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RURAL BANKING AND ECONOMIC DEVELOPMENT OF NIGERIA.
A CASE STUDY OF IKWERRE L.G.A. OF RIVERS STATE
ABSTRACT
The main aim
of this study is to analyze and access the contribution of rural banking in
Economic development of Nigeria and further spotlight the problems militating
against its rapid development and growth. This focus arose from the fact that
banks are lopsided in their establishment of branches. They establish more
branches in the urban centres, thereby leaving the funds in the rural areas
untapped. The scheme which was introduced in 1977 attracted banks responses to
the guidelines from 1978. The findings of this research conducted showed that
the rural populace lacked banking knowledge and habits. It also showed that the
interview, it revealed that over 75% of the rural populace had no bank
accounts, though most of them had ideas of banking services. Inspite of the
odds, the findings further revealed that the scheme succeeded in the rural area
despite the fact that the deadlines set out by the monetary authorities were
not met. The scheme made banking services easier and more efficient due to the
bank abilities to diversity the rural-urban migration of the populace. Hence
the cultivation of the banking habits amongst the populace enabled the banks to
mobilize rural savings from which credits were available for the entrepreneurs
who engage in small-scale ventures. Conclusively, the scheme is whole heartedly
welcomed by all Nigerians because of its roles in a growing economy like ours.
TABLE OF CONTENTS
Title Page i
Declaration ii
Certification iii
Dedication iv
Acknowledgment v
Abstract vi
Table of Contents vii
CHAPTER
ONE
1.1 Introduction 1
1.2 Statement
of problem 9
1.3 Objectives
of the study 10
1.4 Statement
of hypothesis 11
1.5 Scope
and limitation of the study 16
1.6 Definition
of terms 17
1.7 Significance
of the study 17
CHAPTER
TWO
2.1 Literature
review 19
2.2 Growth
of banks in Nigeria 27
2.3 Role of federal government in respect to
growth of rural banking scheme 30
2.4 Role of state and local government towards
growth of rural banking scheme 31
2.5 The significance of rural banking and
economic development
33
CHAPTER THREE
3.0 Rural
banking and community development in rivers state 39
3.1 Questionnaire
development and administration 39
3.2 Study
sample 39
3.3 Hypotheses 45
3.4 Hypothesis
1 46
3.5 Testing
of hypothesis 48
3.6 Testing
of hypothesis 53
3.7 Summary
of the results of the hypotheses testing 54
3.8 Response
to the scheme by the bankers 55
3.9 Response of the rural communities to the
rural banking scheme 57
3.10 Impact of rural banking scheme
CHAPTER
FOUR
4.1 General
summary 60
4.2 Summary
of major findings 61
4.3 Conclusion 62
4.4 Recommendations 63
Bibliography 66
Appendix 67
Questionnaire to bank customers 68
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF STUDY
This
project objectively aims at the problems and prospects of rural banking and
economic development of Nigeria banks, since their inception in Nigeria
concentrated their branches in the urban entries the country.
After
the Nigeria civil war in 1970, there was need to enhance economic activities
that will help in the reconstruction of the war devastated areas and Nigeria at
large, consequently the government saw the need to open up more bank branches
in the areas to improve the banking habits and bring banking services nearer to
the rural populace. Accordingly the rural banking scheme was introduced in 1977
by the federal government of Nigeria through the Central Bank of Nigeria (CBN).
Before
giving a detailed analysis of rural banking in Nigeria, let us state by tracing
the origin of banking in Nigeria and how eventually rural banking followed up.
The development of rural banking dates back to the colonial period when the
activities of the extract territorial merchants in the former west African
colonial period when the establishment of settled territorial government
created the need for locally based financial institutions. For many years cash
payment has been replacing the old barter system and British sliver currency
was increasingly used in trading transaction. Thus the need arose for the
establishment of financial institution that would cater for the importation of
the currency, its distributions and absorption of any surplus of it when it was
decided that a banking office was need in Lagos in 1890 by a British shipping
magnet and its agents. The territory along the west coast of Africa had already
turned into a commercial area of intense competition among several European traders.
The decision was taken in the headquarters of Elder Dempster shipping company
in Liver pool. For such a decision to be taken there must have been a vision of
tremendous economic and money in more form, universally accepted, at least,
among the trading people and communities that live along the coast area of West
Africa whose Lagos seaport had become on important trading centre.
Following
this, the African banking corporation opened its first branch in Lagos in 1892
Messrs. Elder Dempster and company, a shipping firm based in liver pool was
instrumental to its formation. Because of the teething difficulties of the
banking it eventually decided to transfer its interest to Elder Dempster and
co. in 1983.
This
led to the formation of a new bank known as the British bank of west African
(BBWA) in the same 1893 (the bank is now first bank of Nigeria PLC) with ten thousand
pounds capital which has later increased to one hundred thousand pounds during
the same year. In March 1894 it was registered on London as a limited liability
company and the first Lagos branch was opened in the same year. Accra fraction
and Bathurst were major cities of West Africa in which some of the branches of
the bank were established. The second Nigeria branch office of the bank was
opened in old Calabar in 1900.
In
1899, the Royal Niger Company (now UAC) established another bank called Anglo-African
Bank in old calabar to compete with the BBWA-their branches were established in
Burutu, Jebba and Lokoja after its name had been changed to Bank of Nigeria the
bank was, however, sold to BBWA in 1912 in the face of force competition and
the monopoly for the importation of silver from the royal milk enjoyed by BBWA.
Barclays bank D.C.O (Domino colonia overseas) opened its first branch in Lagos
in 1917 (now union bank PLC). The Nigeria banking industry was donated by these
two banks B.B. WA and Barclays Bank D.C.O. between 1894 and 1933. The British
and French bank (now limited bank for Africa PLC) was established in 1947,
making the third expatriate bank to dominate the early Nigerian banking
industry.
The
foreign banks came to offer services principally in connection with
international trade. They were mostly related to the expatriate trading
companies and with the government and did not pay attention to the development
of local Africa entrepreneurship. These expatriate banks controlled about 90% at
the aggregate bank deposits.
Between
1914 and 1930s many unsuccessful attempts to establish locally owned and
managed banks to break the monopolistic barrier held sway by the expatriate
banks. Industrial and commercial banks were set up in 1929 by a committed few
Nigeria. Its day light went off in 1930 due to insufficient capital,
maladministration and aggressive competition with the expatriate banks. Another
group of Nigeria in 1931 established the Nigeria merchantile bank which like
its predecessor was liquidated in 1936.
The
National Bank of Nigeria was the first indigenous bank to survive after it was
launched on 1933 by the same group of pioneers with greater determination and
better planning. By 1945 Chief Okupe founded Agbonmabe Bank limited which was
next in survived indigenous banks. This bank was later taken over by the
Western State Government in 1969 and the name was charged to Wema Bank. The
next successful established indigenous bank was African continental bank by Dr.
Nnamdi Azikiwe in 1947. The Nigeria Penny Bank in 1941, Nigeria farmers and
commercial bank of 1947 and the Merchant bank opened for business in 1952, all
failed and collapsed under the weight of mismanagement and went into abyss in
1946, 1953 and 1960 respectively.
According
to a survey conducted by the central bank of Nigeria (CBN), the period was a
free for all banking that between 1994 and 1952 a total of twenty-two (22)
tanks were registered in Nigeria. Quoted from government records and confirmed
by the financial secretary as the actual member registered as banking companies
between 1947 and 1952 were registered in 1974 and forty (40) in 1952. Many of
them were registered but did not actually commerce operations. There became an
apparent need to protect depositors. The colonial government had to set up a
commission of inquiry called the Paton commission of inquiry consequent upon
which the first banking registration was passed in 1952.
The
enactment of the banking ordinance notwithstanding, banks still indulged in
some obnoxious practices. The effective control of these malpractices the act
could not contented with. This gave rise to the need to establishing a central
bank to supervise and control all the bank activities. Thus the central bank of
Nigeria was established in 1959.
Since
the primary objectives of the expatriate banks were to finance import trade and
other locally based expatriate enterprises, their activities were centered in
the big cities and commercial centres. The indigenous merchants realized
discrimination of these foreign owned banks which would not give them the
financial assistance they required to promote their trade.
Because
the expatriate banks that dominated the banking industry were centered on the
cities, the survived indigenous banks followed suit to struggle for their share
of the profits in the cities. They did not see themselves as instruments at
transformation and development at the rural sectors. In the bid to survive the
competition the indigenous banks lost sight at the fact that their main
objective was to service the need of the rural population. Rather than that
they settled in the big cities and directed their energies towards competing
with the expatriate banks which were out to promote the interest of their
metropolitan headquarters.
That
was the background of the state of affairs of the banking system for about
quarter of a century in Nigeria (from 1893 to 1977) when the federal government
conceived the idea of rural banking. Before 1977 there existed about 470 banks
branches do serve population of over 90million people and a territory of about 920,000
square kilometers. That was very low when compared with other countries of
similar level of development with Nigeria. Besides, the geographical
distribution of the 470 branches was lopsided, Olashore (1981), as Lagos alone
capture more than to hundred (100) branches, state like, Niger, state like,
Niger, former Benue and Rivers to motion but a few had less than twenty (20)
each. The few branches within a state were located in urban centres. Whereas
statistics showed that over 75% Nigeria population live in the rural areas of
the country and derived banking facilities.
In
adding, social and recreational facilities which are essential agents of
economic development were lack. In rural areas thus the stock of money in the
hands of the rural populate was kept outside the banking system. As a result
the income level in this sector was low which in turn limited the valuable
natural resources and left them also unexpected.
It
is clear from the foregoing that the policy mistakes that gave rise to social
and economic frustrations in our society today were as result of inadequate
attention to rural development. Lack of rural development has not been in the
overall interest of our nation. No wonder the former chairman of Director of
food, road and rural infrastructure, air commodore L.D Koinyan in expanding the
moral social, cultural, economic and either reasons for developing rural areas
told the nation in his paper “organizing for effective Grass Root Development”
at the National Assembly complex, Tafawa Balewa square Lagos that:
1. Virtually
all the natural resources are in rural areas and so there is no justification
for neglecting the proverbial goose that lays the golden egg.
2. As a
result of the neglect of the rural areas, rural-urban immigration continues to
create problems for both the rural and urban areas. Because the rural areas
devoid the able bodies men and women development and economic activities have
suffered in the rural in the rural areas, whose over stretching of resources,
creation and encouragement of antisocial behaviours dominated the urban
centres.
3. That the
most compelling reason for rural development is economic through agriculture,
handicraft, cottage and small scale industries. That we attack our problem of
economy, inflation, unemployment, general low standard of living and equality
of at the majority of our people by developing rural areas.
To
avert the obvious disadvantages in this direction the federal government
started booking for effective instrument and strategies to be used. This rural
banking scheme was introduced in April, 1977 by the Central Bank of Nigeria
(CNB) following Chief Okigob’s. The people and community bank of 1989 and 1993
respectively were environment by promoting the rapid extension and expansion of
banking habit in rural communities. The resultant effect is the mobilization of
local savings and the provision of investment funds to aid the much desired
rural transformation this development with lead to opening up the rural areas
and contribute towards the achievement of a more balanced development of
national economic through the provision of small scale loans to small scale
farmers and entrepreneur.
1.2 STATEMENT OF PROBLEM
Through
rural banking has come to stay in Nigeria since 1977 but many backs did not
realize its main objectives, especially in commercial banking sector which
dominated the banking industry. The main objective has been to bring the
network of bank branches to the rural areas thereby drawing banking services
meaner to the rural populace. Some economists say that structural arrangement
and man agreement of banking services to the rural areas. They also hold that
manpower constraint, poor infrastructure facilities and accommodation problems
militate against the rural banking programme.
The
banks do not adhere strictly to the monetary authorities directives; hence their
performance is short of expectations. For instance many banks realize huge
profits which are not ploughed bank for the establishment of more branches and
development of rural areas as contained in the directives. Rather they,
especially the expatriate ones, repatriate these profits to their home
countries.
Questions
are now being asked whether the rural banking/policy has promoted banking habit
among the rural populate. This study will provide information to whether rural
banking has succeeded in the development of rural areas.
1.3 OBJECTIVES OF THE STUDY
The
main objectives of this study are as follows:
1.3.1
To determine the impact of rural banking scheme on the rural populate on
mobilizing savings habit.
1.3.2 To determine that success of the scheme has
promoted economic activities.
1.3.3. To identify the problem militating against
the implementation of rural banking programme.
1.3.4 To examine the prospects of rural banking in
economic development in Rivers State.
1.4 STATEMENT OF HYPOTHESIS
The
study is expected to validate or invalidate the hypothesis.
H01:
That rural banking has encouraged the rural dwellers to inculcate savings habit
in Rivers State.
H02:
That rural banking has not encouraged the rural dwellers to inculcated savings
habit on Rivers State.
H03:
That rural banking has promoted economic activities in Rivers State.
H04:
That rural banking has not promoted economic activities in Rivers State.
1.4.1 METHOD OF STUDY
1.4.2 POPULATION OF STUDY
The
population of this study will consist of all banks in Ikwerrre Local Government
Area of Rivers State.
1.4.3 SAMPLE SIZE
The
sampling of the study will comprise all banks in Isiokpo and Elele, all in
Ikwerre Local Government Area of Rivers State. The sampling that will be
adopted will be a combination of random and cluster sampling. The putting
together of both will be necessary to reflect the importance of all elements to
be educated in the study. The sample size to be selected for the study will be
200 respondents.
1.4.4. SOURCES OF DATA COLLECTION
There
will be two sources of data do be used in this project work. These are primary
and secondary data.
1.4.5 PRIMARY DATA
The
primary data are the data coordinated by the researcher directly through methods
to be employed. The method will include questionnaire and interviews with
personnel of the various banks, customers and the rural dwellers.
The
freshness and unadulterated nature of those data are some of the advantages of
this source of data collection. Besides, they will be more realistic in that
they will reflect the practical and current situation of the subject matter of
this research work. The source also has its disadvantages of time consuming,
expensive, and tedious and demand skill to effectively analyze the data
collected.
There
will be two different questionnaires that will be prepared for this study.
While one will be for bank officials the other will be for the existing and
potential customers of the banks. The samples will be attached as appendix 1
and 11. The questions will be designed to reflect the operational procedures
problems of the scheme and the effect on the economy. Unique set of questions
will be asked in different ways. They will be drafted in drafted in clear and
simple language that can be easily understood by the lag man they will be
structured to include both close and ended type (come with a set of options)
and open ended type i.e. the one that gives the respondent chance to express
his ideas and experience in his own way.
Another
primary data collection tool that will be used will be oral interview method.
This will prove more effective than the questionnaires, especially with the
bank officials whose time constraint and work load make it difficult for them
to complete the questionnaire on time. The oral interview will aim at
appraising the real impact of rural banking scheme on the rural populates, at
least from the point of view of the people themselves.
To
avoid bias which could come up as a result of socio-economic backgrounds of the
respondents, all classes of people will be represented in the survey. They will
include literature, illiterate, proletariat, peasants and bourgeoisies.
The
advantage at this method will be an immediate and on the spot response to the
question raised and also provides other important issues that will form the
bases of subsequent questions. On the other hand its disadvantage will be that
the responses and briefings may be interrupted by visitors and other workers
seeking for one thing or the other. The respondents may not be able to give
straight forward answer also this may result in the researcher putting the bids
together to form a whole.
1.4.6 SECONDARY DATA
These
are the sources of information that have been previously written by other writers
and available. These sources include journals, magazines, newspaper and animal
bank reports. The researcher will select the necessary materials, refine and
moderate them to suit the realities of the present situation of the country’s
rural banking. The materials are historical in natural and will be used mostly
in the literature aspect of this study. This source of information involve to
libraries and other establishments like central bank of Nigeria.
These
are some advantages in using this source of data collection which include.
a. Accessibly
just needs to be located, studied and narrated significantly to the subject
matter of the study.
b. The
researcher does not pay for the information gathered. One of the other hand
disadvantages of this source is that the materials are not allowed to be taken
outside libraries. This result in the researcher visiting the libraries several
dimes for consultations.
1.4.7 TECHNIQUE OF ANALYSIS
The
data collected will be analyzed. The statistical tool the chi-square test (X2).
Basically,
this test has been known as the contingency table test of association, between
two variables. The two basic features of the chi-square test are:
i. The level
of significance (
): This is a
statistical standard or decision rule which is specified for accepting or
rejecting the null hypothesis. It expresses probability of erroneously
rejecting a true null hypothesis. (i.e. probability of an alpha-error or type
are error). For example, a 1% level of significance implies that change of making
the above error is 1 out of 100 (or probability of 0.10) square test.
): This is a
statistical standard or decision rule which is specified for accepting or
rejecting the null hypothesis. It expresses probability of erroneously
rejecting a true null hypothesis. (i.e. probability of an alpha-error or type
are error). For example, a 1% level of significance implies that change of making
the above error is 1 out of 100 (or probability of 0.10) square test.
ii. The
Degree of Freedom: This shows the extent to which we can assign an arbitrary
number at observations to a specific set of group categories.
1.5 SCOPE AND LIMITATION OF THE STUDY
This
study will focus attention on rural banking on the available banks that are
functional in Ikwerre Local Government Area of Rivers State. The study will be
conducted on only two banks which are within the local government.
In
the process of getting the necessary data and information’s thee may be
numerous problems of inadequate documented data. Many people to be interview
are illiterate and it is difficult to put their answers together. These are a
major problem of money. The researcher may not have enough money to procure
materials and transportation required for this research work. Another
limitation is time which the researcher will use to administer and retrieve all
the questionnaire given out. Many officials may be reluctant to give out documents
and facts which will be of great help do the researcher.
1.6 DEFINITION OF TERMS
Rural-urban
migration: this is the movement of people from on ara termed rural
(underdeveloped) do urban (developed) in search employment or recreational
facilities.
Rural
Areas: it is an area of a state not designated as urban area by the government.
Development:
it is a sided phenomenon. It means increased skill and capacity, greater
freedom. Creativity, self-discipline, responsibility and material well-being of
an individual. To the society, it is the ability to increase jointly the
capacity for dealing with the environment. With the aid of science.
Rural
development it is transformation of rural areas for the purpose of economic
growth by providing industrial base and infrastructural facilities.
Urban
Area: it is an area of a state that is not designated as rural (underdeveloped)
by the government.
1.7 SIGNIFICANCE OF THE STUDY
The
importance at this study is to find out if the rural populaces have become
aware of branch banking in their communities. It is also do find out whether
the rural banking has achieved its objectives of promoting and instilling
banking habits mobilizing rural savings, providing credit facilities for the
small business and creating employment opportunities in the rural communities.
Another
aim of the study is to show how banks have complied with the monetary
authorities guidelines on rural banking programme.
The
research will of immense help not only do not the operators in banking industry
but also to the regulatory authorities and the general public alike. It will
further enhance the basis for subsequent researchers who may want to develop
and update on this work.
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Good article with excellent idea! I appreciate your post.RegardsSarkari Result
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