RURAL BANKS AND ROLE IN POVERTY ALLEVIATION AND ECONOMIC DEVELOPMENT OF HOST COMMUNITY

CHAPTER ONE 1.0 Introduction Globally, rural development is a strategy designed to improve the economic and social life of the rural people and this has received great attention in national plans of various countries. In Ghana, Attimir (2015) averred that the need to improve the standard of living of the rural people dates back to the colonial era as one of the major problems facing rural people has been the lack of institutionalized financial facilities. In spite of the recognition of crucial role that access to financial services can play in the socioeconomic development of the rural communities in Ghana, the availability of these financial services in rural communities was extremely limited because the main sources of credit for the rural people were mainly money lenders and traders who charge exorbitant interest rates. Consequently, this has resulted in rural people inability to increase their productivity, income and improve upon their standard of living. Howbeit Essel (2016) mentioned that attempts in the past to encourage commercial banks to advance credit to rural people failed to achieve the desired results. In this regard, specialized banking institutions were created to advance financial services to the rural dwellers. The specialized bank yielded no better results as these banks used their rural branches to make payments to cocoa farmers and collect deposits for lending in urban areas which are more profitable and less risky. Due to these frictions, the Government of Ghana recognized these developmental challenges of rural populace and to overcome these constraints, supported the establishment of rural banks through her policies that are dedicated to providing financial services to the rural community, as such community and rural banking is considered to be a vital tool for poverty reduction and economic development at grass root level. 1. 1 Background of the Study A major development issue facing many developing countries has been the need to reduce the scale and depth of poverty among the growing population. Chandy and Gertz (2021) estimate that there were about 878.2 million people living below the poverty line in the year 2015. As a developing country, Ghana is no exception to the global phenomenon of poverty. The Ghana Living Standard Surveys by the Ghana Statistical Service show the poverty trend in Ghana. The studies’ results show that the percentage of the population defined as poor, relative to the poverty line, was 37% in 1987/88 (GLSS1), 42% in 1988/89 (GLSS2), 31% in 1991/92 (GLSS3), and 39.5% in 1998/99 (GLSS4). The 2005/06 survey (GLSS5), however, shows a decline in poverty, with 28.5% and 18.2% for the upper poverty line an d lower poverty line, respectively. This implies that the problem of poverty persists, even though it is declining (GSS 2017). Thus the elimination and reduction of poverty is a key concern of development thinkers and practitioners (Coyle, 2017). As identified by Adebayo and Adeola, (2018), one of the major constraints to rural development is the problem of the inadequate financial capital which has a greater influence on level of productivity and general well being of the rural household. Thus the need to introduce programme that is capable of transforming the financial capacity and the livelihood of rural populace. Adebayo et’al (2018) assert that this can only be achievable through bringing financial institution close to rural people, empower them through credits and encourage them to adopt good saving culture. The duo further reported that the relevant of the financial institution (banks) in the rural areas are to enhance productivity and promotes standard of living by breaking the vicious cycle of poverty in the rural areas. Significantly, the beginning of the 1970s saw attention geared towards improving the well being of the rural poor who formed the majority of the population in developing countries. Many governments and international and local agencies shifted their attention and channeled their resources towards rural development. This idea was motivated by the intention of reducing the levels of unemployment, increasing access to public goods and services by the rural population and, more particularly, lowering poverty and overcoming income inequalities in most developing and least-developed countries (Brohman, 2020). As part of the measures to address poverty, microfinance and, specifically, rural banking have been deemed appropriate. Research has shown that financial institutions in rural areas have a significant role to play in the effort to reduce poverty in these areas (Burgess & Pande 2015). In the fight against poverty it is believed that the introduction of banks in rural areas enhances the livelihood of rural dwellers. It is assumed that intervention will change human behaviour and practices in a way that will lead to the achievement of desired outcomes (Hulme, 2016). Financial services for the poor have also been proven to be a powerful instrument for reducing poverty, enabling poor people to build assets and increase incomes, and reducing vulnerability to economic stress and shocks (Van Santen, 2018). Consequently the government of Ghana, through the Bank of Ghana (BoG), on 5th July 1976 introduced the rural banking concept into the country. The Bank of Ghana sponsored the establishment of the first rural bank at Agona Nyakrom in the Central Region, and by December 1987 as many as 117 rural banks had been established. The number has since increased to 127 ( World Bank, 2019). According to the Association of Rural Banks (1992), cited in Essel (2016), the aims of rural banks are to stimulate banking habits among rural dwellers, mobilize resources locked up in the rural areas into the banking systems to facilitate development, and identify viable industries in their respective catchment areas for investment and development. Similarly, URT (2019) opined that community banking offers beneficial financial services to low-income people. It promotes capacity to manage scarce household and enterprise resources more efficiently and protection against risks. Finally, it improves provision of advantage of investment opportunities, for economic returns. 1.2 Statement of the Problem The central assumptions of introducing rural banking scheme have been that, increasing the physical proximity of banks to rural people enhances rural savings mobilization and, in turn, increases the flow of funds to the rural sector. Contrarily, several decades after the establishment of the Rural Banking Scheme (RBS) in Ghana, there are clear indications that the problems and issues which led to the scheme are still prevalent. . These include a low level of rural savings mobilization, inadequate use of banking services, and lack of credit for rural people. Although some rural banks doing well in terms of micro finance and commercial banking activities structured to satisfy the needs of rural areas, there are lot more rural banks who are still struggling to be on their feet and are not doing much to complement the government’s effort to alleviate poverty and improve 4 the living conditions of the rural people. The large part of their credit facilities which should be directed to the farmers and small-scale rural entrepreneurs for onward investment in productive ventures, rather goes to the government salaried workers who also invest in unproductive ventures. Thus, many rural banks appear to give credit to people who do not fall into the bank of Ghana target groups. Oloyede (2018) mentioned that it is not uncommon to see many credit recipients spending borrowed credit on land litigation and funeral ceremonies instead of productive ventures. The Bank of Ghana initiated the Rural Banking system with the hope that small-scale rural producer and small towns would benefit from the new credit. Given that about 60% of the masses in developing countries still live in rural areas below poverty line (Merrill 2019) regardless of the introduction of rural and community banking, rural banking programme has come under critiques in recent times as some researchers have questioned its effectiveness to uncertain whether or not the rural banks are fulfilling the basic function for they were created, hence the research on the topic “contribution of rural and community banks towards economic development and poverty alleviation communities. 1.3 Objective of the Study 1.3.1 General Objective The general objective of this study is focused on the contribution of rural and community banks towards economic development and poverty alleviation communities. 1.3.2 Specific Objectives in other to achieve the aforementioned general objectives, the study was broken down into the following specific objectives: The specific objectives of the study are; 1. To identify the services rendered by the rural banking system. 2. To evaluate the activities of these banks in line with their stated objectives. 3. To ascertain the role that rural banking plays in the agricultural, industrial, service, commercial, and transportation sectors of the rural economy. 1. 4 Research Questions i. What are the services rendered by the rural banking system. in Ghana? ii. What is the performance of Rural Banks according to their stated objective? iii. What is the extent at which rural banking scheme has contributed to rural economic development? iv. What are the operational challenges hindering the banks from improving the living conditions of the rural folks? 1.5 Significance of the Study This study will be of immense benefits to the microfinance institutions and banks rural branches enlightening them on the importance of meeting rural populace financial need. These findings have important implications for rural bank designers and implementors in Nigeria and other developing countries. They suggest that the current emphasis on the physical distance, as a critical factor in rural bank development, should be replaced by a broader and a more comprehensive strategy which would incorporate and utilize an appropriate mix of policy variables to enhance the effectiveness of the rural banks in Nigeria.empirically, the study will add to the body of existing literature and serve as a reference material to scholars and student who wishes to conduct further studies in related field. 1. 6 Brief Methodology The study adopted the following methodology; data were gathered from both primary and secondary sources. The main secondary source include textbooks, internet, journals, published and unpublished articles and government publications especially that of Apex Bank which is a supervisory body to all Rural banks in Ghana. Non probability sampling technique was used to select the respondents from the banks customer base and a convenient sampling technique was used to select one respondent from management. Structured questionnaires were administered to obtain primary data from customers of Nsutaman Rural Bank Company Limited and a structured interview was used to obtain data from management. In analyzing the data, statistical tools such as Chi-Square, mean and standard deviation presented in frequencies and tables. 1.7 Scope of the Study The scope of this study borders on contribution of rural and community banks towards economic development and poverty alleviation communities. The study was conducted on Nsutaman rural bank, a bank that offers service to the people of Nsuta and its environs. Nsuta is a town in sekyere central district in the Ashanti Region. It is in the town that Nsutaman Rural Bank Ltd is located. The research work focuses on the contributions of the Bank to the people of Nsuta. 1. 8 Limitation of the Study It has not been easy conducting this study, although 40% of the respondents claim they had at least middle school education, their response to the questions were very discouraging. Most of the answers given did not correspond to the questions asked. In some cases questions had to be repeated more than twice. Some of the respondents refused to answer some questions because they did not deem it safe for discussing their financial issues with outsiders. In some situations, the respondents thwarted information they feared they would be singled out if they should discuss issues as they stand. Another problem was the small-scale operators do not keep accounts, it was therefore difficult finding their performance before and after they had received credit facilities. Most of them gave approximate values.It was almost impossible to have completed this work since most people were not ready to co-operate.