Academic journal article European Journal of Sustainable Development

Policy Choices and Challenges in Expanding Access to Finance for Growth in Rural Nigeria

Academic journal article European Journal of Sustainable Development

Policy Choices and Challenges in Expanding Access to Finance for Growth in Rural Nigeria

Article excerpt

1. Introduction

Access to finance in general is fundamental to growth and development. A well functioning financial market assists in channeling funds to their most productive uses, and allocates risks to those who can best bear it. An efficient financial sector that responds to the needs of the private sector increases investment, enhances economic growth, creates job opportunities and improves income distribution. Access to financial services in the rural area in particular allows poor people to manage their household cash flows, start new agricultural activities and set up small businesses. When poor households have access to higher earnings and safe ways to save their money, they can pay for health care and education, and plan and invest in the future of their farms or businesses.

Based on the available evidence, Nigerian financial system has witnessed significant growth over the years. The phenomenal growth and high financial depth can be attributed in part to the country's vast network of financial institutions, including rural finance. For years, Government and the Central bank of Nigeria had to intervene especially with respect to stipulation of credit guidelines in favour of agriculture and agro allied activities which constitutes 70 per cent of activities in the rural areas. Moreover, several programmes and schemes were implemented to enhance increased credit to the rural areas. Some of these policies include sectoral allocation of credit and concessionary interest to rural and micro entrepreneurs. As an illustration, in 1969, banks in Nigeria were compelled to lend at least a minimum percentage of their loanable funds to agricultural sector. The stipulated minimum percentage of loanable funds increased from 4 per cent in 1972 to 18 per cent in 1996. Also, the CBN introduced the rural banking policy in 1977 that required commercial banks not only to open stipulated numbers of rural branches but also to advance not less than 50 per cent of the total deposit mobilized in the rural areas to rural borrowers. The number of rural branches increased from 13 at the inception of rural banking scheme in 1977 to 722 in 2005. Finally, there were such programmes as Agricultural Development Programme (ADP), National Directorate of Employment (NDE), the Directorate of Food, Road and Rural Infrastructure (DFFRI), Better Life for Rural Women, and National Microfinance Policy and Regulatory Framework (NMPRF).

Improvements in rural finance notwithstanding, the supply of formal finance appears to be biased against the rural population. Rural communities remain centre of deprivations inspite of the various efforts at increasing financial services to them by the Government and the CBN. This therefore raises the following questions: what are the constraints and challenges of providing financial services in the rural areas? What are the policy initiatives that can be introduced to improve rural financial services in Nigeria? Hence the main objective of the paper is to examine the challenges and ways to improve rural financial services in Nigeria.

The rest of the paper proceeds as follows. Section 2 discusses some conceptual issues in rural financial policy. Section 3 examines various challenges facing expansion of financial services to the rural areas. Section 4 identifies policy and challenges in expanding access to finance for growth in rural areas. The last section provides the conclusions.

2. Conceptual Issues in Rural Finance Services provision

2.1 The concept of rural finance

Rural finance refers to the broad range of financial services, such as savings, credit, payment transfers, leasing, insurance, etc rendered by formal and informal financial service providers operating in rural markets. According to the Consultative Group to Assist the Poor (CGAP), rural finance is the financial services offered and used in rural areas by people of all income levels. It addresses the financial needs of the rural population. …

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