THE IMPACT OF MICRO FINANCE BANK ON THE ECONOMIC DEVELOPMENT OF THE RURAL POPULACE (A CASE STUDY OF AGBENI COMMUNITY BANK, OYO)

ABSTRACT

This work is designed the bureaucratic process involved on the impact of microfinance bank on the economic development of the rural populace. A case study of Agbeni Community Bank. The nature and future prospect on the impact of microfinance bank of economic development is also examined in this research work. This project work is hereby divided into five (5) chapters. Chapter one talks about the introductory aspect of the study, the background of the study, statement of the problem, the purpose of the study, scope, limitation of the significance of study, the research question, research hypothesis, the historical background of the study and definition of terms. Chapter two deals with the literature review. Chapter three discusses the research methodology used, instrumentation and research design, sample and sampling techniques and population size and sample size.  Chapter four covers the data collection, data analysis and data interpretation. Chapter five efforts are made to drawn conclusion, recommendations and while references brings and the research work.

CHAPTER ONE

1.0       INTRODUCTION

The failure of the mainstream banking has led t o development of specialized bank such as community banks, people’s bank, development bank among others. These institutions constitute the new dimension in banking.   

Commercial and merchant bank which are reflected here as mainstream banks are important intermediaries of credit for all sectors of the economy. The Irony of the situation is that the banks re not interested in investing in productive sector of the economy rather they are interesting in investment that will bring a quick return banks for urban center,, their intermediating activities led in the marginalization of the rural centers and their populace in terms of development. 

As rightly noted by “Ojo” that the role of the financial system in Nigeria leaves much to be desired sin term of financing economic development and presenting the country’s industrialization process. The maladapted structure and functioning of banks and other financial institutions have not significantly improved since independence three-decade age. These short stated led to conventional banks as earlier stated led to the development of people oriented banks like community with basic needs of majority as the focus.

With high concentration of mainstream banks in urban centers and a programmed which in 1977 to converse mainstream bank establish by the end of phase 3 June 1993 total deposit incred to 1.3 billion and total stood at #5.1 billion despue these statistics actual impact on peasant agriculture and rural development was negligible as banks complain of lack of infrastructure and security.

Hence, the introduction of community banks as one of the institutions designed to current malfunctioning of the rural banking scheme became.

1.1       BACKGROUND OF THE STUDY

Community banking is a form of specialized unit banking, community bank is a work of directorate of food, roads and rural infrastructure (DERRI). DFRRI as it is now more community known, has three fundamental mandates firstly,

It was organize and mobilize Nigeria rural communities for developmental activities.

Secondly, it was to provide these communities with infrastructure facilities notably roads, water and electricity. Thirdly, it was to provides and enhances productivity among the rural populaces as means of raising their per capital earning and income. In a bid to execute its third mandate of promoting productive activities among the rural populace DFRRI was faced with the difficulty of resolving the problem of how to ensure easy access to credit for the masses of the rural populace.

It is clear and evident that without the resolution of this problem of credit provision no wide ranging productive development can be expected in the rural areas. Various representative of commercial, merchant and rural development banks as to how to make their credit provision process more appropriate to the circumstances of the majority of our rural populace but these led no where. As a way out of this imbroglio, the idea of a different and revolution any approach to the problem was conceived, articulated presented and to approve by only the government authority in the country namely the central bank of Nigeria and the ‘baby’ child was christened community bank of Nigeria. 

The community bank is the child of the 1989 Budget speech of the president Ibrahim Badamaosi Babangida. It was introduced fully in the 1990 National Budget to provide rural populace financial services to any defined local community bank is one of the institution designed o current and functioning at the rural bank scheme.

The objectives of setting up the community bank scheme includes; 

1. Facilitation of productive responses to the identification needs of the community especially in the rural areas.  

1. Promotion of a national financial system that integrate all factors at various level of government.  

Community bank is a development needs of the local community. The guiding principles in the establishment of the community bank are self help and community participation. As a result is expected to lead mainstream bank in it’s locality.  

Community banking becomes effective in Nigeria when Professor Akim Mabogunje led National Board for bank was inaugurated on 16th July, 1991. The Board was to licensing and supervision body for the licensing and supervision of community bank in the country. The board has zonal office in Lagos, Kaduna, Enugu and Bauchi and the headquarted presently is in Abuja.

The first community bank o be commissioned was the Alheri community bank in Kaduna since then, various other community bank has been commissioned nation wide. As at May 1997, there were about 158 community bank in the country while the board has received about 2,000 applications. 

1.2            STATEMENT OF THE PROBLEM  

Community banking in Nigeria through young in the banking sense, is defeated by some problem. In the section, attempt is made at identify some of the problems that community bank is facing now ad may come to face with time suggesting possible solution. One of the problems that community bank may come to face with time is with the quality of their personnel at personnel at present especially for community in the south it was made possible because of loyalties of battered but experience staff. Not many communities in the northern part of the country are so fortunate in the respect. In this regards, the National Board for community which has opened training department which is working closely with financial Institution Training Centres (FITCS) to provide short terms in services training for various categories of staff of community banks. They have also opened negotiation with Polytechnic Department of Business Administration and Management to run Special programme or include some elective on community banking in their programme.

The very urgent problem as identified by many chairman of community bank at present is their relationship with their corresponding banks. Most conventional banks sees the existence of community banks as a threat and as such they do all things within their power to disturb their growth.

This is true of local braches of some community banks who sees community bank as competitor or worse still as threat to their own performance. As much although they accept to serve as correspondent bank they do everything to frustrate community bank. They insist for instance that no reduction can be made to the # 3 per mile commission on turn over and often keep out of tome cheque for upwards of a month.    

As noted by Chief Alata, chairman Ogbomosho Community Bank “most correspondent bank which community banks are currently charging the same N3 on very N1,000 as commission on turn over like the central banks.

The resultant effect is that these banks merely work for these correspondent bank to make more money without remuneration and this situation negates the intention of the federal government in establishing the bank. He went further to suggest solution this problem “for community banks operating in the country to have direct entry into the clearing house to enable them to have equal access like the correspondent banks”. In the alternative, he implored the board to instruct to correspondent bank in charging only #1.50 at most on every #1,000 as commission on turn-over.

Speaking on the same issue, Mr. Bimbo Folashade of Gbagi Community Bank called on the National Board for Community Banking to establish clearing house without delay. As do away with the clearing cheques. As observed by others, such discourage behaviour is of course not true for every correspondent bank, some communities have every cordial and supportive relationship with them usually on this basis of mutually profitable negotiation.

Furthermore, some communities bank particularly not happy about their being excluded from the foreign exchange market. It is believe that this was based on their knowledge of the case with which conventional bank making wind fall, gain from this source nonetheless many are accepting that their claim to foreign exchange will be strengthened as they encourage community producer to produce or export initial at least to the ECOWAS countries parts of the training which National Board for community in their matter of exports.

Finally the problem of how community Bank will meet the standard of banking, risk, liquidity solvency, capital adequate and safety of deposits should not be considered to early but should be addressed. It will be realized that some community’s banks have folded up because of one of the other problems. As stated by Professor Akin Mabogunje “The National Board for community banks is very close with both the central bank of Nigeria and Nigeria insurance corporation to see what type of regulatory framework may help to force stall the incidence of any of these problems. Already it has agree that the deposit liabilities of a Community Bank reaches #5 million deposit marks such a bank will have to take out necessary deposit insurance with NDIC. Similarly, a rule of thumb ratio of 30 percent liquidity s being enhanced among the banks.

The NDIC participates in the induction programmes for chairman and managers of Community Banks and user the opportunity to stress to them the importance of paying attention to their asset classification and the prudential ration. The monthly returns from the banks also require them to give the maturity profile of their assets and liabilities. With the activities of the inspectorate Department of the National Board for community Banks. One can expect that the time would come to better appreciate the details of problems that may come to be specific community Banks and to prepare to deal creatively and expeditiously with them.

1.3            PURPOSE OF THE STUDY

The fundamental purpose of this study is to x-ray community banking in Nigeria viz-a-viz its historical background and evaluate its impacts in the economy development of the rural populace. Also, the problems of community banks now and the nearest future is looked into suggestions to over come these problems are offered.

1.4            SCOPE AND LIMITATION OF THE STUDY

1.4.1         The scope of the study of this project is to examine the function of the community banking using community banks as a case study. In relation to their customers and to examine their contribution to the growth of the rural populace.

Functions of the community banks can be enumerated as follows:                                                     

1. Community banks enlighten the community on the effective so as enhance individual collective, community and development.     

1. Operate equipment leasing facilities and supervise credit scheme to ensure access of its customers to inform inputs including access of its customers to form inputs including financing inputs purchase on a consignment basis, for group of clients.

1. Receive refinancing or public on term mutually acceptable to both the provide of the fund and recipient community banks.

1. Perform non-banking functions that promote rural populace development such as supporting individual, co-operative and group formation, activities, assisting clients in marketing of agriculture, rural industrial an other products and providing financial other extension services to clients and other community members.

1. Maintain and operate various types of accurate with or for other banks in Nigeria.

1.4.2         LIMITATION OF THE STUDY

There are many limitations which hinder the effectiveness of this research. These are financial factor, time constraints, inadequate, equipment, uncooperative attitude of the workers and transportation problem.

Financial Problem: One of the major set backs facing the researcher is that finance inadequacy. To say categorically that the cost used in carryout this case study runs thousand of naira is not an overstatement. This money is contributed by the researchers and being student and wholly dependents, these funds were not gathered on time. This is many ways retard the progress of his case study.

Time Constraints: Another prominent obstacle faced by the researcher is that of time factors, there is no enough time for the school management, the semester calendar is 100 short not only, the researcher is equally faced with (9) Nine additional courses offered with this study. Most cases, there was restriction on planning an traveling because of the need to attend other course the research lacked exposure and awareness of the study. With this a lot of time were spend seeking information and guidance regarding the writing of the case study.

Inadequate Equipment: This is another major problem encountered by the research. At the writing of this case study as there were not textbooks and other related materials on the topic. This had created additional burden and expenses for us in looking else where for information and relevant text for the study.

Uncooperative Attitude of Some Banks Officials Visited: Initially, this banks has been chosen for some of these banks is not an easy task for which most of the banks terms secretary or on go area, this services as the only bank for which adequate information needed is obtained.

Transportation Problem: During time of caring out his case study, the country as a whole was facing a lot of transportation problem as a result of fuel scarcity long queues of vehicle and restricted traveling as there are never vehicles on the road.   

1.5            SIGNIFICANCE OF THE STUDY

The significance of the study are too numerous to be over emphasized.

Those are:

1. To generate more customers to the microfinance banks in the rural populace

1. To educate the public as to what receivable are, the significance of receivable to banks and its managements of course, banks receivable are not only notes and coins deposited to bank by customers.

1. To comprises non-cash services such as operation of cheques system use of credit clearing systems such standing orders and direct debts as well as other valuable materials deposited in the banks for security purpose receivable are bank assets.

1.6            RESEARCH QUESTIONS

The research questions used are as follow:

1. Do you have more than one microfinance bank?

1. Have you obtained loan from microfinance bank? 

1. Was the loan obtained spend on a project.

1. Is the interest on loan of the microfinance bank favourable?

1. What is the percentage used on money that is lent out?

1. What are the ways or strategies used in getting more customers?

1.7            RESEARCH HYPOTHESIS

Research hypothesis used are:

 Ho:  There is a significance relationship microfinance bank and rural economic  development.     

 Hi:There is significant relationship between microfinance bank and rural economic development. 

Ho: There is no significant relationship between microfinance bank and favourable interest on loans.

Hi:  There is significant relationship between microfinance bank and favourable interest on loans.

1.8            HISTORICAL BACKGROUND OF THE STUDY

This era is regarded to as free banking era.

This period was characterized by two main features the first is the absence of banking legislation where anybody could set-up a banking business provided he registered under the company ordinance.

The second feature was establishment of the three biggest foreign banks which are the bank of British West Africa (1894) which is known as First Bank of Nigeria limited, the Bar-United bank of Africa (U.B.A). the African continental Bank Limited.   

1.9            DEFINITION OF TERMS

Bank: Banks and other financial institution Decree (BOFID) 1994 defines a bank as a business organization that is engaged in the acceptance of deposited paying collection of cheques, provision of financial services and other business designated by Central bank of Nigeria.

Banker: The Chartered Institution of bankers of Nigeria (CBN) decree No 2 1994 define a banker as an person that is engaged on the practice of banking as a profession or for enumeration to be received.

Cheque: This is a written order to bank to pay a certain sum of money to the person named on the cheque or to the order to the named paid.   

Bank Customers: This refers to any person or group of people who operate in any form of accounts with the bank or assign duties to be performed by the bank on his behalf.