The Impact of Community Banks in Economic Growth and Development of Nigeria

The Impact of Community Banks in Economic Growth and Development of Nigeria


According to Ugwuanyi W. (2001) pg. 215, community bank was introduced in Nigeria when the problem of credit extension to the rural dwellers who usually dominate the population and cannot afford the much sought collateral being demand by conventional financial institutions has been such a persistent Nigeria case that government after to remedy the situation. He said that the financial need of these rural dweller pose a double problem in that part from the risk inherent in such credit extension; he stated by it is not cost effective because of the large number of accounts involved with little money.

With reference to the paper presented in the 3rd Anniversary Conference 1992 respectively, community banking system was initiated with the 1990 budget speech of the president of the Federal Republic of Nigeria but formally promulgated in 1992. reports that the majority of Nigeria were in rural areas before agricultural and oil boom era was contribution about half of national income and as the oil boom era and agricultural emerged, the rural dweller moves to urban areas in search of white collar job.

Ajala J. (2000) pg 8, revealed that the plan on rural development started with Babangida predecessors who introduced rural banking to pen a stipulated number of branches in the rural areas. This step for development could not work through rural banking system. He also said that Babangida’s administration has made several attempts to make banking services attractive to the rural community aimed at transporting real economic opportunities and promotion of banking habits of grassroot people since the inceptions. In order to fulfill the government objectives, many other groups was introduced like (DFRRI), directorate of foods, roads and rural infrastructure (MAMSER), the better life programme for rural women, the rural banking policy by the government and the people’s bank.

Even after the introduction of these agencies, it was still difficult for commercial banks to service the credit needs of the small scale farmers. The Central Bank of Nigeria (C.B.N) degree 4 of 1987 dealt with establishment of these agencies with primary  task of identifying, involving and supporting viable local community organization in the affectivities, bearing in mind the need of promoted greater community participation and economic self reliance of rural community. Towards community organization and social mobilization, the directorate undertook the listing of rural settlement in the country.

Ifuero, U. (2002) g. 41, stated that development at the grassroot level has been stalled most times by lack of proper economic structures that would help in rapid characters at that levels. He said that is the rational for central banks continues search for planned establishment for rural co-operative banks and rural infrastructure and the directorate for social mobilization by virtue of their grass root oriented programmes, conducted extensive research into the establishment of community banking system. He continued narrating how the directorates and the commercial banks help discussions and various useful suggestion were given as to what would be done to the areas and the un-harnessed economy. It was a result of exhausting the possibility that (DFRRI) was constrained towards the end of 1989, to address a memorandum to the president purposing the critical need to establish novel finance institution to be known as community bank.

In the subsequent hearing from the president’s advising committee, it was gratify that the Central bank of Nigeria (CBN) came out strongly in support of proposal. Indeed the CBN been advocating the need for a rural banking system of this type as far back as 1970s. The idea of community bank by the directorate for social was a grass roots bank which would carry the programmes of rural development, self reliance and better economic well being at the local level.


Community bank as defined by the chairman of National Board for Community Banks (NACB)’ as a financial institution established to cater fro savings and credit needs of small scale producers throughout the country”. He identified the two local financial institutions which community bank represents the modernization, which are national credit institution known as “issue and community development in most Nigeria communities which two credit institutions gave birth to community bank”.

According to Anyanwokoro M. (2001) pg. 36, he defined community banks as a self-sustaining bank owned and managed by a commodity or group of communities for the purpose of providing credit, taking deposit and providing other financial services to its members at the grass root level.

Ugwuanyi W. (2003) pg 24, he defined community banking system, as that of self sustaining or a group of communities for purpose of providing credit, development deposit, banking and other financial services within the area.

Mabogyinye, A.L. (2000) pg 18-20, defined community bank as a development bank with an over ridding responsibility for financial needs of local community, the guiding principles are self help and community participation that is expected to lead main stream banks in its locality.

Ifuero U. (2002) pg 8, described community bank as a self financial and credit institution making fund available to borrowers with a specified community relying not on tangible collateral but on self recognition and personal worth.

Osanwonyi I.O. (2001) pg 10, stated that the nature of community bank is one of the controlled by the laws of the land (decree) owned by the people, financed by the people managed by the people and serving the socio-economic welfare of the people.

According to Ukemenam C.O. pg 9 (2001), he defined community bank as a self sustaining financial institution, owned and managed by a community or group of communities to carter to the savings and credit need of small scale producers.


According to Ajala J. (2000) pg 5, community bank in Nigeria came to being involve the sub-urban and rural populace in modern banking practices. Nigeria banking establishment pattern is the concentration of banks in urban communities. He pointed out that about 70% of Nigeria population are living in rural communities and do not have access to modern banking services and facilities and this hinders development.

C.B.N. monetary and credit guideline for (1991) fiscal year otherwise known as monetary policy circular N0. 2 pointed out that agriculture contributed not less that 52.6% of the nations income of which this come from rural areas and so needs development. Through specialized development, banks have been created focusing on mortgage agriculture, savings co-operatives and other specific area. These efforts made in the part to involve grass root people  in sub-urban in modern banking, but all these efforts failed and that led to the establishment of rural branches by commercial banks so that the interest, of the grass root people in the communities could be catered for. The objectives of the rural banking scheme that was introduced in 2000 were not met because of various problem commercial bank faces in the rural areas.

Nwankwo G.O. (2003) pg 9, stated that, this rural banking scheme started in Nigeria in 1976 primarily due to the federal government acceptance of one of the post-Okigbo committee’s recommendation on their study of Nigeria financial system.


According to Mabogunje in community bank newsletter 2000 p2 (3rd February conference). He outlined the following objectives for the creation for  the community banks in Nigeria.

  1. The promotion of emergence of an effective and integrated national financial system that responds to local government areas and states to the national level.
  2. The promotion of rural development by providing, financial and banking services as well as other facilities to communities inadequately supplied with such services.
  3. The rapid enhancement of the development of productive activities in both rural and urban areas, and hence the improvement of the economic status of small producers in the informal sectors of the national economy.
  4. Inculcation of disciplined banking habits among the masses of low-income workers in Nigeria especially those in the rural areas.
  5. Fostering of the spirit of community ownership, and use of economic assets and maintenance of such facilities, and organizations on a sustainable basis.


According to Ukemenan C.O. (2001) pg 23, the community banks are expected to perform in the following functions.

  1. Issue for the purpose of raising funds, redeemable debentures to interested parties.
  2. To accept from person various types of deposits, including savings, time and targets deposits.
  3. Providing ancillary banking services to its customers such as remittance  of funds, safe deposit facilities etc
  4. Receiving money or collecting of proceeds of banking instruments on behalf of its customers.
  5. To invest surplus funds of the bank in suitable instruments including placing such funds with other banks.
  6. To provide credit to its customers, especially small and medium scale enterprises based in its area of operations.
  7. To give guarantee in favour of its customers to given them greater access to credit and other resources.


Ifuero U. (2002) pg 8, said that community banks shall be owned by the following;

  1. The community Development Association (CDAS), or the central town union is the primary promoter of the bank and own 30% of the share capital of the proposed bank.
  2. Trade Association such co-operative societies, farmers’ groups, occupational unions, social clubs, age grades, corporate bodies etc. others operating within the community.
  3. Indigenes of, and individuals within the community except that no single individual or corporate organization shall hold more than 5% of the shares of a community bank.
  4. A community bank must be managed by educated personnel at Board and management levels, and in particular the manager should have had ample experience in banking, accounting or related jobs.
  5. More than one community may jointly seek to establish a community bank where one single community cannot meet up all the requirements of (NBCB), which is the supervisory body for the community banking scheme.


According to Osad I. (2003) .15, the board shall have the responsibility for the following.

  1. Accepting and processing applications for the setting up of banks through out Nigeria.
  2. Providing guideline for he operators and management of banks and ensuring compliance there with.
  3. Incorporating banks as private companies with membership of 50 or more persons and determining the amount of fees to be paid from time to time.
  4. Serving as registrar to all banks as to protect the banks from acts inimical to community interest and the banking industry.
  5. Monitoring, inspecting and general supervising the operations of the banks and applying various functions for default including and receiving payment of fines, as prescribed under decree.
  6. Carry out security screening of persons for appointment as directors or management of banks for purpose of determining their suitability.
  7. Carry out promotional activities for enlightenment of communities on community banking system.
  8. Making recommendation to the Central Bank of Nigeria (CBN) on granting and evocation of licenses of banks.


Central Bank of Nigeria is the apex monetary authority responsible for the formulation of monetary policies including those concerned with the authorization or licensing of banks, the conduct of banking business branch expansion and closure. The bank is solely changed with the day today monitoring of the activities of all licensed banks, specialized banks such as people’s banks and community banks and developments banks.

Ogunwobi C.O. (2003) pg 17, stated that, most banks adopt some or all the following internal control measures to detect fraud and error early.

  1. at the counter, receiving cashiers are not allowed to write out pay in slip for customers as the illiterate ones could be cheated by dish onest cashiers.
  2. A saving  account withdrawal ship is expected to be signed by the bonafide depositors at the banking interface to prevent abuse.
  3. use of control accounts and periods banking of accounts.
  4. Use of dual or multiple signatures on vouchers cheque and letters.
  5. Limit of authority to approve cheques, loan of expenditure
  6. The responsibilities and duties of bank staff should be properly defined and shared out so that no one person has sole control over any transaction from the institution to be of the events.


There is concern in some quarters that community banks are competiting with banks; this is far from the truth. Indeed if anything, their role is meant to be complementary and supportive.

According to Mabogunji A. L. (2002) pg 18, he stated that it is a well known fact that, most commercial banks find operating accounts for the small depositors or small savers with less that N2000 quite dysfunctional on the other hand, these are meant to constitute a significant part of the customers of community banks.

Indeed, some of the community banks are already setting up system for mobilizing the type of savings that used to go into the traditional “issue” or “adashi.” They find themselves providing saving out lets for market women and similar small-scale products.

Consequently, in relation to the commercial bank, the community bank serve as an agency for banking the saving of the lower income group. It is therefore expected that most community bank will establish correspondent relations with nearly all commercial banks. But like all actors in a free market, community banks are free to shop around with many banks as they fund appropriate with regard to checking accounts however, it would be wise for them to relate to only commercial bank. But, this is decide on the best course of action.


It is not possible to over-state the fact that community banks, were set up primarily to promote productive activities in rural areas specifically, they are meant to facilitate the program of the directorate of food, road and rural infrastructure by providing easy to credits for rural producers.

Consequently, the directors of community banks take interest in knowing about the understanding the details of these programmes and encouraging their customer to enhance their productive capacity through participating in these programmes.

Mabogunje A. L. (2002) pg 12, stated that, no community bank can grow and prosper unless it strives strenuously to make the local economy grow and prosper. For this reason, it is expected that there would continue to be strong laison among the board of directors of community bank, the leaders of the other local organization such as cooperatives, women groups and so on. All of them engage in search for new productive ideals which translate into some export example there have been request for certain type of crops for exports out of the country. Banks can provide credit to farmers to purchase the local craft man who can fabricate the packages and on the other hand, the community development association which can organize mobiles advice farmers local craft man and transporters appropriately; there should be very close rapore.

This the economic activities in a community increase in volume and diversity with establishment of its community bank. Throughout the country, many of the community banks are performing credibly well, mention can be made of Ndiafia community bank in Enugu State with sting of projects. Its equity capital rose N563,000 to N3.55m in one year. This bank work the highest deposit award for the year 2000 for its success, in assets, liquidity  and profitably. The Hinima Community bank in Kaduna State has introduced many new products, while Kanab Community bank in Benue State is notable for financial grains and granting motor vehicle loan. Community bank in an attempt to develop the nation’s economy in 2000, has disbursed N45m to nine Polytechnics nationwide as a grant to and mounting of courses in community banking.

Making the announcement of the articulation ceremony of the first batch of students admitted for the programme at Kaduna State Polytechnic, the first institution nationwide to accept the proposal to matriculate the first batch of students to make career in community banking. The programme was intended to obviate the problem of skilled manpower in community banks.

This is addition to training programmes for staff, help a lot to develop the Nigeria economic. In the area of commerce, community banks have started to participate in the trade fairs. At the North-east domestic drawn from the zone participated in the fair with numerous exhibits which are products from community banks loans beneficiaries in both international and domestic trade fair.

The objectives of the Community Bank national board in participating in trade fair includes the following.

(1)             promoting proper conceptualization of the community banking system

(2)             projecting the good image of the (NACB) and thereby creates further goods will among people by disseminating appropriate information on its operation.

(3)             Publishing the activities of the operating community bank with a new to promoting their project and services.

(4)             Providing further opportunity for inherent communities appreciate the necessary procedures and requirements needed for setting up their community banks.

Community bank which are the actual actors and now have reservoir products to exhibit, find a ready audience and market their product in trade fair. Consequently, Community banks mobilize their communities to develop products that the world would see and gives the system favourable image.

Ijere I. (2001) pg 24, said that Enugu International Trade fair magnitude is a veritable place for savers, planners, investors and other to observe and appreciate the usefulness of Community banks. Community banks exemplified this role by finding capability, an index of capability of Community banks in financing economic development is the quantum of its credit.

(i)                PRODUCTION POSSIBILITIES – The Community banks have that potential for production possibilities for local and foreign market. They serve as catalyst for rural industrialization creating the economic gain of unemployment reduction, rural infrastructure, increase in purchasing power and the earning of foreign exchange.

(ii)             MARKETING STRATEGIES – No goods are economic use, fill they have consumed. He lies the importance of well orchestrated marketing strategies that will appeal to all ages, race, sex, class, religion and season.

Looking at the imports made into the economy, Ijere observed that the already community bank goods can be seen in the supermarkets and railway station, Kiosk of local and foreign countries Nigeria by 1990 was a typical example of goldsmith’s deserted village where wealth accumulates houses by saying it is time up a control cleaning system for community banks. He summed up this speech by saying, there are policies and measures that must be put in place by the national board for community banks to hasten out match towards complete economic emancipation of the rural communities.

Sarror A.I. (2000) pg 14, said that community banks is good avenue to ensure that farmers get fertilizers an other farm inputs at reasonable prices. He presented community banks as being able to pay a key role in serving the read of the farmer in their various communities nationwide.

Community banks also help to finance small scale industries list in its effort to address some of pressing need of the community it is serving. The Ndiafia Community Bank in Enugu urban has purchased for gas ovens and leased them to four of its customers. This step on the part of the bank has brought some relief to their customers and has helped in the provision of bread to the member of the community. Action, they said speaks louder than words Community Banks must be seen to be active agents in the development of their catchments areas.


Community banks, like other banks encounter some problems that hinder the rate of its progress.

Nzenwa S.O. (2001) pg 88 revealed that some problem which Community banks encounter are as follows:

(i)                Capital Inadequacy: Capital is seen as a major source of production for depositors and it is one of the major problems confronting Community Banks. The share capital is not a level that would enable the banks acquire its fixed assets, meet its pre-establishment commitments and provide adequate initid working capital after commencing operations. This capital base should be increased to a level that would enable it provide for the above mentioned facilities. This is imperative because the 1988 introduction of the Structural Adjustment Programme (SAP) which ultimately led to total deregulation and free floating of the naira, since then banks have swept out of their crozy of banking (ie arm chair banking) into the Gold bloats of intense financial service competition where the only language spoken is “profit”. This means that the bank should be adequate capitalized to enable them not only to compete banks but also with other financial institution.

(ii)             Fair distance between Banks and Bank Staff – The long distance from base is still another problem. Some community bank staff decided to live in the township rather than to live in or near their catchment area. This has pose a problem because it is only by watching closing the banks that the direct or can help it grow.

(iii)           Management – Management occupies a significant place in determining the successes of failure of bank though it appears their in the acronym, it is best to evaluate it last so to bring together every other area of importance.

Management rating is usually subjective because they are the people to decide and administer the performance of the bank………………………



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The Impact of Community Banks in Economic Growth and Development of Nigeria

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One Comment on “The Impact of Community Banks in Economic Growth and Development of Nigeria”

  1. Hi my name’s Jeff Lawrence and I’m trying to find out about Crystal John in the affiliation with this bank this is what I got from somebody claiming to be from your bank in Nigeria
    it says they say there’s $30 million in this bank that’s tied to the government and taxes are paid need to be paid I believe this is a scam but I’m trying to find out if it

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