AN APPRAISAL OF COMMUNITY BANK CONTRIBUTION TO RURAL ECONOMIC DEVELOPMENT

CHAPTER ONE

INTRODUCTION

1.1    BACKGROUND TO THE STUDY

The past approach to development focused attention on the development of urban centuries at the gross expenses of rural areas. Nigeria being a developing country with at least seventy five percent of her resources endowment abounding in the rural areas can achieve no meaningful self sustaining development without the rural masses being effectively mobilized genuinely, motivated and properly organized for productive activity.

Olulade (1987:6) noted that most expert on rural development are of the opinion that the failure to develop the productive potential of the rural masses was responsible for the failure of past rural development programmes in Nigeria.

This realization has been the brain behind the strong effort of the federal government of different regime to search for ways to monetize the rural economy and thereby promoting productive activities in the rural areas. This cannot be achieved without adequate provision of loan to the rural populace.

Awka community bank was founded in the year 1991. the ex-president, General Ibrahim Babangida (1992:10) in his address at the commissioning of the first community bank in Nigeria, observed that effort at expanding the economic base of the rural areas always flounder because of scarcity pf loanable fund and mobiliser and dispenser of fund, banks are best suited for this role of providing fund for economic activities.

To solve this problem of inadequate provision of fund for development of economic activities in Awka community and other rural areas, the federal government economic measures or rural banking programme, selective credit guideline, establishment of co-operatives and finally, the establishment of people’s bank. These measure were applied with the aim of ensuring that credit and funds reach a lot of people at their desired sectors.

Despite all the effort made, the initial complaint resurfaced. They were as follows: conventional banks were people able to service the credit need of the rural people and the small-scale business. Ogubanjo (1985:78) stated that “the cry of most indigenous businessmen especially small-scale business), is the inadequacy of bank to finance and grant credit”.

Actually, this problem was beginning to paralyze the programme of the Directorate of Food, Road, and Rural Infrastructure (DFRRI)which was constrained towards the end of 1989 to address a memorandum to the then president of Nigeria, General Ibrahim Babangida, proposing the critical needs to establish a nove financial institution to be known as community banks (Mabogunje:1991). It was against this that Awka community bank was established and also other community banking system. It was established by section 37; decree no: 46 for the purpose of:

a.                    Promoting rural development through the provision of finance and banking service.

b.                   Enhancing the rapid development of productive activities especially in the rural and urban areas.

c.                    Improving the economic status of small-scale producer both in the rural and urban areas (community bank decree:1992).

Finally, it is generally expected that with the inauguration of community banking system, that the problem of inadequate provision of loanable fund to Awka community and other rural areas as well as the small-scale business will be a thing of the past. Presently, there are about 1014 community banks already in operation (2000), inclusive of Awka community bank (1991) (NBCB, 2000).

This study is therefore aimed at appraising the contribution of community bank, towards rural economic development using Awka community bank as case study.

1.2    THE STATEMENT OF THE PROBLEM

The problem inadequate provision of capital for economic activities in the rural areas has been a coq in the wheel of real development in the nation. Awka community bank due to their limited geographical coverage, legalistic insistence on collateral securities and other stringent loan conditions have failed to meet this need, despite the mandatory rural branching policy (Babangida : 1990). Ogubanjo (1985) referred to the loan condition as financial terrorism.

In the light of the current failure of banks and financial institutions, the objective of setting up community banking scheme, the rate at which people are embracing the idea of community banking, the rate at which they are also setting up their own banks, their high expectation from the scheme, the fact that most community banks already commissioned are urban based, the recurrent allegations of shady deals and distress in some community banks, a number of questions readily come to mind. Have Awka community bank been able to meet peoples’ and government expectation? Do people still have confidence to them as a mean of rural economic development? Are they maintaining the rural focus of the scheme?

Based on the foregoing, therefore, the study was designed to evaluate the contribution of Awka community bank toward rural economic development and also highlight some problems encountered by the bank in their effort to extend loan to the rural masses.

1.3    PURPOSE OF THE STUDY

The main aim of this study was to find out the extent to which Awka community bank has been able to meet up with the expectation from them as a strong tool for promoting productive activities in the rural areas.

Specially, the study was aimed at finding out the following:

1.      The extent to which Awka community banks are providing for the credit needs of the rural masses and small-scale businesses.

2.      How they are helping rural economic development efforts through their lending scheme or policy.

3.      Appraisal of the methods of determining credit worthiness of their customer.

4.      The step which they are taking to assist their customer to become more credit worthy.

5.      Whether they are maintaining the main rural focus of the scheme.

6.      The advantages of Awka community bank managers believe that community banks have over other community banks in terms of reaching the rural people with banking services.

7.      The issues and problems that militate against community bank’s lending and make suggestions and recommendation where necessary to alleviate the problems so identified.

1.4    SCOPE OF THE STUDY

This is a survey study on Awka community bank with specific regards to their lending functions. To facilitate the study I have limited myself to Awka community bank already in existence (1991). My criterion for differentiating between rural and urban areas being as the National Board of Community Banks (NBCB) has differentiated between rural and urban.

1.5    SIGNIFICANCE OF THE STUDY

The following interest groups are expected to benefit from the finding of this study: First is the manager of Awka community bank is from Anambra state. The National Board for Community Banks (NBCB) who though may have the figures on community banks lending yet may not have all the pieces of information elicited in the primary data and so may use that for improvement to ensure that the aims of the scheme is achieved.

Also, the federal and state government, the community leaders, and the entire masses of people who have reposed such confidence and expectation on the scheme as a panacea to all financial problems of the rural masses may want to know the extent to which their expectation is being met.

Finally, it is expected that the finding of this study will be a useful tool for further studies in this field and will also act as a warning, encouragement and guide to any potential community bank in Nigeria, including Awka community bank.

1.6    HYPOTHESIS

There are 5 hypothesis tested in the study they are:

1.      Receiving loan from Awka community bank is independent of one’s level of education.

2.      A customer’s credit worthiness in Awka community bank is independent of his major occupation.

3.      Receiving loan from Awka community bank is independent of the length of time one has been their customer.

4.      Awka community bank lends according to the specified average to the preferred stocks (here I tested two sectors-agriculture and production).

5.      The lending philosophy of Awka community bank’s is helping rural economic development.