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The Influence of Community Banks on the Economic Growth and Development of Nigeria

The Influence of Community Banks on the Economic Growth and Development of Nigeria

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The Influence of Community Banks on the Economic Growth and Development of Nigeria

ABSTRACT This study examines the impact of community banks on the economic growth and development of Nigeria. Community banks play a crucial role in providing financial services to underserved communities, particularly in rural areas. The study analyses the various ways in which community banks contribute to economic growth,

such as facilitating access to credit for small businesses and promoting entrepreneurship. Additionally, the study explores the role of community banks in fostering financial inclusion and reducing poverty levels. The findings of this study provide valuable insights into the significance of community banks in driving economic growth and development in Nigeria.

Not every Nigerian is fully aware of the significant impact that Community Banks have on our nation and the economic growth and development of Nigeria. Frequently,

the aforementioned phenomenon is perceived as detached and inconsequential by individuals lacking knowledge or interest. We have recently become aware of this financial institution, but have not given much consideration to the processes involved in its establishment or the means by which it is sustained.

Community Banks were founded in Nigeria as a means to address the issue of underdevelopment that has persisted in certain regions of the country since the aftermath of World War II.

The core principles underlying a Community bank involve the establishment of a financially independent institution that is owned and operated by a community or a collection of communities.

Its primary objective is to offer credit deposit, banking, and various other financial services to its members, primarily relying on their self-identification and evaluation of their creditworthiness.

This study comprises five chapters. The initial chapter of this publication presents a comprehensive examination, namely an introduction, of the subject matter pertaining to the analysis of Community Banking.

The present study aims to provide a comprehensive overview of the background, statement of problems, objectives, hypothesis, scope and limitations, and definition of terms.

Chapter two of this study extensively examines various relevant literature from the past, with the aim of facilitating a thorough and comprehensive analysis. Specifically, the chapter focuses on elucidating the objectives and functions of Community Banks, thereby establishing a clear understanding of their reciprocal relationship.

Chapter three of this study focuses on the research design and methodology. It encompasses the method of research design, sources of data, selection of population, sample, and sampling methodologies. Additionally, it encompasses the techniques employed for the presentation and interpretation of data.

The data obtained from the research survey were subjected to analysis and interpretation in the fourth chapter.
The researcher’s fifth chapter culminated in a comprehensive synthesis of the findings, followed by a set of recommendations and a concluding statement.

The study’s primary findings indicate that the Ndiafia Community Banks, which served as the case study for this research, may be characterised as effective and commendable in terms of its service provision. This is clearly demonstrated by the bank’s performance since its establishment.

Chapter One: The Impact of Community Banks on the Economic Growth and Development of Nigeria Introduction
1.1 Background of the Research

In Nigeria, as well as in other developing countries, there exists a persistent issue regarding the extension of credit to rural residents, who typically constitute a significant portion of the population.

These individuals face challenges in accessing credit due to their inability to provide the substantial collateral demanded by traditional financial institutions.

Consequently, successive Nigerian governments have made consistent efforts to address this situation. The financial requirements of individuals residing in rural areas present a dual challenge due to the inherent risks associated with extending credit,

as well as the inefficiency resulting from a high volume of accounts with relatively little balances. Additionally, the lack of access to credit among these groups exacerbates the cyclical nature of poverty within the economic system (Ugwuoke, 2000, p. 21).

Nevertheless, the economic foundation heavily relies on the progress and growth of these rural regions, which are inhabited by the bulk of the people. The Community Bank was established with the objective of enhancing its grassroots economic development initiatives (YOKUBU M.O. 2000, p. 36).

The primary principle underlying the establishment and functioning of the Community banking system revolves around the notion of an autonomous financial institution, owned and operated by a community or a collective of communities. Its main objective is to offer credit, deposit, banking, and additional financial services to its members within the designated region.

The provision of these services is primarily based on the members’ self-identification and evaluation of their creditworthiness. The practise of granting credit based solely on near absolute reliance contradicts its original purpose, which was to establish a system that safeguards banks.

A community or a group of communities may establish a bank with the aim of promoting rural development and improving the economic status of small-scale producers in both rural and urban areas.

This bank would focus on enhancing the rapid development of productive activities, particularly in rural areas, to support desirable and sustainable rural economic growth in Nigeria.

These banks, which are licenced under individuals, accept various types of deposits such as savings, time, and target deposits. They also issue redeemable debentures to interested parties for the purpose of raising funds.

Similarly, the establishment of Community Banking gained momentum in 1990 when General Ibrahim Babangida, the President and Commander-in-Chief of Nigeria, declared during his annual budget speech the implementation of the Community Banking system within the Nigerian Financial system.

The Community Bank Implementation Committee (CBIC) was established to oversee, promote, monitor, and develop the Community Bank Act. It operates under the authority of the National Board for Community Banks (NBCB) and the Central Bank of Nigeria (CBN) (Ukamenam C. O. 2001, p. 9).

1.2 Statement of the Problem
a. One of the primary challenges faced by community banks is effectively utilising the substantial resources available for the development of rural areas, considering that these resources are held in small quantities by a large number of rural residents.

The banking sector, being a key driver of a nation’s economic activity, is considered the most promising sector to achieve this aspiration. However, in the specific context of Nigeria, particularly in Enugu Urban,

there are significant challenges faced by community banks. These challenges include the vast land area and the income base of the region, as well as the prevalent issues of ignorance and illiteracy among the majority of the population that the banks serve.

Additionally, there is a lack of adequate infrastructure facilities, further complicating the task for community banks.
Another significant issue pertains to the lack of deposit security for customers of community banks, in contrast to the deposit security provided by commercial and merchant banks.

Furthermore, the prevailing economic distress syndrome has significantly undermined the level of trust and confidence in the banking sector. The once prevalent notion in rural areas that those working in banks are associated with higher spending is no longer fashionable or widely accepted.

This is due to the realisation among villagers that banks, which were previously seen as secure repositories of money, can now disappointingly result in empty-handed visits to the store.

Restoring this lost confidence will require significant time and effort. Both community banks and certain troubled commercial banks are currently ill-prepared and lacking the capability to reinstate this confidence.

Lastly, there is a notable absence of banking practises among rural residents who continue to rely on traditional methods of savings accumulation, such as the daily savings method or communal gatherings.

In what ways may financial institutions alleviate the concerns of individuals residing in rural areas, fostering their trust and encouraging utilisation of the services offered to improve their well-being?

1.3 Purpose/Objective of the study

The primary aims of this study are to assess and analyse the impact of financial banking services, including credit and deposit services, on the promotion of rural development. Additionally, the study aims to evaluate the provision of additional related facilities to communities that already have sufficient access to such services.

To ascertain and evaluate the impact of Community Banks on the organic economic growth, and to assess the efficacy of these innovations in mitigating rural economic development challenges.

The objective of this study is to promote the adoption of disciplined banking practises among low-income workers in Nigeria, particularly those residing in rural regions. It is anticipated that by the conclusion of this research, potential solutions for rural economic development will be found.

The accelerated progress of productive activities in both rural and urban regions has led to the advancement of the economic conditions of small-scale producers operating within the informal sectors of the national economy.

The promotion of a sense of communal responsibility, as well as the utilisation and upkeep of economic resources, facilities, and institutions in a manner that ensures long-term viability.

The promotion of an efficient and cohesive national financial system that caters to the needs of the entire economy, particularly at the local community level.

1.4 Research Questions
This study aims to investigate the challenges related to investment operations of community banks and their subsequent effects on the rural economy. As previously said, this research focuses on select banks in Nigeria.

Please provide your comments to the questionnaire in an objective manner, as all information shared will be handled with utmost confidentiality. Your objective response to this remark, without any bias, would be greatly welcomed.

Thank you for your cooperation.
Do you believe that your financial institution has the capacity to incentivize rural residents to participate in investment activities through the utilisation of nearby banking services?

(ii) Can banks contribute to the improvement of rural economic growth through investments in rural infrastructure?

(iii) Does your organisation acknowledge the significant issue of widespread ignorance and illiteracy among the residents?

(iv) Does the community bank provide and promote insurance and security options to investors at a standard level?

What is the typical requirement of collateral by your bank prior to approving loans for investors?

Does your bank offer specialised financial guidance to beneficiaries in managing their funds?

1.5 Research Hypothesis

The following hypotheses have been formulated for analysis.
There is little evidence to support the existence of a meaningful correlation between the formation of Community Banks and the growth of small-scale companies.

H1 – The existence of a substantial correlation between the formation of community banks and the expansion of small-scale companies.

The construction of community banks in Nigeria, particularly in the urban area of Enugu, has not resulted in a significant rise in awareness and utilisation of financial services among the population.

Title: The Impact of Community Banks on Banking Services Utilisation in Enugu Urban, Nigeria Abstract: This study examines the influence of the establishment of community banks on the awareness and utilisation of banking services among the residents of Enugu urban, Nigeria. Introduction:

The introduction of community banks in Enugu urban has resulted in a notable rise in the awareness and usage of banking services by the local population. This paper aims to investigate the extent to which the establishment of community banks has contributed to this increase in awareness and utilisation of banking services.

Methodology: A mixed-methods approach will be employed to gather data for this study. Quantitative data will be collected through surveys administered to a representative sample of residents in Enugu urban. Additionally, qualitative data will be obtained through in-depth interviews with key stakeholders, including community bank officials and customers.

Results: The findings of this study will provide insights into the impact of community banks on the awareness and utilisation of banking services in Enugu urban.

It is anticipated that the results will demonstrate a positive correlation between the establishment of community banks and the increased awareness and usage of banking services among the local population

The level and extent of services offered by these banks in Enugu urban have failed to align with the aims of Community banking.
H1 – The extent and quantity of services offered by these banks in Enugu urban have demonstrated the fulfilment of the aims of Community banking.

1.6 Significance of the Study

This research endeavour has the potential to provide valuable assistance to the government, particularly the rural development authority, by enabling an assessment of their performance in the realm of rural economic development.
It would also be quite beneficial for community banks to assess their performance and make improvements in areas where performance is lacking.

Therefore, it can be inferred that this will yield advantages for the general public as well as have significant value for individuals engaged in research pertaining to the relevant subject matter.

This study holds significant importance for the broader economy as it pertains to the provision of urban amenities to rural communities, a crucial aspect of economic development. This measure will partially limit the customary migration of rural residents to metropolitan regions.

The implementation of movement restrictions is expected to have significant impacts on agricultural and industrial sectors, resulting in substantial changes in production levels.

Additionally, it is anticipated that this measure will facilitate the development of a robust and cohesive national financial system that is capable of effectively addressing the requirements of the entire economy.

1.7 Scope and Limitations of the Study

The purpose of selecting this research endeavour is to examine the contribution of community banks to the economic growth and development of Nigeria.

In the course of performing this research, the researcher encountered a significant challenge. Specifically, the researcher had to navigate the constraints imposed by restricted financial resources,

given the high costs associated with stationery and transportation.
The presence of secrecy inside the financial institutions of the country is a significant challenge.

This secretive behaviour has led to a lack of accessible data on this matter. The completion of the task is required within a single academic year, while attending lectures and participating in examinations.

Despite these limitations, the researcher has successfully conducted a well-articulated study that contributes to the existing body of knowledge on rural economic development and the overall national economy.

1.8 Definitions of Terms
Community Banks: A community bank refers to a financial institution that has been founded with the primary objective of addressing the savings and credit requirements of small-scale producers across the nation.

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