EFFECT OF COMMUNITY BANKS IN RURAL DEVELOPMENT

EFFECT OF COMMUNITY BANKS IN RURAL DEVELOPMENT

CHAPTER ONE

1.0 INTRODUCTION
1.1 BACKGROUND OF THE STUDY
The establishment of community banking in Nigeria was consequent to 1990 budget speech by the president.
Owing to this, the first community bank was established at Alheri Local Government Area of Kaduna State in December, 1990.
A community bank from definition standpoint is a bank for the community purely set up for the development of the rural community. To this extent, the bank is a rural development bank. It is also a self-sustaining financial institution owned and managed by a community or group of communities to provide financial services to that community.
To establish a community bank, a minimum equity share capital of N250, 000 = is required by the community banks implementation committee to process applications for its establishments.
Community banks were established mainly to promote productive activities in rural areas specifically.
They are meant to facilitate the programmes of the Directorate of Foods, Roads and Rural infrastructure by providing easy access to credit of rural producers. Consequently, the Directors of community banks will be expected to take very special interest in knowing about and understanding the details of these programmes and encouraging their customers to enhance their productive capacity through participating in these programmes.
Part of our experience in rural development has clearly shown that efforts are expanding the economic base of the rural area is always backward because of scarcity and restrictive access to loan able funds. In solving this problem, previous government in their economic policies had relied on development banking and rural branch banking of the orthodox banks.
It was however, observed that the sophisticated mode of operation of conventional banks, their legalistic insistence on collaterals and their very limited/geographical coverage rendered them inadequate or incapable of dealing with the unsophisticated rural dwellers and less privileged in our society.
It was the unsatisfactory outcome of the banking systems that prompted Babangida administration to conceive other more appropriate systems of credit delivery, hence, the introduction of community banking in 1990.
The law establishing community banks made it a unit banking institution. This means that it is prohibited from haring branches. Community banks render all banking scheme services except foreign exchange transactions restricted by the law establishing it.
It is also restricted to other lower financial institutions.
Indeed rotating savings and credit association `Isusu` dominated the informal credit system of poor, rural and urban inhabitants and provided a viable structure upon which community banks were built.
The `Isusu`, though it has potentials for providing a viable basis for the evolution of a rural banking system was so tedious and crude. As much, community banks were meant to replace this, and inculcate disciplined banking habits in the rural population.
It was not only that the banking habit of the populace is underdeveloped and naïve, the community banks were reluctant to establish branches in the rural areas, perhaps due to lack of essential amenities. It was this commercial banks non-developmental approach that led to the government’s policy on rural banking programmes.
The programmes made rural banking of conventional banks mandatory. This idea was to compel orthodox banks to open branches in the rural areas of economic development.
Economic development means the process of improvement of the wealth of a country or on its regrinds e.g. by increasing the production of food, etc. building new roads, railways etc. the shift of emphasis to grass root development is a matter of necessity. At the present stage, of our development, projects and programmes cannot achieve any appreciable improvement or impact until they focus on those overall areas.
Otherwise, the masses who are rural based but poverty ridden will continue to weigh down any development aspiration of government. In effect, it is imperative that we lift up the rural low-income segment of the society. If society is to undergo true economic transformation.
Therefore, it is the government’s intent and desire that every Nigerian who is engaged in a productive economic activity must have access to loanable funds irrespective of the size of that desire.
In order to bridge the gap between the conventional banking system and the peoples bank, community banking was put in place.

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EFFECT OF COMMUNITY BANKS IN RURAL DEVELOPMENT