Assessment of Community Banks in Nigeria

This study aims to assess the past and present performance of community banks, in particular rural-based banks, and to propose a framework for their support. The paper states that:

• Community banks were intended to permit rural communities to own and manage their financial institutions and easily access financial services;
• The original legal framework had many deficiencies, leading to the creation of a number of mini-commercial banks, most of which became insolvent;
• As a result, there was a loss of public confidence in community banking.

Examining the present situation, the study reports that:

• In 2000, the Central Bank of Nigeria was given the responsibility of regulating and supervising community banks;
• It introduced changes that led to improved bank performance and practices;
• Community banks in Nigeria are integral to poverty reduction in rural areas;
• They have various advantages like proximity to clients, knowledge of local habits, cultures, opportunities, constraints, etc.

The paper concludes by suggesting measures in the following three areas that would develop the comparative advantage of community banks:

• Addressing the governance problem in community banks;
• Improving their lending activities;
• Bettering regulation and supervision.