CHAPTER THREE

ANALYSIS AND DESIGN

3.1 Introduction

System analysis can be defined as the process of breaking down a whole entity into parts
or components for proper understanding. It involves studying a problem area and
constructing an improved way of handling it. It adopts a perspective approach to
information system development in that it specifies in advance the modules, stages and
tasks which have to be carried out the deliverables to be produced and furthermore the
techniques used to produce the deliverables.it can also be referred to as a process through
which an existing system is examined with the intention of improving it or creating a better
new system through better procedures and methods, An analysis is done by the designer in
order to better understand why computerization is necessary. It helps the designer to
breakdown complex topics to simpler form in order to get a better understanding of it. In
this chapter, the analysis of the old system of credit risk evaluation and analysis shall be
discussed. Also, the problem inherent in the old system shall be identified with the aim of
developing a new and better system. Finally, a new system which will solve the problems
identified in the old system will be designed

3.2 Methodology

We have many methodologies for software development; some of the most popular
software development methods include rapid application development, structured system
analysis and design method, integrated methodology, the prototype and others. The
methodology employed in the development of the proposed system is the object oriented
analysis and design method which is a model-driven technique that integrates data and
process into construct called object. OOADM also has the potential for object reusability.
Object models are diagrams that document a system in terms of its objects and their
relationships. During this phase, the class objects and the interrelationships of these
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classes are translated and actually coded using the programming language decided upon.
The databases are made and the complete system is given a functional shape. The
complete OO methodology revolves around the objects identified in the system.

3.3 Investigation and Analysis of the present System

The researcher carried out a study of the present system with the IT supervisor of the
financial institution and found out that the present system that was being used by the
institution was the manual loan system.

3.3.1 Loan process in the present system

Below is a summary of the loan process of the present system

Initial conversation

This is the first contact you will have with your Loan officer. We use this
stage to discuss your situation, your needs and objectives behind getting a loan.

Returning your applications and documents

Once you have agreed to apply for loan, you will be asked to compete our paper
application which contains data ranging from name, age, sex, marital status,
nationality, state of origin, Local government identification, email, annual income,
reason for loan, property type and name etc. We will also require supporting
documents such as your income details, documents. By giving us all supporting
documents in one go allows us to give you a quick and accurate assessment.

Preliminary assessment

After we have your application and supporting documents we are able to do a

preliminary assessment of your situation. The preliminary assessment is a very
detailed process where we identify any possible problems from a lending point of
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 view, also identify if there will be risk in the customer paying back the loan. If no
risk is identified the loan is granted.

3.3.2 Managers

Critical issues for the existing system

According to the interviews carried out on Financial institution, it was found out that
most of the managers had been in the institution for a period of 3-4 years. When asked
about the number of loan given out, it was revealed that the institution gives out 3
categories of loans. These include Personal, Household equipment, commercial loans.it
was also paramount for the researcher to know the potential loan applicants. These are
people with good accounts, clients who get salaries through business community. When
asked about how they decide whom to give loan and whom not to give, it was revealed
that age of customers were considered, if his or her age falls below 20 they cannot risk
giving out loan to such customer, it was reviewed in the case of repeated customers, they
looked at their repayment history. If a client has ever defaulted the cannot risk giving a
loan but if he or she has been servicing the loan well, then the give the loan. For the case
of new customers, it is those ones with good performing businesses and good income,
work with a reputable establishment. In order for the researcher to get the requirements
for the proposed system, a question was asked about the features that are missing in the
existing system. 75% of the financial institution managers interviewed reviewed that that
the existing system makes work tiresome on the side of the manager who has to compute
them moreover after being computed by credit officers to check accuracy. If it is error
free, then a decision has to be taken on which is based on the result of the computations.

3.3.3 Credit Officers

Critical issues Registered by Loan officers

An interview with the loan officers regarding whether customers have ever complained
about the existing system, was answered with 100% response yes and the following are
some of the complaints raised.
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 I. Officers takes a lot of time (usually 1-2 months) right from the time a customer
applies up to the time a loan is approved.
II. Customer make unnecessary trips to the institution. This normally comes in if a
credit officer is not knowledgeable about the loan requirement where he tells a
customer to provide for example land title as security and when he brings it, again
he is told to pledge chattels. This disgusts customers as they have to make so many
trips because of failure of the officer to provide full and accurate information in
first meeting.
III. Amount of loan approved is far below the amount applied for and yet there is no
proper justification for that.
IV. No grace for business loan.

Out of many officers interviewed. Some were of the view that the existing system is
cumbersome as it contains repetitive fields and some particulars are irrelevant.

The same percentage also revealed that, there is a lot of bias in the existing system
because once you have a perception that someone is likely not to pay, then you do not
even bother to appraise. Among the solutions suggested were a Proper system to put in
place and the following policy and procedures

3.3.4 Critical issue raised by customers

As far as the customer were concerned, the researcher sought to know whether they had
ever applied for loans. To this, interviewees agreed that they had ever applied for loans
and this was simply because business demands which sometimes cannot be settled out of
their little savings. According to the research findings, among the 60 percent who had
ever applied for loan, only 30 percent loans were approved. Reasons for failure are so
many and these include the following.

I. Business being at premature stages.

II. Not having worthwhile security.
III. Unsounding reasons like failure of a client to pay a tip to a loan officer.

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 From the above reasons raised, almost 80 percent were focusing on tips which calls
for a computerized credit risk evaluation system, those who loans were approved
revealed that, the period in which the loan is approved is too long and at times it may
even be approved when the customer has lost interest and it is no longer valuable and
used for the purpose it was intended for. To this, they added that if a loan was to be
approved in normal circumstances without tipping officers, it could take a period of
2months but since a customer needs money for a specific purpose in a particular time,
he ends up paying something for quick processing.

3.3.5 Observation

Various activities ranging from the distribution of reports, managers behavior in the
office, credit officers behavior in loan department and customer behavior with loan
officers were observed. This was to help the researcher become familiar with financial
institution operations. Observation further enabled the researcher crosscheck for the
validity and accuracy of the information that was gathered through interviews and also
acted as a foundation in designing an appropriate system.

3.4 Strength of the Present System

i) Data loss is less of a risk, particularly if records are stored in a fire-proof
environment.
ii) It enhances personal relationship between the giver and the receiver.
iii) The risk of corrupted data is much less.
iv) The cost of establishing the system is cheaper.
.

3.5 Weaknesses of the Present System

i) it is labour intensive.

ii) Much paper work is involved and writing therefore the work can be very

tedious and tiring.

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iii)Accessing information is slow and not very accurate

iv)Poor record information.

3.6 Analysis of the proposed system

The new system is designed in a way it solves the problems that was detected in the
existing system and this will be implemented with an automated computer system to
detect the credit risk before granting loan to customer.

3.6.1 Solving the issue with the Proposed System

This will be solved by getting rid of the old manual loan and credit evaluation system
by building a computerized system that will perform better than the old system.

3.6.2 Neural network model with the Proposed system

Artificial neural networks can be placed among those of dynamical systems with
processing the experimental data, knowledge beyond transmits data to the network.

Input1 Hidden1

Input2 Hidden2 Output

Input k Hidden k

Figure 3.6.2 Neural network architecture

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(i) Input layer
This represents the loan data attributes that will be inserted into the proposed
computerized system. Financial institution used different attribute in processing
credit data.

No Attribute Name
1 Age
2 Terms
3 Annual income
4 Number of years employed
5 Job
6 Property type
7 Reason for loan
8 Property name
9 Repayment period
10 Phone no
11 Present employment
12 Credit history
13 Loan amount
14 Loan date

(ii) Hidden layer

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 The hidden layer is a bridge between the input layer and the output layer. The
neurons in this layer are fundamentally hidden from view, and their number and
arrangement can typically be treated as a black box to those who are carrying out
the system. The function of the hidden layer is to process the input variables. This
is achieved by summing up all weighted inputs, checking whether the sum meets
the threshold value and applying the transformation function. The
weights between the input neuron and hidden neurons determine when each unit
in the hidden layer may fire or not and by modifying these weights, the hidden
layer may fire or not in other words, the hidden layers learn the relationship
between inputs and outputs in a way similar to that of the human brain by adjusting
the weights during the training process. It is in the hidden layer that neural network
rules are set that detects fraudulent customer base on under age, with low income
rate, to check credit history with institution, to check types of job be done by the
customer in order to minimize credit risk in loan granting.

(iii) Output layer

This layer expresses the result of the Process layer by bringing out result from the
decisions and rules being set in the hidden layer determining if to grant loan to
customer or not to grant loan.

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3.6.3 Flow diagram of proposed system

Start

Loan form
application

ANN PARAMETER SETTING

-Number of hidden layers

-Number of neurons

-Learning rate

Processing & Training Phase

No Accepted

perfomance

Yes
Loan grant

End

Figure (3.6.3) Flow Diagram of the Proposed Model

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 3.6.4 Advantages of the proposed system
i. It is accurate and reliable and also provides quick access to complete and critical
information.
ii. Improved data security: This new system guarantees maximum security of
information; only registered or authorized users are granted access to the
database.
iii. Greater data integrity: This means data cannot be altered or changed by
unauthorized users or hackers
iv. Reduced or minimized redundancy
v. Time efficiency: The time spent in searching manually for information is
reduced.
vi. It can be accessed simultaneously by several users unlike the manual where
files are held up by a department causing a possible stop of operations.

3.7 Description of Input and Output Documents

The description sections of this project is targeted towards discussing how the system
interface is designed for taking in data and how the data is displayed or outputted to
the end users.

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Register Page: The register page shown in the figure below. The register page is
designed with a Php backend. This enables the customer to register in the loan portal to
enable he/her access into the Portal.

Enter Username

Enter Email-id

Enter Password

Sign-up

Login page: The login system is shown in the figure below. The login page is designed
with a Php backend. The User enters his username and password and clicks on the sign
in button, the system processes the data entered and the result is to grant access into the
loan portal homepage.

Username

Password

Sign-in

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 Loan application page: The loan application page form is designed with a Php backend
that enables the client details to be collected and processed with neural network principles
before determining if he/her is credit worthy or not.

First name Last name surname

Name

Age Sex Male Female Marital status

Nationality State of Origin Lga

Phone no Email

Annual income Reason for loan

Job Years employed

Property type Property name

Loan amount Repayment period

employment Loan dat e

Submit

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3.8 Information and product flow diagram

User

Loan application form

Loan neural network

processing

View Data Save data Database

Figure 3.8 information and product flow diagram

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3.9 Specification and Design

System should have a Provision for client to contact help desk by contact form or
email.
System should have a facility for client and financial institution administrators to
view all loan application
System should have the provision for client to access knowledgebase which details
problem and solutions.
System should provide facility for client to give feedback.

Non-functional Requirements

The users of the system should be provided user id and password along with well-
defined access privileges.
24X7 internet connectivity should be provided for well-functioning of the system.
System should be provided with proper backup media and resources to handles
data crash scenarios.

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3.10 High level model of the proposed system

user

Program interface

Login Sign-up

Homepage

Loan
View loan
Application

Database

Fig 3.10 high level model of the proposed system

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