proposed system, like improved

efficiency, a user-friendly experience, and strong security, stood out in my findings.

Exploring the system's architecture, security design, software development life cycle, and

practical implementation provided crucial insights into the project's comprehensive approach.

The results and discussion section gave a close look at the front-end implementation,

showcasing features like the impactful Two-Factor Authentication and a practical EMI

calculator. This hands-on exploration highlighted the tangible benefits of the new system,

from better security to user-friendly tools for financial planning. As my research unfolded,

the concluding view positioned the advanced computerized loan management system as a

transformative solution set to bring significant improvements for both borrowers and lending

institutions.

In the literature review, my findings captured essential insights into computerized loan

management systems, credit risk management, evaluation models, and the importance of

user-friendly design principles. The review not only expanded my understanding of these key

aspects but also spotlighted the practical implications of effective database management and

39
the considerations and challenges in implementing such systems. In summary, my research

journey uncovered a thorough understanding of modern loan management practices and their

potential to reshape the financial sector.

5.2 Conclusion

In conclusion, the implementation of a web-based computerized loan management system

represents a significant leap forward in the realm of financial services. The system, designed

to efficiently approve or reject loan applications based on credit scores and evaluation

models, not only streamlines the lending process but also enhances precision and

transparency in decision-making.

The utilization of credit scores as a pivotal factor in the approval process ensures a

quantitative and standardized assessment of a borrower's creditworthiness. This, coupled

with sophisticated evaluation models, allows for a comprehensive analysis of various

financial parameters, thereby facilitating a more accurate determination of loan eligibility.

The system's reliance on data-driven decision-making not only expedites the approval

process but also minimizes the potential for human error and bias.

By embracing a web-based platform, accessibility is extended to a broader audience, making

the loan application and approval process more inclusive and user-friendly. Borrowers can

conveniently submit applications, check their status, and receive timely responses,

contributing to an overall positive user experience. Additionally, the system's integration of

credit scoring and evaluation models instills a sense of fairness and objectivity in the lending

process.

Furthermore, the enhanced security features, such as two-factor authentication, safeguard

sensitive user information, instilling confidence in both borrowers and lenders. The system's

40
ability to manage loan repayments, track transaction history, and provide detailed insights

further contributes to a transparent and accountable financial ecosystem.

In essence, the web-based computerized loan management system not only revolutionizes the

way loans are processed but also sets a benchmark for efficiency, accuracy, and user

satisfaction in the financial industry. As we navigate the evolving landscape of digital

finance, this system serves as a testament to the power of technology in advancing financial

services and promoting a more inclusive and equitable lending environment.

5.3 Recommendations

Based on the outcome of this study, the following recommendations are proposed:

Future research should include the following;

i. Design a user-friendly interface with a clear layout for easy use by borrowers and

administrators.

ii. Implement strong user authentication and role-based access control for secure

information access.

iii. Create an automated workflow in the loan system, utilizing defined criteria like credit

scores and financial history for swift approval or rejection of loan applications.

iv. Implement a real-time notification system to keep applicants and administrators

promptly informed about the status of loan applications.

41
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