Improving Community Banking Services in Nigeria
Origin of Community Bank: According to Ajala (1992:7) community bank was introduced into Nigeria financial system when commercial banks could not longer meet the request of rural customers due to their sophisticated banking system that involves filling of several forms, obeying certain rules and could not meet the conventional banking system. He said that this banking system is purposed to involve the modern banking practice before the introduction of this system, it has been concept and worked on for years.
With reinforce to ministry of information statistics department 1992 report, about 75 percent of Nigerians were living in rural areas before oil boom era, and agriculture was contributing about 65 percent of National income. But as the oil boom era emerged, there were a mass movement of rural dwellers to urban areas in search of white collar job and some other pulling factors like social amenities. According to the report, oil book era resulted to a high drastic fall on agricultural production as well as nations income from about 65 percent to 30 percent.
Ajala (1992:8) also revealed that the plan on rural development started with Babanida’s predecessor who introduced rural banking scheme by making mandatory for commercial banks to open a stipulated number of branches in the rural areas. This step for rural development could not work through rural banking system.
He revealed that Babangida’s administration has made several sincere genuine and far-reaching measures to make banking services attractive to the rural community armed at transforming real economic opportunities and promotion of banking habits of the grass root people since the inception.
The search for a solution to federal government objectives led to the introduction of directorate of foods, roads and rural infrastructure (DFRRI) MAMMSER the better life programme for rural women, the rural banking policy of government, and the people’s bank. Even after the introduction of these agencies, they were totally paralsed as it was difficult to get commercial banks to service the credit needs of the small scale farmers.
The central bank of Nigeria (CBN) decree 4 of 1987 dealt with establishment of these agencies with primary task of identifying involving and supporting viable local community organisaton in the effective mobilization of the rural population for sustained rural development activities, bearing in mind the need of promoting greater community participation and economic self-reliance of community organisation and social mobilization, the directorate undertook the listing of all rural settlement in this country, units such as villages, clans, obodo or autonomous communities and items.
Ajala (1993:9) said that there are over 100,000 villages and hamlet in Nigeria. Also the directorate encourages these development about 15,000 development associations are in existence.
Ifuero started that, development at the grass root level has been stalled most times by lack of proper economic structures that would help in rapid characters at that levels. He said that it is the rational for the central bank continuous search for a solution to monitor the rural economy through the planned establishment of rural co-operatives banks and rural infrastructure, and the directorate for social mobilization by virtue of their grass roots oriented programmes, conducted extensive research into the establishment of community banking system.
He continued narrating how the directorates and the commercial banks held discussions and various useful suggestions were given as to what could be done to the areas and the unharnessed economy. It was as a result of exhausting the possibility of credit provision through the commercial banks that (DFRRI) was constrained towards the end of 1989, to address a memorandum to the president purposing the critical need to establish a novel finance institution to be known as community bank.
In the subsequent hearing from the presidents advisory committee, it was gratifying that the central bank of Nigeria (CBN) came out strongly in support of the proposal. Indeed the central of Nigeria has been advocating the need for a rural baking system of this type as for back as 1970’s. The idea of community bank by the directorate for social mobilization, was a grassroots bank which would carry the programmes of rural development, self reliance and better economic well being at the local level.
Mabaqunje (1992: 20) said that, after this recommendation to the Nation, National board for community banks was inaugurated on 16th July, 1991. Community banking which is in form of specialized unit was introduced in 1990 national budget to proceed grassroots services to any defined local community whether in urban or rural areas.
According to the community banks decree No. 46 of 1992, the fundamental concept of a community bank is that, it is a self sustaining financial institution, owned and managed by a community or group of communities. The community banks will be substantially owned by community development associations, co-operative societies, farmers groups, patriotic unions and trade groups within the community. A community bank is a commercial bank serving only one community and exploiting to the fullest its advantages position of local knowledge and trust. Its survival in intimately connected with the development of community, which it serves. By not getting involved in sophisticated bank services like foreign exchange transitions or international commercial papers, corporate finance or equipment leasing and by minimizing its operation cost through high localization and superior arrangements for loans recovery at lower interest rates to its customers.
NATURE AND SCOPE OF COMMUNITY BANKS
Community bank as defined by the chairman of National board for community banks (NBCB) Mabogunje in community bank introduction as a financial institution establish to cater for the savings and credit needs of small scale producers throughout the country. Ht identified the two local financial institutions which community bank represents the modernizations which are the national credit institution known as “Isusu” and community development in most Nigerian communities of which the two credit institutions gave birth to community banks.
According to Mabagunje (1992:17) he defined community bank as a development bank with an over-ridding responsibility for financial needs of the local community, the guiding principles are self help and community participation that is expected to lead mainstream banks in its locality.
Ajala (1992:5) defined community banking as a self-sustaining financial institutions owned and managed by a community or group of communities for purpose of providing credit, deposit, banking and other financial services to the members largely on the basis of their self recognition and credit worthiness. He further stated that community banking is in contradiction on the near toral reliance by the orthodox banks on viable and negotiable collateral as the basis for giving credit.
Osanwonyi (1993:10) stated that the nature of community bank is one to be controlled by the loans 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.
He pin-pointed community bank as a commercial bank with a difference according to him it must strive after efficiency, fund mobilization and accountability, its objectives to serve rather than profit making. It does not deal with foreign exchange though it can create the conditions for earning it through its loan diversification and guidance. He further exposed the nature of community bank as a unit bank without braches and remote control from out of the way of headquarters. Being a unit bank its board is responsible for every decision whether to lend or not to lend and how much to lend. He explained the choice of chairman and directors as being more tedious than orthodox banks that have second or third opinion along the line.
Ifuero (1992:8) described community bank as a self financing and credit insitution making funds available to borrowers within a specified community relying not on tangible collateral but on self recognition and personal worth. He pointed out another difference between community and orthodox banking which is on the capital base or nominal paid capital for commercial, merchant and development banks at N50m and N40m respectively while community banks paid up capital is N250,000.00.
CONCEPT OF COMMUNITY BANK
According to Ajala (1992:10) community bank in Nigeria came into being to 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 Nigerian populations are living in rural communities and do not have access to modern banking services and facilities and this hinders development.
CBN monetary and credit guideline for (1991) fiscal year otherwise known as monetary policy circular No. 2 pointed out that agriculture contributed not less that 52.6 percent of the nations income of which this came from rural areas and so needs development.
Though specialized development banks have been created, focusing on mortgage agriculture, savings, co-operatives and other specific areas. These efforts made in the past 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 1987 were not met because of various problems commercial banks face in the rural areas.
Nwankwo (1976:9) stated that, this rural banking scheme started in Nigeria in 1876 primarily due to the federal government acceptance of one of the post-Okigbo committee’s recommendations on their study of Nigeria financial system. He said that rural banking emergence was to bridge the gap and attitude of conventional commercial banks, which were reluctant, at opening branches with the following objectives:
1. Cultivation of banking habit among the rural dwellers.
2. Mobilisation of savings from the rural areas for the purpose of channeling some mobilized funds to profitable ventures.
- To help develop agricultural and agro-allied industries in the rural areas with a view of achieving the nations objectives.
Except there were adequate co-ordination in all these programmes they could not work. Systematic planning and co-ordination of the efforts of the different agencies. However, it is a known fact that these institutions are not good avenues for promoting credit provision and productive activities in the community, a fact remains that people criticize role of states in social structural transformation.
Bamigboye pointed out that the basic underlying idea on Nigeria version of the community banking is thus, how to “radicalize” institutions of both the community development association and the traditional savings in a manner to integrate them into the main stream of national financial and economic development. This was in essence the content of the memorandum submitted to then president, commander in chief of the armed forces, General I.B. Babangida in October 1989, which induced him to initiate in the budget speech of January 1st 1990 the new system of community banks in Nigeria.
OBJECTIVES OF COMMUNITY BANKS AND FUNCTIONS OF COMMUNITY BANKS
According to Mabogunje in community bank news letter (1991) he outlined the following objective for the creation of community banks in Nigeria
(i) The promotion of rural development by providing financial and banking services as well as other facilities to communities inadequately supplied with such services.
(ii) The promotion of emergence of an effective and integrated national financial system that responds to the individual and grass root community levels, through the levels of local government areas and states to the national level.
(iii) 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.
FUNCTION OF COMMUNITY BANKS
According to Mabogunje, (1991) the community banks are expected to perform the following functions.
(i) Accept various types of deposits including savings, time and target deposits form individual groups and other organizations.
(ii) Issue redeemable debentures to interested parties to raise funds from member of the public.
(iii) Receive money or collect proceeds of banking instrument on behalf of its customers.
(iv) Provide ancillary banking services to its customers such as remittance of funds, safe deposit facilities.
(v) Maintain and operate various types of accounts with or for other banks in Nigeria.
(vi) Invest surplus funds of the bank in suitable instruments including placing such funds with other banks.
(vii) Pay and receive interests as may be agreed between community banks and their clients in accordance with public policy.
(viii) Provide credit to its customers especially small and medium scale enterprises based in its area of operation.
(ix) Operate equipment leasing facilities, supervise credit schemes for group and other credit facilities designed to ensure access of its customers to farm inputs including financial inputs, purchase on a consignment basis for group of clients.
(x) Give guarantee in favour of its customers to give greater access to credit and other resources.
(xi) Receive refinancing or other funds form (BIC) community bank implementation committee, and other sources, private or public on terms mutually acceptable to both the provider of funds and the recipient community banks.
(xii) Perform non banking functions that promotes grass root development such as support for individual and group formation activities which ensure individual and community participation, assistance to clients in marketing of agricultural, rural industrial and other products as well as provide extension advise to clients.
(xiii) Community banks shall not participate in sophisticated banking services like foreign exchange transaction or international commercial papers corporate finance in order to enable concentrate on community service.
(xiv) Enlighten the community on the effective use of credit and other banking services so as to enhance individual, collective and community production and development.
Community banks are widely regarded as micro-finance institutions whose success mgaded mainly by it accessibility and spread at the grass root levels where its major clientele reside.