Community Banks, Credit Supply and Rural Economy

In this paper, the contribution of community banks (CBs) to the supply of credit in the rural areas of Nigeria has been investigated by using appropriate model and estimation technique. The results reveal that the contribution of CBs is not significant as compared with other major suppliers of credit in the rural areas, such as conventional banks and state credit institutions. This poor performance of the banks may be attributed to several factors including limited number of banks, weak capital base, diversion of funds, non-repayment of loans, among others. As a matter of policy, the regulatory institution of the community banking system can improve the performance by applying appropriate measures to the problems that have been identified in the study. An enlarged and wellmanaged community banking system, operating in an enabling environment, is expected to make more meaningful contribution to the supply of credit in the rural areas.