Ten years after the establishment of the Rural Banking Scheme (RBS) in Nigeria, 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. The central assumptions of the scheme were 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. Consequently, Nigeria established a quasi-commercial bank type of rural banking system, by means of legislation requiring commercial banks to open branches in rural areas. This study questions the validity of the underlying assumptions, and sets out to investigate the appropriate mix of policy variables necessary for establishing an effective rural banking system in Nigeria and other developing countries. Rural residents were surveyed to find out which variables are important in determining rural bank use. Discriminant analysis showed that four variables were significant in discriminating between rural bank users and non-users. These variables were household income, years of formal education, gender of respondent, and the awareness of the existence of the rural bank branch. The proximity of the bank to the respondent's residence was not a significant determining variable. 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.