Indigenous banks in colonial Nigeria

Abstract

Introduction Nigeria was the only country among the pre-independence British African colonies that developed an indigenous banking system1 alongside the colonial banking system.2 Other colonies were either overwhelmed by colonial legislations, which made it impossible for the indigenes to establish banks,3 or their economies provided an inadequate base for such commercial banking.4 With the establishment of indigenous banks, Nigeria had a dual banking system that exhibited a paradoxical and potentially dangerous dichotomy. One group of banks- the foreign banks- possessed ample reserves, highly skilled executives, and long experience. Such banks however maintained a restricted branch system, provided finance only for the most respectable and conventional borrowers, and tended to engage in capital export. The other group of banks- the indigenous banks- lacked capital, controlled a small volume of deposits and specialized in the finance of relatively risky undertakings. The result was not only a maldistribution of finance but also a dangerous distribution of risks.5 It was therefore not surprising that these indigenous banks faced a much higher risk of failure than their foreign counterparts. The first indigenous bank in colonial Nigeria: the Industrial and Commercial Bank was established in 1929. It failed in 1930. Despite this setback, further attempts were made and by 1960, at least twenty-seven local banks had been established of which twenty-one had failed.6 This paper examines the socioeconomic conditions that led to the establishment of these banks, the management of these banks, the various challenges faced by these pioneer indigenous institutions, and the survival strategies adopted by them. Other extraneous forces that worked in favor of some of these indigenous banks, especially the political support from the African run regional governments, also will be examined. To achieve its aim, the paper is divided into five parts. Part 1 critiques the structure of the colonial banking system in Nigeria while Part 2 explores the operations of indigenous banks in the colony. Part 3 attempts an explanation for the indigenous banking crisis while Part 4 explores the role of government support in the continued existence of the few indigenous banks that survived the crisis. Part 5 concludes the paper. 1. Structure of the Colonial Banking System Commercial banking in Nigeria commenced in 1891 with the advent of the African Banking Corporation. In 1894, the operations of the bank were taken over by the Bank of British West Africa (BBWA).7 In 1899 a second foreign bank, Bank of Nigeria, was established.8 This bank was absorbed by the BBWA in 1912. For the next four years, BBWA had the banking field in Nigeria to itself. AU this changed in 1916 with the advent of the Colonial Bank.9 Barclays Bank entered the Nigerian banking arena in 1925, via its merger of the Colonial Bank with the Anglo-Egyptian Bank, which it already owned with the National Bank of South Africa to create Barclays Bank (Dominion, Colonial and Overseas). Colonial banking in Nigeria was initially to provide banking services for the British commercial enterprises then in existence. It was therefore not surprising that they seldom established operations in territories without British commercial interests.10 The banks therefore did not aim to satisfy the needs of the Africans.11 The widespread belief that Africans were, in general, not credit worthy also contributed to the lack of interest of colonial banks in their affairs.12 Protests by the African traders against the BBWA were first documented in 1912. Subsequent to the absorption of the Bank of Nigeria by the BBWA,13 a pamphlet titled An Appeal from the Native Traders of Lagos to the Financiers of Great Britain was published in Lagos that year. The document alleged that BBWA charged rates which were excessively high ... even ... exorbitant and displayed intolerance in business matters. …

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 18 citations exist upstream.