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    Giordano Dell-Amore Foundation

    BANKING FOR THE POOR: THE CASE OF THE PEOPLE's BANK OF NIGERIAAuthor(s): J.C. Anyanwu and U.B. UwattSource: African Review of Money Finance and Banking, No. 1 (1993), pp. 87-103Published by: Giordano Dell-Amore FoundationStable URL: http://www.jstor.org/stable/23024778 .

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    BANKING FOR THE POOR: THE CASE OF THE PEOPLE'S BANK OFNIGERIA

    J.C. AnyanwuCollege of Education, Nsugbe, Anambra StateU.B. UwattUniversity of Ibadan

    1. IntroductionIn recent years public policies towards financial system and economic development haveshiftedaway from he old orthodoxyof financial repression (eg. subsidization ofprivatefinancial institutionsby government, imposing ceilings on interest rate, directed andrationed allocation of credit to approved sectors at low interest rate, etc. to that of financialliberalization). Here government intervention n the financial system is deemphasizedin favour of market determined interest rates and credit allocation. Incidentally, this concept offinancial liberalization has been firmlyntrenched inthe IMF/World Bank sponsored stabilization and Structural Adjustment Policies (SAPs).In Nigeria, the financial market deregulation and financial liberalization accompanyingthe adoption and implementation of the StructuralAdjustment Programme (SAP) since1986 has resulted in a rapid upsurge in the growth of traditional banking institutionssuch as commercial and merchant banks, and non-bank financial institutions such asfinance houses and stock broking firms. In addition, there has been an upward movement in interest rates. This high interest rate structure coupled with the collateral-basedoperational modalities of the commercial and merchant banks and the limited spreadof these banks to the rural areas despite many years of concerted effort to promoteruralbanking has made it mpossible for he under-privilegedNigerians engaged in smallscale but legitimate businesses to have access to bank credit. Consequently their ability to expand these businesses and thus reduce the burden of the structural adjustmentprogramme is greatly impeded.It is also important to note that at the instance of the Central Bank of Nigeria, the Financial System Review Committee in 1975 recommended and the Federal Governmentapproved a programme ofgeographical dispersal of bank branches particularly esignedto ensure the penetration of the rural areas by banks. The scheme which started in1977 ended its official thirdphase in 1989 (and established in 1991) with a total of765rural branches opened by 1990 out of a total allocated number of 766. Despite this impressive performance, most rural dwellers especially the low-income group cannot secure credit facilities from these commercial banks due to high costs of credit (particularly in a deregulated interest rate environment), lack of collateral security, high levelilliteracy, and low financial requests which commercial banks consider not worthwhileto extend given their high-risk. It was in an attempt to overcome this credit-scarcity constraintthat the People's Bank of Nigeria (PBN) Limited was established. The bank isa specialized financial institutionestablished by the Nigerian government to provide

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    AFRICAN REVIEW OF MONEY, FINANCE AND BANKING- 1/93

    credit to the poor.The main purpose of this paper, therefore, is to evaluate the performance of the People's Bank of Nigeria within he two years of existence. Accordingly, the paper is divided into sections. Section two deals with the formation,aims and objectives of the People's Bank ofNigeria. In section three we look at the operational modalities of the bankwhile evaluation ofperformance is done in section four. Section five is devoted to policy recommendations.

    2. Formation, Aims and Objectives of PBNThe People's Bank of Nigeria came into existence on October 1, 1989 during the 29thindependence anniversary broadcast of the President and Commander-in-Chief of thearmed forces of the Federal Republic ofNigeria, General IbrahimB. Babangida. Howeverthe commissioning of the first ranch of the bank at Ajegunle (a ruralslump settlementof petty businessmen and women in Lagos) two days later by the President and thefirstdisbursement of loans at the occasion marked the officialbeginning of bankingservices of PBN.The People's Bank of Nigeria derives its philosophical focus and operational modalities from the Grameen Bank of Bangladesh; a specialized financial institutionestablished by the government of that countryforproviding loans to the poor and upliftingtheireconomic conditions. The Grameen Bank is one (and perhaps the best example)of such institutions n developing countries directed at the poor. Others include Microfundin Philippines, Association forDevelopment ofMicroenterprises (ADEMI) in Dominican Republic; Small-scale Enterprises Programme in Calcutta, India; Saving Development Foundation inZimbabwe; WorkingWomen's Forum inMadras, India; Badan KreditKecamettan (BKK) and Kupedes both in Indonesia (World Bank, 1990).Generally, the People's Bank of Nigeria is seen as a strategy to ameliorate the sufferings of the masses by providing them with easy credit; curb mass unemployment atthe grassroot and encourage economic self reliance at the grassroot. Accordingly, itsobjectives as spelt out by government are to, among other things:a) Extend banking facilities to the poor people who do not have access to the creditfacilities available at commercial banks.b) Create opportunities for self-employment for the vast, unutilized and under-utilized

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    J.C. ANYANWU,U.B. UWATTBANKING FOR THE POOR

    manpower resources.c) Bring disadvantaged people together with the goal of some organisational formatswhich they can understand and operate.d) Eliminate exploitation by shylock money lenders.e) Help cushion some of the painful effects of SAP on poor sectors of the economy.f) Compliment government's efforts n improvingthe productive base of the economy and raising rural employment and income.g) Halt rural-urban migration, andh) To inculcate banking habits at the grassroots level with its attendant benefits forthe lower classes.In order to ensure the achievement of these objectives and to streamline the operations of the bank, it was given a legal status as a specialized financial institutionbyDecree No. 22 (People's Bank of Nigeria Decree 1990) of 30th July1990 and effectiveOctober 1, 1989. According to Section 2(1) of this decree, the functions of the bankinclude:a) the provision of basic credit requirements of the under-privileged Nigerians whoare involved inlegitimate economic activities in both urban and rural areas and who

    cannot normally benefit from the services of the orthodox banking system due totheir inabilityto provide collateral security;b) the acceptance of savings from the same group of customers and make repaymentsof such savings together with any interests thereon, after placing the money, inbulk sums, on short term deposits with commercial and merchant banks.The main targets are the under-privileged Nigerians comprising road side mechanics,self-employed, plumbers and electricians, petty traders, small-scale farmers, poultryand other livestock keepers, truck pushers, petty tailors, dress makers, barbers, hairdressers, washer men and women, and other persons who need financial assistanceto improve their trade and economic well-being.

    3. Operational Modalities of the PBN:The People's Bank of Nigeria started on an experimental basis between October andDecember 1989 under a ten member task force. The task force was expected to (a)

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