The role of community banks in economic development: a Nigerian case study

The Decree 46 of 1992 created the National Board for Community Banks which was granted the power to license community banks. Community banks were created to: (1) promote rural development through provision of banking and financial services, (2) enhance rural productive activities, and (3) improve economic status of small-scale producers in rural and urban areas. According to Marx (2004), Nigeria has a dynamic informal financial sector. A key to growth strategy is to assist the development of this informal sector. The recent government policy to rid the economy of community banks defeats the original purpose underlying the creation of community banks. In view of the important role of community banks in Nigeria, the authors propose that community banks should continue to be rural financial institutions with specialized methods to serve broad segments of the rural population. The National Board for Community Banks should be vested with power to license, monitor and regulate community banks, and the regulatory power of the Central Bank of Nigeria over community banks should not go beyond that necessary for the performance of its monetary policy function. Furthermore, a partnership should be formed between the National Board for Community Banks, National Association of Community Banks and the Nigeria Agricultural, Cooperative and Rural Development Bank for the purpose of funding rural ventures through loan syndication. The Bankers’ Committee initiative for small and medium enterprises funding should be channeled through the Nigeria Agricultural, Cooperative and Rural Development Bank.