Importance of Savings in Economic Growth of the Rural Sector
Savings are of great importance in a developing country like Nigeria; this is because of
the direct bearing it has on the level of economic activity of the nation within the
agricultural sector. The degree of progress attained in savings will largely depend upon
on what the farmers do with the additional income generated from year to year from
their farming activities. Adequate integration of savings and investment programmes
into development strategies is capable of improving resource allocation, promoting equitable distribution of incomes and reducing credit delivery and recovery cost. (Umar
et al., 2014). Cash is the most liquid asset (monetary form) while the non-financial form
of savings include livestock, grain, land, gold, and other valuables. Adyanwale and
Bamire (2000) expressed that the savings behaviour of farmers in developing countries
is less dependent on the absolute level of aggregate income, but more dependent among
other factors on relationship between current and expected income, the nature of the
business, household size, wealth and other demographic factors.
In recent times, there has been growing concerns on savings mobilization among
economists, researchers and policy makers in Nigeria. This concern is due to several
reasons: one, domestic savings is one of the vital importance in the sustenance and
reinforcement of the savings investment growth chain in developing economies
(Nwachukwu, 2009). Countries that save more tend to grow faster provided that their
financial system is deep (Jonathan et al., 2013).
Successive government in Nigeria has initiated programs that stressed making credit
facilitates available to rural farmers for agricultural development to encourage savings
mobilization in the rural areas. However, the Bank of Agriculture is created to address
these problems to certain extent but it can only do little in a country with a population of
over 150 million people.
The lack of savings facilities creates problems at these levels.
i. The level of the individual.
ii. The level of financial institution.
iii. The level of national economy.
At the level of the individuals, the lack of appropriate institutional saving facilities
forces the individual to rely upon in-kind savings such as savings in form of gold, animals or raw materials rather than financial intermediaries such as savings and credit
organization. These informal savings options, however do not offer security of funds,
ready access to cash to commence a particular enterprise. At the institutional level the
micro-finance institution have often experienced the exclusively credits services that
can lead to undue dependence on external source of financing. This dependency can
cause the MFIs to concentrate on the demands of the donors rather than on the demands
of potential client.
At the level of the national economy, high level of savings increases the amount of
national resources and decrease the need to resort to foreign indebtedness in order to
cover domestic investment and consumption demand. Countries with low internal
savings rates must borrow from abroad, which can result to a debt service burden. This
clearly underlines the importance of savings mobilization to sustain economic growth
with national financial resources.
The presence of Informal savings schemes in both urban and rural communities has
demonstrated potential for leveraging savings for sustainable livelihoods. Yet the
specific use of saving mobilization as strategy to alleviating poverty is relatively known
in Nigeria despite wide recognition of its importance in the developing world.
Constraints to savings Mobilization in Nigeria.
The importance of savings mobilization in economic growth cannot be overemphasize.
However, it has so many constraints one of which is income this is due to the general
low level of income among the households. Another factor limiting savings
mobilization is inadequate banking facilities especially in the rural and peri-urban areas
and issues of delay in transaction where facilities are available. While, the absence of
effective realistic interest rate policy discourages savings.Also, the growing incidences of fraud, insider abuses and malpractice has eroded public confidence in both the formal
and informal financial institutions. This agrees with the statement that the health of the
nation’sbanking system is a linchpin of economic stability (www.investopia.com).
The level of funds mobilization is quite low due to low savings deposit, poor banking
habits, culture of the people and attitudes of banks to small savers (Nnanna,
Englama,and Odoko, 2004)
Concept of Savings Mobilization
Nigeria inherited the micro finance banks model from IFAD which was owned by
members with the intention to provide appropriate financial services at the village level
and to link informal rural financial services to commercial banking sector. The idea of a
micro finance banks was conceived to create a financial institution that would decrease
transaction costs of savings mobilization, reduce information costs, provide loans and
thus reinvest funds in the areas in which they were mobilized.
Rural Financial Services provided people of modest income, excluded from the formal
banking community place to save money together and make loans to each other at a
moderate rate of interest. They endorsed the principles of poor people having capacity
to save (be it in cash or non-cash savings) and recognize their needs for access to micro
finance services (both savings and credit) (Nnanna et al., 2004). The experience with
micro finance banks shows that the link bank as required by the Exemption Note of the
Banking Act has not helped build the capacity of micro finance banks; it has been
exploitative and has hampered progress and growth by siphoning savings from the
community members don’t have a say in designing and managing what they needed. An
example of this is that micro finance banks were not linked to the business activities of
their members. The other issue was that the FSC’s (financial service cooperatives) were
not regulated and that is why some of them are not active in terms of operation.
However, the recent introduction of the Cooperative Banking Act allows them to
provide financial services.
Savings and savings mobilization in any economy is undertaken by formal, semi-formal
and informal Institutions. The formal institutions include banks, financial institutions, cooperatives and the post office. In addition to these, numerous semi-formal and
informal institutions like Credit and savings associations that take savings and
mobilized savings deposits in rural areas (FAO, 2010). Adera (2005) stressed on the
influence of certain factors on the supply of savings and empirically showed the
existence of a negative correlation between the rate of savings and the costs/risks
incurred by customers. These include transportation cost and the risk involved in
moving with large sums of money through long distances. However, whatever motive
an individual may have for savings, the rate of savings in any given society depends on
the available savings institutions which themselves must fulfill conditions like an
efficient number, diversity, accessibility, attractive terms of operations, perfect
knowledge on their existence and the usefulness and trust people have on them.
According to Sika and Trasser (2001), 90% of rural Nigerian economy is controlled by
the informal financial sector while the remaining 10% by the semi-formal and formal
sectors. The low number of commercial banks and formal financial institutions
generally explained the complete absence or lack of financial services in the rural areas.
Rural communities of some countries may save jointly for a variety of purposes
generally not for lending but for the bulk purchase of farming inputs and for various
social functions (Fontem et al., 2006). It also became apparent in a number of rural
areas that the informal system operated more efficiently and equitably than did the
formal financial sector (Rahman et al., 2010).
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