Paper

Federal Republic of Nigeria: Assessment of Community Banks

Attempting to improve the performance of community banks in Nigeria
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This study on community banks in Nigeria aims to:

  • Assess the past and present performance of community banks, in particular, rural-based banks;
  • Propose a first framework for their support.

The paper discusses:

  • Deficiencies in the original legal framework that led to the poor performance of these banks;
  • The decline in the number of banks;
  • Closure of the banks due to malpractices;
  • The resulting loss of public confidence in the community banks;
  • The regulatory reforms introduced by the Central bank of Nigeria (CBN) in 2000 that led to better banking practices and performances.

The paper finds that:

  • The poor performance of the community banks was due to:
    • Their poor design;
    • Unprofessional supervision by the National Board for Community Banks (NBCB);
    • Insufficient financial endowment of the NBCB;
    • Lack of attention by policy makers and low donor support.
  • Community banks have enormous potential to:
    • Enhance access to financial services for the rural population;
    • Increase growth in rural areas;
    • Decrease poverty.
  • Community banks have the following advantages:
    • Proximity to their clients;
    • Intimate knowledge of local habits, opportunities and constraints;
    • Concentration on simple banking functions.

The paper concludes by listing concrete measures to improve the performance of community banks in the following three areas:

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

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