The Role of Community Bank in Economic Development in Nigeria


There has been a Herculean attempt over time of defining what bank is in Several Schools of Thought; Professional bodies have made bold the attempt to address these issues. Webster’s Encyclopedic unabridged Dictionary of English Language (1994), defined bank as “ An institution for receiving, Lending, exchanging, and safe guard of money and in some cases casing notes and transaction other financial business. S. W Cubits also define banks or a banker as a ‘ dealers in capital or more properly a dealer in money.  He is intermediate party between the borrower and the lender. He borrows from one party and lends to another.” Adekonye (1984).

United Kingdom bills of exchange Act of 1882 defined a Bank as it including a body of persons whether incorporated or not, who cay on one business of Banking.  Also the bankers bank, evidence Act of 1979 stated that the expression “bank” and “ Bankers ” means any person or persons partnership, or company carrying on the business of bankers and having duly made a returns to the commissioner of land revenue and also my saving bank – certified under the act relating saving bank.

From the above definitions non of them is encompassing comprehensive and complete the chorally of the above definitions is that unless your duty is wholly or partially is the receiving money for credits or a current account from which depositors might with drawn on demand by cheque, that persons corporation or establishment is not a banker.

However, in 1969 baking Act, defines banker as “The business of receiving monies from outside source as deposit irrespective of money, loans and accepting of credit or the purchase of sales of securities for the accounts of other s or the incurring of the obligation to acquire claims in respect of loans, prior to their maturity of the same assumption of guarantee and other warrants for others or the effecting of transfer and calling such other transaction as the commissioner may on the recommendation of the central bank by order published in the Federal Gazettes as banking business.

In Nigerian economies any person who carries on banking business as defined above can be called a bank.  This includes a community bank, an accretive houses a disc house or other financial institution.  A community bank is described as a bank deposit speciallies in the granting of acceptance facilities, while discount house are those whose main business consist of trading in the holdings commercial bills of exchange, Treasury bills and other securities.  Financial institution means those allowed to transact banking business but which are community banks or accretive house, a disc house or a merchant bank.



The First bank in the country the African banking cooperating was established in 1892.  In 1948, the first commission of inquiring the patron commission was appointed.  The need to regulate bank by special law becomes apparent after several bank failure and loose to aspiration which necessitates the setting up of the patron   commission in 1948 Adekonye (1986).

The evolution of community banking in Nigeria can be classified into five (5) major periods viz:

(a)   Up to 1952   (Free Banking Era)

  • 1852 – 1959 (Pre- Central bank era)
  • 1959 – 1970   (Era of banking legislation)
  • 1970 – 1977   (Era of indiginisation)
  • From 1977 (The post – Okigbo Er)

We now use these period one after the other;

Free Banking Era (1942 – 1952).

The following features characterized this period,

  1. i) The absence of any banking legislation resulting in any body being permitted to establish a bank as long as such partnership must consist of not more than 10 persons. If more than 10 persons, all required to do would be to and by the company.

The banking company must render a half yearly statement of its liabilities and assets which must be exhibited in a conspicuous place in all offices of the company.

  1. ii) During the Era, three biggest forcing banks (i.e the banking of British West Africa, the Barclays bank OCO and the Banks and French bank and the two biggest indigenous banks (National banks of Nigeria Limited), were established.  Below are the details of some community Banks.



  1. The main motivating factor here was the country gained internal autonomy in 1959. The Federal government appointed their lioness commission in September 1958.  It resorts in October and then the ordinance of 1958.
  2. The foundation of the Nigeria moving and capital market was January 1959.

a}      Treasury bill ordinance was promulgated in 1959 forming the basis for the 1st issue in April 1960.

  1. b) The Lagos state exchange was established in June 5th 1960 following the barest committee set up in 1958 and reported in 1959.
  2. The investment company of Nigeria (which was reconstituted to form the NIDB in 1964) was set up in 1959.
  3. Apart from the boom the biggest number of now commercial bank establishment between 1959 – 1962 has 4 establishments in 1959 alone (except the corporation bank of Eastern and western Nigeria).
  4. The relatives of independence can explain the new boom in commercial banking establishment between 1959 and 1962 in 1960. No new banks were established reasons.
  5. a) First a pardon of consolation was required to enable the new banks established itself. In the process, some of these banks either fails or loss their licence or were absorbed by their banks.
  6. b) This was made by the distillation, disruption and political uncertainty and insecurity of the Civil war.
  7. c) Conditions for establishing new banks has become more strengthens, the minimum paid up capital for foreign banks being raised from N200000 under the 1952 ordinance to N400000 in 1953 and increase to N5m in 1969, but the more important different for foreign banks incorporation in 1969 and the indiginizasion measures in 1973 by which the Federal government required 40% interest in the three different and biggest foreign banks.
  8. ii) For the indigenous banks minimum capital has been increase from N25000 in 1952 to N 60000 in 1959. This explains why on indigenous banks were established since the end of the civilian and the surviving once are all Government owned and controlled.

iii)     Therefore, five regulations stand out clearly for specific/mention during this period.

  1. a) 1958 banking ordinance which becomes effective in 1959.
  2. b) 1961 Banking amendment
  3. c) 1962 Banking amendment
  4. d) 1964 Banking amendment
    1. 1969 Banking decree



The rural areas have not developed as fast as expected because of the nature of agricultural activities (the main occupation) with the attendant low productivity, the low saving habit of the people by superficial role of most credit institution of course the slim investment opportunity.  Ewulu (1996).

Subsequently several programmers and strategies have been activity encouraged, promotes, and support by the government which are as follows:

  1. a) Variance Agricultural Development programmed operation feed the Nation (OFN), Green Revolution programmed, National Acceleration food production project (NAFPP) and the Agricultural Development project (ADPS).
  2. b) Directorate of food, Roads, and Rural Infrastructure (DFFR).
  3. c) The promotions of co-operative
  4. d) Rural Banking policy. etc



WHAT IS A COMMUNITY BANK?  A Community bank is a financial Institution established to center for saving and creating needs to small-scale production throughout the country.  The instruction represents the coalescence and modernization of two traditional institutions with which these product (and most Nigeria for that matters) are very familiar.  The first is the rotating of credit institution known as Esusu, Isusu, Barm, Adashi in different part of the country.  There is other town Union or community development association.

The later has been responsible for significant infrastructures development in most Nigeria committees such as building schools, town halls, post offices, constructing roads and providing water or electricity   Mabogunye (1991).



The Community banking system therefore was established in Nigeria through Decree No 46 of 1992  which was Signed into law by General Ibrahim Gbadamosi Babangida then president of the Federal Republic of Nigeria on 4th day of June 1992 at Abuja with the  under listed objectives amongst others.

(a)     The promotion of rural development by providing financial banking system services credit and deposit services as well as other Faculties to commercial inadequacy, supplied with Facilities.

(b)     The rapid development of productive activities in both rural and urban areas and have the improvement of the economical status of small production in the informal sector of National Financial system.

(c)      The emergence of an effective and integrated national financial system responds to the needs of the whole economic especially at the grass roots community levels.

2.5    SUMMARY

There seems to be a corgnism as what are the functions and other differences between the community Banking system and the peoples Bank since their legal areas are the rural ties an those with low capital bases.  Itemized below are the differences between the two banks.

From the forth going, it can be seen as that people’s bank set up to address the basis credit requirements of under – privileged Nigerians who are involved in legitimate economic activities in bother urban and rural areas who cannot normally benefits from the services of orthodox banking system due or their inability to provide collateral security.

It is strictly a “poor man’s back”.   The community banks on the other hand are banks set up such community to service.


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2 Comments on “The Role of Community Bank in Economic Development in Nigeria”

  1. RABIU BENA says:

    The article though is historic in nature, it fails to include the 1985-1999 era when community baking under Babangida and chaired by Comrade Tai Solarin. That was the period when community banking became a talk of town and resource modilizer. There is need to bridge the gap!

  2. RABIU BENA says:

    The article though is historic in nature, it fails to include the 1985-1999 era when community baking under Babangida and chaired by Comrade Tai Solarin. That was the period when community banking became a talk of town and resource mobilizer. There is need to bridge the gap!

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