AN APPRAISAL OF COMMUNITY BANK CONTRIBUTION TO RURAL ECONOMIC DEVELOPMENT
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AN APPRAISAL OF COMMUNITY BANK CONTRIBUTION TO RURAL ECONOMIC DEVELOPMENT
ABSTRACT
The failure of traditional banks to encourage rural economic growth over the years prompted Nigeria’s federal government to establish the community banking system in 1990. Community banks were supposed to be used to enhance rural economic growth by extending loans to rural economic masses and small-scale enterprises. The poor state of our rural economy is owing to a lack of funds and the enormous expectations placed on this system.
Community banks as a possible solution or cure to this problem piqued my interest in doing this research. The purpose of this research is to look into the role of community banks in rural economic development. Six hypotheses will be developed in order to carry out the research.
It will be gathered from a survey of the literature. There will be two types of structured questionnaires (one for managers and one for customers) used to collect relevant primary data from a sample of 100 customers and six managers chosen at random from the population.
At the 0.05 level of significance, the chi-square will be used to test the null hypothesis. I will investigate the bank’s existing lending practises and their impact on the advancement of rural economic development.
My findings from the study will be used to make recommendations.
INTRODUCTION TO CHAPTER ONE
1.1 BACKGROUND OF THE STUDY
The previous approach to development prioritised the growth of urban centuries at the expense of rural regions. Nigeria, a developing country with at least 75% of its resources endowed in rural areas, cannot achieve meaningful self-sustaining development unless the rural masses are effectively mobilised, motivated, and properly organised for productive activity.
According to Olulade (1987:6), most rural development experts believe that the failure of previous rural development efforts in Nigeria was due to a failure to enhance the productive capacity of the rural masses.
This realisation has been the driving force behind the federal government’s efforts under various regimes to find ways to monetize the rural economy and hence promote productive activity in rural areas. This cannot be accomplished unless appropriate loans are made available to the rural population.
Awka Community Bank was established in 1991. In his address at the commissioning of Nigeria’s first community bank, ex-president General Ibrahim Babangida (1992:10) observed that efforts to expand the economic base of rural areas always fail due to a scarcity of loanable funds, and banks, as mobilizers and dispensers of funds, are best suited for this role of providing fund for economic activities.
To address the issue of insufficient funding for economic development in the Awka community and other rural areas, the federal government implemented economic measures such as a rural banking programme, selective credit guidelines, the establishment of co-operatives, and, finally, the establishment of a people’s bank.
These measures were implemented in order to ensure that loans and finances reach a large number of people in their desired industries.
Despite all efforts, the original complaint reappeared. They were as follows: traditional banks were people who could provide the financial needs of rural people and small businesses. According to Ogubanjo (1985:78), “the cry of most indigenous businessmen, particularly small-scale business), is the inadequacy of banks to finance and grant credit.”
Actually, this problem was beginning to stymie the programme of the Directorate of Food, Road, and Rural Infrastructure (DFRRI), which was forced towards the end of 1989 to address a memorandum to Nigeria’s then-president, General Ibrahim Babangida,
proposing the critical needs to establish a new financial institution to be known as community banks (Mabogunje:1991). Awka Community Bank, as well as other community banking systems, were founded in response to this. Section 37; decree no: 46 established it for the purpose of:
a. Fostering rural development through the supply of finance and banking services.
b. Accelerating the development of productive activities, particularly in rural and urban areas.
c. Improving the economic situation of small-scale producers in both rural and urban areas (community bank decree: 1992).
Finally, it is widely anticipated that with the establishment of a community banking system, the problem of insufficient provision of loanable funds to the Awka community and other rural areas, as well as small-scale businesses, will be a thing of the past. Currently, there are around 1014 community banks in operation (2000), including Awka Community Bank (1991) (NBCB, 2000).
This study aims to assess the role of community banks to rural economic development by utilising Awka Community Bank as a case study.
1.2 A STATEMENT OF THE PROBLEM
The problem of insufficient capital for economic operations in rural areas has been a cog in the wheel of national real development. Despite the mandated rural branching policy, Awka community bank has failed to address this requirement due to its restricted geographical coverage,
legalistic insistence on collateral securities, and other stringent loan criteria (Babangida: 1990). The loan condition was referred to as financial terrorism by Ogubanjo (1985).
In light of the current failure of banks and financial institutions, the goal of establishing community banking schemes, the rate at which people are embracing the concept of community banking, the rate at which they are also establishing their own banks, their high expectations from the scheme,
the fact that the majority of community banks already commissioned are urban based, and the recurrent allegations of shady deals and distress in some community banks,
a number of questions read Have Awka Community Bank met the expectations of the people and the government? Do people still trust them as a means of rural economic development? Are they keeping the scheme’s rural focus?
Based on the preceding, the study was aimed to analyse Awka Community Bank’s contribution to rural economic development and to highlight some of the issues encountered by the bank in its efforts to extend loans to the rural masses.
1.3 OBJECTIVE OF THE STUDY
The primary goal of this study was to determine the extent to which Awka Community Bank met their expectations as a strong tool for boosting economic activities in rural areas.
The study was specifically designed to discover the following:
1. The extent to which Awka community banks meet the credit demands of the rural people and small companies.
2. How their financing strategy or policy contributes to rural economic development activities.
3. Evaluation of their customer’s creditworthiness determination procedures.
4. The steps they are taking to help their consumer become more creditworthy.
5. Whether they intend to keep the scheme’s primary rural focus.
6. The benefits that Awka community bank managers believe community banks have over other community banks in terms of providing banking services to rural residents.
7. The concerns and problems that impede community bank lending, and give suggestions and recommendations to solve the problems identified.
1.4 SCOPE OF THE STUDY
This is a survey research on Awka community bank, with a focus on their lending services. To make the analysis easier, I limited myself to Awka community banks that were already in operation (1991). My criterion for distinguishing between rural and urban areas is the same as that used by the National Board of Community Banks (NBCB).
1.5 SIGNIFICANCE OF THE STUDY
The following categories are predicted to benefit from the study’s findings: The manager of Awka Community Bank is originally from Anambra state. The National Board for Community Banks (NBCB),
which may have figures on community bank lending but may not have all of the information elicited in the original data, may use it for improvement to guarantee that the scheme’s objectives are met.
Also, the federal and state governments, community leaders, and the entire masses of people who have placed such trust and expectation in the scheme as a solution to all of the rural masses’ financial difficulties may wish to know to what extent their expectations are being satisfied.
Finally, the findings of this study are likely to be a useful tool for future research in this sector, as well as a warning, encouragement, and guide for any potential community bank in Nigeria, including Awka community bank.
HYPOTHESIS 1.6
The following hypotheses are tested in the study:
1. Receiving a loan from Awka Community Bank is unrelated to one’s educational level.
2. A customer’s creditworthiness at Awka Community Bank is unrelated to his primary occupation.
3. Receiving a loan from Awka Community Bank is not contingent on the length of time one has been a customer.
4. Awka Community Bank lends to preferred stocks based on the stated average (here, I tried two sectors: agricultural and production).
5. Awka Community Bank’s lending policy promotes rural economic development.
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