An Assessment of the Role of Community Banks in Rural Development in Nigeria

Posted: 22 Jun 2007

Date Written: 2007

Abstract

A community bank in Nigeria is a self-sustaining financial institution owned and managed within a community to provide financial services to that community. The National Board for Community Banks (NBCB) processes applications for the establishment of community banks. The first community bank commenced operation in December 1990. Since then, NBCB has issued provisional licenses to over 1,366 community banks across the country. This paper therefore, assesses the role played by these community banks towards rural development in Nigeria. Capital adequacy, asset quality, earning strength, management competence, and liquidity sufficiency of the banks were basically the key instruments used in measuring the performance of the community banks used in the sample. It was found that although community banks faced a lot of problems, especially, in terms of over concentration of credits and sub standard asset base, they contribute immensely to rural development in Nigeria. Community banks have much development potential, and, while the Scheme 'has had mixed achievements', the growth of non-banking facilities, and increased collaboration with self-help groups or NGOs, should lead to greater success. It is the recommendation of the paper that, more is needed in the area of creating awareness of the existence of these banks. The Nigerian Deposit Insurance Corporation (NDIC) cover to pay Depositors a maximum refund of N30,000 incase of distress or bank failure as against N50,000 for conventional banks should be raised and the 500,000 matching grant of the NBCB is grossly inadequate considering the lots of achievements needed from these banks. Raising the insurance cover to N100,000 and the matching grant to 1 million could go along way in enhancing the development of community banks in Nigeria.

Suggested Citation

Tanko, Professor Muhammad, An Assessment of the Role of Community Banks in Rural Development in Nigeria (2007). Available at SSRN: https://ssrn.com/abstract=994638

Professor Muhammad Tanko (Contact Author)

Kaduna State University ( email )

Tafawa Balewa Way
P. M. B. 2339
Kaduna State
Nigeria

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