RURAL DEVELOPMENT: THE OPTIONS OPEN TO MICRO FINANCE BANKS

BY

INTRODUCTION
Recently, it has been observed that most nations remain a dependent nation because of their inability to empower their rural settlement. Rural settlements are those areas that are not urbanized.

The United Nations defines a Rural

settlement as any settlement of less than 24,000 in population. It emphasizes on the general characteristics of the rural community to include:
1.

Lack of major infrastructural developments such as good network of

roads, electricity, and health facilities etc.

2.

Low educational facilities and low overall educational level. Conservative in behavior etc.

3.

Setting these parameters to determine what a Rural settlement is, we will find that only very few state capitals can be described as urban settlement in Nigeria. However, United Nations survey in 1975, stated that 81.9% of Nigerians live in the rural settlement. The major distinction between the Urban and Rural settlement, including those located within major cities, is the level of poverty. According to Prof M O Ijere rural people are"victims of collective poverty, lacking purchasing power enough to maintain a minimum standard of living". Unfortunately, these rural people are
Microcredit, or microfinance, is banking the unbankables, bringing credit, savings and other essential financial services within the reach of millions of people who are too poor to be served by regular banks, in most cases because they are unable to offer sufficient collateral. In general, banks are for people with money, not for people without. (Gert van Maanen, Microcredit: Sound Business or Development Instrument, Oikocredit , 2004) (Microcredit) is based on the premise that the poor have skills which remain unutilized or underutilized. It is definitely not the lack of skills which make poor people poor.charity is not the answer to poverty. It only helps poverty to continue. It creates dependency and takes away the individuals initiative to break through the wall of poverty. Unleashing of energy and creativity in each human being is the answer to poverty. (Muhammad Yunus, Expanding Microcredit Outreach to Reach the Millennium Development Goals, International Seminar on Attacking Poverty with Microcredit, Dhaka, Bangladesh, January, 2003) Microcredit belongs to the group of financial service innovations under the term of microfinance, other services according to microfinance is microsavings, money transfer vehicles and microinsurance. Microcredit is an innovation for the developing countries. Microcredit is a service for poor people that are unemployed, entrepreneurs or farmes who are not bankable. The reason why they are not bankable is the lack of collateral, steady employment, income and a verifiable credithistory, because of this reasons they cant even meet the minimal qualifications for a ordinary credit. By helping people with microcredits it gives them

more available choiches and opportunities with a reduced risk. It has successfully enabled poor people to start their own business generating or sustain an income and often begin to build up wealth and exit poverty. Microcredit fits best to those with entrepreneurial capability and possibility. This translates to those poor who work in growing economies, and who can undertake activities that generate weekly stable incomes. For those who dont qualify because they are extreme poor like destitute and homeless almost every microcredit institution have special safety programs that offer basic subsistence and later endeavours to graduate this members in their microfinance program making ordinary microcredits available. Microcredit plays an important role in fighting the multi-dimensional aspects of poverty. Microfinance increases household income, which leads to attendant benefits such as increased food security, the building of assets, and an increased likelihood of educating ones children. Microfinance is also a means for self-empowerment. It enables the poor to make changes when they increase income, become businessowners and reduce their vulnerability to external shocks like illness, weather and more. Microcredit has widely been directed by the non-profit sector while commercial lenders require more conventional forms of collateral before making loans to microfinance institutions. But now its successfully growing bigger and getting more credibility in the traditional financeworld. Due to that the traditional banking industry have begun to realize that this borrowers fits more correctly in a category called prebankable. T he industry has realized that those who lack access to traditional formal financial institutions actually require and desire a variety of financial products. Nowadays the mainstream finance industry is counting the microcreditprojects as a source of growth. Before almost everyone where neglecting the success of microcredit in the beginning of the 1970s when pilot projects such as ACCION where released until the United Nations declared 2005 the International Year of Microcredit. The most of the microcredit institutions and agencies allover the world focuses on women in developing countries. Observations and experience shows that women are a small credit risk, repaying their loans and tend more often to benefit the hole family. In another aspect its also seeing as a method giving the women more status in a socialeconomic way and changing the current conservative relationship between gender and class when women are able to provide income to the household. Women are in most cases responsible for children, and in poor conditions it results in physical and social underdevelopment of their children. 1.2 billion people are living on less than a dollar a day. There are many reasons why women have become the primary target of microfinance services. A recent World Bank report confirms that societies that discriminate on the basis of gender pay the cost of greater poverty, slower economic growth, weaker governance, and a lower living standard for all people. At a macro level, it is because 70 percent of the worlds poor are women. Women have a higher unemployment rate than men in virtually every country and make up the majority of the informal sector of most economies. They constitute the bulk of those who need microfinance services. Giving women access to microcredit loans therefore generates a multiplier effect that increases the impact of a microfinance institutions activities, benefiting multiple generations.

In the past few years I have heard community banks described either as Rural Community Banks or Urban Community banks. It is therefore necessary to define a Rural Community. OBJECTIVES OF RURAL DEWLQPMENT In any development programme, the objectives should be to fulfill the needs and aspirations of the beneficiaries. What happens in our rural communities is that some Government agencies dream up some beautiful projects and dump such projects at a very high cost on the communities, after the noisy and highly publicised commissioning ceremonies the projects are abandoned to Mr. Rural Community with no funds for their operation or maintenance. Hence, the pathetic state of personnel and infrastructural developments in the rural,

communities. The recently established community development committees have not been able to help out in the circumstance because of the poverty-stricken nature of their communities. Effort at developing the rural communities must have the following objectives:
a.

Sustained improvement of the quality of life and standard of living of a majority of the rural populace. These will include provision of regular portable water supply, regular electricity supply for domestic and production use, and all season roads for evacuation of farm products. Raising the quality, value and nutritional balance of their food intake at affordable prices. Enhancing the improvement of their health condition through accessible and reliable health services. Improving their housing and general living and working condition including easy procurement of farm inputs and transportation of farm harvests. Creating greater human resources development and employment

b.

c.

d.

e.

opportunities, more importantly, self employment, which in turn would lead to improved productive capacity and income levels within the communities. The provision of the above amenities would improve their quality of life, and the wealth of the community. The aforementioned conditions would go a long way to arrest the rural - urban drift of the young school leavers. Our individual perception of development would depend largely on our background, training and experiences. But, the Ministry of National Planning, defined True Development as follows: "True Development must mean the development of man - the unfolding and realization of his creative potential, enabling him to improve his material conditions and living through the full utilization of resources available to him. It is a process by which man's personality

is enhanced; and it is that enhanced personality, creative, organised and disciplined -that is the moving force behind the socio-economic transformation of society. It is clear that development does not start with goods and things; it starts with people - their orientation, mobilization and discipline. When the accent of development is on things, all human resources remain latent, untapped potential and a society can be poor amid the most opulent material resources. On the contrary, when a society is properly orientated, organised and disciplined, it can be prosperous on the scientific basis of natural wealth." COMMUNITY BANKING CONCEPT After a review of some aspects of the rural community, it is now proper to look at the concept of community banks. "The fundamental concept of a community bank is to establish a self sustaining financial institution, owned, and managed by members of a community, for the purpose of providing credit, banking and other financial services to its members, largely by their self recognition and credit worthiness". This is a community banking creed we should bear in mind at all times. FUNCTIONS OF COMMUNITY BANKS The community banks are expected to: a. Inculcate banking habits in the rural population.
b.

Inspire in the communities the spirit of ownership and maintenance of facilities and organisation. Generate credit from within the communities for enhancing the development of productive and the purposeful improvement of the economic status of the communities and their individual members. Provide bridge loans during off-seasons as means of breaking the dependency on and the hold of, local money-lenders on the vast majority of rural dwellers.

c.

d.

e.

Formalize the use of communities as effective vehicles of rural change and national development. Generally promote rural activities such as agriculture, commerce, arts and crafts, agro and mineral based cottage and small-scale industries, vocational and trade skills, rural transportation and other rural economic activities, particularly in support of small farmers, micro entrepreneurs, women, youths and co-operatives; and Promote the emergence of an effective and integrated national financial system that responds to the needs of the whole economy, ft from the grassroots to the national level.

f.

g.

I would like to summarize the above seven points mission statement as Community Bank is a financial institution owned by the community, run by the community and used for its development. RURAL DEVELOPMENT - OPTIONS OPEN TO COMMUNITY BANKS In discussing Rural Development - Options Open to Community Banks, we shall be looking at the objectives of rural development that fall within the fundamental concepts of the community banks. The establishment of community banks was the third major effort made by Government to mobilize and bring loanable funds to the reach of rural communities. Community Banks have been very successful because, they are owned and managed by the members of a specific community. The communities are now taking their economic destiny in their own hands instead of waiting indefinitely for Government development projects that never really significantly change their lot. They are mobilizing their respective communities and changing the monetary culture of the rural dwellers. HUMAN RESOURCES DEVELOPMENT The greatest hindrance to Rural Development is the lack of skilled and semi-skilled

manpower. The job opportunities available in the urban areas virtually attract every employable person, leaving only the unadventuresome in the rural area with no incentive to acquire or develop new skills. Community Banks may not be able to set up institutions to train artisans, etc, but suitable persons could be selected through the Community Development Association and sent out for specific training attachments to handle vital commercial and technical aspects of community life. The Community Banks can initiate scholarship schemes no matter how minimal for skill acquisition for operators and mechanics to maintain and service such items as mono pumps and generating plants. Community Banks can also sponsor the training of specific skill-teachers who could bring improvement to the quality of local manpower. The community banks working with the Community Development Committee should identify these areas and map out a programme for implementation.

AGRICULTURE Peasant agriculture is the main stay of the rural economy. Rural dwellers spend very long hours on the farms, carry out very tedious chores like bush clearing, burning, stumping, planting, weeding, harvesting and transportation of farm products. Most times, difficulty in transportation of farm crops is the limiting factor to a farmers output. The community bank could initiate and organise farmers into cooperative societies to enable them borrow funds for inputs such \ as hoes, seedlings, matchests, fertilizers and insecticides and pesticides which will improve their productivity. I am aware that Community Banks have gone a long way to assist in the preparation of farm land for farmers who have pooled their farm steads together. This has been done through the hiring of agricultural tractors and other farming

machinery. It is worthy of note that the tobacco industry in Nigeria which has adopted the agricultural extension system for its leaf supply has been very successful. By this method the company has some field staff who supervise the farm activities, the supply and distribution of inputs as well as the harvesting and sales of the leaf. The Community Banks can also borrow a leaf there from. The Community Banks can also assist in the provision of simple storage and preservation facilities. Storage and preservation of agricultural products make for price stabilization and improved income for the farmers. There will be sales of farm products throughout the year. Community Banks have also engaged in the bulk purchase of fertilizers for distribution to their customers at very reasonable prices. The state associations can make representation to the appropriate authorities and obtain direct allocation of fertilizers for their members. Community banks can improve the income of their customers by sourcing markets for their farm products. INFRASTRUCTURE In most rural areas there is almost a complete absence of good roads and transportation system, health and social welfare, education, water and electricity. Development of these infrastructures is very necessary to reduce the drift of the rural dweller out of their communities and to improve the quality of life of rural dwellers. It will also improve production and facilitate transportation of farm produce to consumption areas. Filani (1978) argued that transportation provides the arteries through which the economic lifestream of a society flows - the people, information, raw materials and finished products which help to build and maintain the society. Stuckey (1973) states "__ for the most part, new transport facilities enabled the expansion of local activity and the integration of previously isolated markets". In effect, no society can exist above the subsistence level without a measure of

improvement in its transport system. Since Governments have so far paid insufficient attention to the provision of adequate transport facilities in the rural areas as a means of stimulating rural development because all the Governments are more or less urban based. Community banks can assist through social organisation of the rural populace into cooperatives for the purchase of motor vans for the evacuation of farm products. Community Banks may not be financially strong now to undertake road construction or building of schools, hospitals and health centers but they can through the Community Development Committee undertake grading of important feeder roads or repair of public buildings in the community before the structures become dilapidated. Some community banks have already provided boreholes for irrigation of farm lands, business houses and portable drinking water for their communities. expenses. They run and maintain the water I " supply at their Though the water supply is not V distributed throughout the

community, they ensure that any one \ who needs household and business water supply can always find within the community. COMMERCE Trade and commerce are a vital part of any community life but the poorer the community the smaller the trading and commercial activities. Usually one or two persons emerge as the community traders on petty items but the actual beneficiaries of the productive capacity of the community are usually non residents who know where the goods can be disposed of at good prices. This explains why the farm price is often, far less than the market price of farm products. The community banks could encourage and assist members of the community who show-interest in trading by providing short term capital to enable them purchase goods in bulk from the farmers for sale in urban markets. When a trader travels a long distance to buy goods, he will be able to improve his

margin, if he could travel with a larger sum of money and buy more goods., paying the same transportation cost. I am aware of a community bank that is working with a number of , market traders who take three monthly loans of sums varying between N5,000.00 and N50,000.00. The traders are very happy as their turnover has increased substantially over the year. They did not have to provide any collateral for their loans but I understand none of the traders has failed to pay back his loan on schedule. They have also carried out a lot of publicity for the community banking system, nothing the fact that market traders never benefit from orthodox/commercial bank loans since they are never able to provide substantial collateral for their loans. May I seize this opportunity to inform you that two Community Banks, one in the north and the other in the south have reached agreement to finance commodity exchange for their customers.

MACHINERY AND EQUIPMENT There is a complete absence of mechanization of activities in the rural areas. In many rural communities, the woman who converts maize to wet maize floor (Akamu) still does it by pounding the maize using mortar and pestle. Manual garri grating has stopped in most rural communities though the unavailability of garri grating machine as a result of break down is quite high. Milling and drying of rice and other products are still being carried out in crude methods, community banks can provide advances to stimulate the acquisition of simple equipments for these purposes. The community banks can encourage rural industries by looking into the proper and more effective utilization of local resources and products. Utilization of agricultural produce for rural industry, stimulates agricultural development. The community banks can use the local equipment research institutes such as EURO

and PRODA to source for equipment that can improve and simplify certain rural activities. They could encourage and finance the local cooperative to buy such equipment and provide the service locally at a reasonable hire cost. A community bank has completed arrangement for the installation a wood sawing machine to process local timber and earn more income for its customers. Another community bank financed the setting up of a welding shop to carry out all the welding needs of the community. This workshop is also training other apprentices from the community who want to be welders. A community bank financed a standby generating set and additional hair dressing equipment to ensure a local saloon was not interrupted by power failures. The increase in equipment permitted the intake of trainees from the community. A community bank financed the hire of dredger to pile sand for the community. The sand has since been sold off. The community and bankers are all smiling to the community bank. Hitherto, only the big businessmen could undertake such operations. They usually paid the community insignificant pittance compared to the actual earning. SYNDICATING LOANS At present community banks are unit banks, and have no financial links with other community banks. The correspondence banks are restricted to accepting, clearing and paying out cheques only. The National Board has to create a forum either through a community bankers bank being established in each state or using the existing state associations in co-operation with the zonal office to work out modalities for intercommunity bank transactions. If resources are pooled together it will be possible for one rural community to benefit in the short term from the excess funds of other community banks. With an asset base of over two billion naira, we can at the national level jointly syndicate the finance for production of adaptation of three-wheel cars used predominantly in Asian countries for

evacuation of products from distant farms with poor access roads. This development will dramatically improve the rural economy, if the cost of the vehicles are kept low and functional. CONCLUSION For effective rural development, the community banks must get to know their community, the catchment area. The catchment area should be regarded as the potters clay which we have at our disposal to mould into a beautiful work of art. We should devote sometime to know the people in our community, find out who they are, what they are doing and what can be done with them;. The community bank must be accessible to a large number of the community dweller through sponsorship of social, sporting and other community events. The board and Management must be ready and willing to receive, discuss and advice on any ideas brought to them by any member of the community. Our mission statement as community banks is very clear. With no branch network, we must work closely with the Community Development Committees and members of the community. If we alienate our community then we have lost our banks for there can be no community bank without a community. Conversely as we succeed in generating economic activities and wealth in the community, the bank will also grow in its ability to offer better services to the community. In his statement, during a press briefing, Prof Akin Mabogunje, Executive Chairman of the National Board for Community Banks, stated "If democracy must thrive, flourish and sink deep roots into our nation, it must be because, we have thoroughly democratised, both the political and the economic order. This is what the massive effort at rural development is out to achieve. It is the goal for which it has been necessary to establish the community banks." We as practitioners must share his vision of this crusade to develop and make the rural areas economically viable. We have achieved success and acceptance in a very short period of operation as a result of his untiring dedication to duty, forthrightness

and the very transcending air of confidence that he has brought to bear on this very unique and exciting banking experiment. If we all work conscientiously to translate our vision of rural development into reality, and it is a noble and worthwhile vision, we shall not only see the options for development available in our respective communities, but we shall also have the will to make this vision a reality.