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EFFECT OF COMMUNITY BANKS IN RURAL DEVELOPMENT

CHAPTER ONE

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.

1.2 STATEMENT OF PROBLEM

Though, much effort are being put by government in the formulation of policies which are geared towards improving upon the economic status of the rural people, certain factors militate against it. The essence of community banking is to enhance development in the rural communities, but from operational standpoint community banks show little or no effort to this affect. Funds are granted to customers, collaterals are required from them by commercial banks this is also the same with community banks. But not all rural dwellers are able to afford collateral (s) in return for a credit facility. This bank are also not experienced as the foreign banks in the art of banking and as a result of inability, lack adequate capital to meet a tenable operational standard. This inadequate capital makes it possible for there to be inadequate grant of loans to rural dwellers. The low savings of the people means that there is little to put into the banks, this creates more problems for the community banks.  Besides, these problems facing community banks, rural dwellers have the conception that banks are for rich and elites of the society given the fact that the community banks have met employed trained personals who could disseminate proper banking information to the rural populace. For the sake of this study, the following statement of problems need to be given significance: I how can loanable funds be made accessible to rural borrowers to enhance their economic activities? ii. By what means can the loans be secured other than asking for tangible security which may not be provided by the rural dwellers? iii. How can rural banking habits be improved to assist in rural development?.

1.3 OBJECTIVES OF THE STUDY

The main thing which this study wants to unravel is to examine the impact of community banks in rural development, a case study of Uli Community bank, Ihiala Local Government Area of Anambra State. Sequel to this major purpose, the study would find out if:

(a) Community banks really this charge their duties, which includes financial services to the rural communities.

(b) Community banks inculcate the banking habits to the rural dwellers, thereby bridging the credit gap of the communities.

(c) The availability of the loans have reduced the rate of rural to urban migration and how can the loans be secured without asking for tangible collaterals, 

(d) Granting of loans to rural dwellers has any effect on the employment level. The attitude of the rural dwellers to the public money affects the level of loans available for borrowing.

(e) The community banks are carrying out its performances of command/development in terms of savings mobilization and finance economic development.

1.4 SIGNIFICANCE OF THE STUDY

This study will go a large extent highlighting the proper roles of community banks in their areas of operations. Hence, it is the community development/association that is regarded as the primary promoter of a community bank in Nigeria. It is, therefore, hoped that the result of this study will influence community banks into improving their efforts and also help in carrying out their performances effectively, since the poor masses rely on them. In fact, when talking of community banking, it should be understood by the populace convincingly as an agent of grass root development and a means of internalizing banking habits to the rural people and without, will hinder the purpose of community banking which is mobilization of savings and finances of economic activities. Nevertheless, it is pertinent for us to know the effect of community Banks in rural development.

1.5 RESEARCH QUESTIONS 

1. Has the establishment of community Banks enhanced the development of banking habits among the rural dwellers? 

2. Does the issue of collateral impede the growth of economic activities in the rural areas? 

3. Does Uli Community Bank general employment in her area of location?

4. Are Community Banks Limited in any way to their service to the rural dwellers?

1.6 SCOPE OF THE STUDY

The scope of this study is based on the impact of community banks in rural development and makes a through examination on how loanable funds are made accessible to rural dwellers.

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