COMMUNITY BANKS AND ECONOMICS DEVELOPMENT OF ANAMBRA STATE, PROBLEMS AND PROSPECT.[A CASE STUDY OF UMUDIOKA COMMUNITY BANK NIG. LTD ANAMBRA STATE]
The federal Government of Nigeria, in January 1990 during the budget message articulated the concept of community banking as “a self sustaining financial institution, owned and managed by a community or a group of communities for the purpose of providing credit, deposit, banking and other financial services, to its members, largely on the basis of self-recognition and credit worthiness”1.
A community bank has been described as a unit bank which cannot open branches outside the community it is situated2.
Additionally, the community bank is also described by Ghana in much same way as we did in Nigeria, namely, as “a bank owned and operated by the community”3
According to Ebinne (1995). “Community banks are unit banks, limited geographically in their operations”4
Since the inception of the community banking system in 1990, much has written about it.
Aribisala (1993) has this to say about community banks, “Community Banks are unique in the history of banking in this country because about 40% of the equity is held by the local community through their development associations”5. This uniqueness is perhaps the reasons community banking system was an instant success. Almost immediately on inception, Nigerians, especially the rural dwellers and low income earners (for whom it was establishes any way), embraced it like a long lost friend. This may be because according to Eredinwa (1995), the establishment of community banks has come at a time when the rural populaces are eager to identify and cultivate a banking culture5
It must be borne in mind that the community bank idea was born out of several approaches that had been made to evolve an acceptable strategy for national rural development. Institutions such as DFRRI and others as well as numerous researchers are examples of such efforts aimed at giving the grassroots populace some kind of focus. Because of the failure of the rural branch network system;6 community banking was developed.
Community banking system therefore is a product of the realization of the shift of emphasis to grassroots development7 it is a well-known fact that 25% of the country’s resource endowment is at the grassroots level. So far any meaningly development or impact, it must focus on the rural areas. Government realized this early enough thus leading mabogunje (1993) to observe, “community banking is therefore an idea that its time has come”8.
Nigeria is said to be in transition with the basic feature being the installation of grassroots political democracy. It is however, important to stress that such a system cannot be sustained without democratic practices being reflected in the institutions of economic life. To the extent therefore that the prevalence and success of the community banking system is bound to foster such economic liberalism, this new dimension in banking must be seen as a portent force for social revolution.
More than this, community banks can be expected to deepen the process of monetizing the Nigeria economy down to the grassroots. The higher the level of the monetization, the greater the likelihood that the kinship nexus of our traditional pre-capitalist mode of production will be rolled back. This will mean that more and more of the informal sector will become part of the mainstream of the economic process in Nigeria.
This will in turn ensure greater effectiveness in the application of various instruments of macro-economic policy including both monetary and fiscal regulations, from this point of view, therefore, the expectation is that the emergence of community banks on the Nigerian financial scene is bound to have a catalytic impact on the necessary and eventual structural transformation that would put the Nigerian economy on a path of self-reliant and sustainable growth.
- THE AIMS AND OBJECTIVES OF SETTING UP COMMUNITY BANKS IN NIGERIA
Community banking in Nigeria did not spring up spontaneously. It was established because of the persistent need to integrate the rural community and the poor masses into the mainstream of economic life.
Specifically, the objectives by providing financial and banking services (credit and deposit services) as well as other facilities to communities inadequately supplied with such facilities.
A critical examination readily shows that no rural community can be said to be adequately supplied with such services. Although some such communities have rural branches of commercial banks, they still find it difficult to do business with such banks. This is because most rural dwellers are illiterate and as such, find the operations of such conventional bank complex, sophisticated and often time’s cumbersome.
Thus, the community banking system aims to bring down banking operations to the level of the common man and thus harries his otherwise untapped potentials.
- The rapid enhancement of the development of productive activities on both rural and urban area and hence the improvement of the economic status of small producers in the informal sector of the national economy.
Aribisala, Ohiremi a. in a paper titled. The Development of Cottage Industries: The role of community Banks’ presented at the 2nd Anniversary conference of the NBCB, State”…..it is generally recognized that cottage farming, micro businesses and the informal sector as incubators for indigenous entrepreneurship”10 Also, it is a fact that the industrial revolution of the west was accomplished largely through micro sinuses.
Productive activities in the rural community’s area very low rate. Having regard to the effect, which the development of this sleeping giant can have on the overall development of the Nigerian economy, the government thus established the community banking system.
- The promotion of the emergence of an effective and integrated national financial system that responds to the needs of the whole economy, especially at the grassroots community level.
The rural people have always had viable and functional local credit mobilization system which though informal, serves their purpose. In various parts of Nigeria the system is called ‘ajo’, “Isusu’, ‘bam’ and ‘adashi’. The main characteristics of these local systems are voluntary contributions from members on daily, weekly or monthly basis. Such monies collected are given out as loans to needy members according to the rules.
This system, though effective is crude and thus, the banking system aims to formalize and modernize the system.
- The inculcation of disciplined banking habits among the masses of low-income earners in Nigeria, especially those in the rural areas. The banking habit of rural populace and even the urban dwellers in Nigeria is very low. This explains why all transactions in the rural areas are on cash basis only. Cheques are not accepted as a means of payments because the recipients economic activities. Also most people especially the rural dweller regard banks with suspicious. This they prefer keeping money under pillows and beds to pumping it into the economy through the banks.
The community banking system aim to reverse this negative trends and thus generally increases the temp of economic activities in Nigeria.
- The fostering of the spirit of community ownership and use of economic assets and the maintenance of such facilities and organizations on a sustainable basis.
The community system aims to inspire in the communities the spirit of ownership and maintenance of facilities and organization.
- To provide loans during off seasons as a means of breaking the dependency on and the hold of, local money lenders on the vast majority of rural dwellers.
- BRIEF HISTORY OF COMMUNITY BANKING
For many years, efforts were made to involve sub-urban and rural people in Nigeria in modern banking practices. Apart from encouraging the establishment of commercial banks and merchant bank in pursuance of rural development programmes, the federal government established the Directorate food, Roads and rural infrastructure, DFRRI but the activities of DFRRI were paralyzed by the difficulties of getting credit facilities from the conventional banks. In view of these constraints imposed by lack of infrastructure (DFRRI) in 1989 addressed a memorandum to the president and commander-in-chief of the Armed Forces of Nigeria approved the proposing the critical need for a novel financial institution to be known as community banks.
This proposal got the blessing off the central bank of Nigeria and in the budget speech of January first 1990, the president and commander –in-chief of the Armed forces of Nigeria approved the proposal on community Banking, it is useful to quote the relevant section of the budget speech as follows.
“The adjusted subsidy levels of domestic of petroleum product have been estimated to yield as implied savings of N503 million in 1990 fiscal year. Government has however decided that this sum be put back into strengthening its programme of grassroots economic development. Accordingly, the sum of N453 million will accrue to a specialized account with the central bank of Nigeria for the purpose of establishment of community banks”.
The community Banking concept was backed up by the community banks decree 46 of 1990 which provides that a community or group of communities may establish a community bank for the purpose of
- Promoting rural development through the provision of finance and banking services.
- Enhancing the rapid development of productive activities especially in the rural areas.
- Improving the economic status of small-scale producers both in the rural and urban areas.
To concretize the community banking idea the first community bank, the Alheri community Bank, Tudun, Wada Kaduna was commissioned by President Ibrahim Babangida on 31st December 1990.