As in many African markets, much of Ghana’s population remains unbanked. Previous asset freezes, limited infrastructure, regional income disparities, a large informal sector and an elevated poverty rate have all combined to limit the ability of the broader population to access financial services.
Estimates by GIZ and the World Bank suggest that some 70% of the population does not have a bank account. This is high even by West African standards – in Nigeria, for example, the figure is about 46%. All the same, Ghana has significant financial services infrastructure in place for reaching these people and a long history of trying to do so. While results have so far been mixed, the country does have the means to raise the number of banked citizens.
Trying For Decades
Attempts to reach the unbanked go all the way back to independence. Many of the state-owned banks created thereafter were formed so that credit would be distributed more easily, especially to businesses that had difficulty getting access in the past. In part, this was predicated on the assumption that credit would alleviate poverty. Commercial banks were required to make 50% of their loans to the agricultural sector and the postal service offered microsavings products.
According to the World Bank, however, these programmes were unsuccessful. Lending was limited partly because of lenders’ requirement of collateral, and most of the loans ultimately went to cocoa farmers. The rural branches, meanwhile, were largely used to collect deposits, which were then funnelled to lend to urban customers.
To alleviate the credit gap, more formal institutions were set up. The first rural and community bank (RCB) was established in 1976 in Nyakrom, with its capital coming from the local community. Another RCB was set up in Biriwa the following year. By 1984, the country had 106 rural banks.
In 1985 the Bank of Ghana (BoG) published a code for these institutions. A minimum capital requirement was set and a shareholding structure mandated – shareholders could hold 67% of the equity and the rest would be owned by the central bank. Importantly, individual shareholdings were limited, to allow for wide participation and prevent any group from dominating. The RCBs got into trouble in the 1980s, with the non-performing loan (NPL) ratio hitting 80% by 1986. The problems, according to the World Bank, were the result of inexperience, lack of supervision and the agricultural loan quotas that the central bank placed on these institutions.
Reforms followed one after another. A recapitalisation fund was established, capacity building was implemented and limits on individual shareholdings were adjusted from a fixed cedi amount to a percentage. Policy lending was curtailed or eliminated, agricultural lending was reduced from 50% to 20%, and concessional interest rates for priority sectors were ended altogether. In 2002 the ARB Apex Bank was formed to act under the BoG’s authority as a sort of sub-central bank for RCBs. Minimum capital requirements and capital ratios were also increased. At present the country has 140 RCBs.
Susu & Moneylenders
Ghana also has a long history of informal financial institutions. lectors, for example, a type of small-scale savings and loans (S&L) agent, have been active in the country since the 1980s or early 1990s – a practice borrowed from Nigeria. These financial intermediaries collect small sums of money on a periodic basis and then return a pre-agreed amount at a later date, providing a form of forced savings that would be of little interest to a bank. They also provide very shortterm financing – usually about 30 days – for some customers. Money lenders, credit unions and other financing companies also operate within the country and can provide credit to the unbanked. “Unlike those in east and southern Africa, microfinance institutions in Ghana are full-fledged commercial activities,” said Prince Sarpong, managing director of ASN Holdings, which among other activities provides micro-loans through its subsidiary.
In 2011, the BoG tightened its regulations on these institutions. The Non-Bank Financial Institutions Act of 2008, which became effective in 2011, outlines the new requirements. Susu collectors taking deposits and making a profit are required to have minimum capital of GHS100,000 ($38,120) if they have a single office. Money lenders and others not taking deposits must have GHS60,000 ($22,872) in capital and a gearing of no more than eight-to-one. Individuals who act as susu collectors or moneylenders are not required to have capital, but must be a member of an industry association.
Under the law, the central bank created four nonbank subcategories: RCBs and S&L companies, of which there are 23; susu companies and credit unions; group moneylenders; and individual susu collectors and moneylenders. In an implementation notice issued in 2011, the BoG said that all institutions then covered under the Banking Act would continue to operate under it. The rest would have to get either a licence or an exemption from the central bank under the new law.
In January 2014 the central bank announced that it would be freezing the number of microfinance licences at an undisclosed level. At that point, the central bank had already issued more than 340 licences and had another 600 applications awaiting approval. As of July 2014, some 390 microfinance institutions and 50 moneylenders had been licensed.
Commercial lending rates at the universal banks regularly exceed 20% for all but bluechip clients, and this high level of interest still impacts payments. According to local media, microfinance companies generally charge around 5-8% per month, and even the best of businesses have a hard time keeping up with the payments. However, microfinance firms face the same challenge that all lenders do in frontier markets with low levels of inclusion: an opaque credit environment. People in the informal sector usually lack collateral and rarely keep books, so it is challenging to assess their prospects. The people who need loans to expand their businesses often have a hard time qualifying.
Many of those participating on the lower rungs of the system aspire to upgrade as they develop the business and gain access to capital. Moneylenders and susu collectors want to become small banks; small banks want to become commercial banks. First National, for instance, is being upgraded from an S&L company to a deposit money bank, while Noble Dream Microfinance is changing from a microfinance company into an S&L. Such advances are potentially good for the sector, as they mean more competition and stronger institutions.
Advances in technology, such as the e-zwich card introduced by the Ghana Interbank Payment and Settlement Systems, may help reach the unbanked by allowing institutions to keep closer tabs on their clients and assess the markets they serve. The e-zwich smart card, since it can be used at all institutions, will make it easier for small savers to build up balances and create a payment history. Smaller financial firms, however, may find it hard to keep up with the costs of installing and maintaining IT systems, Eric Osei-Bonso, former managing director of the ARB APEX Bank, told the local press.
On the back of successes like Kenya’s M-Pesa service, which now handles cash volumes equivalent to about one-third of Kenya’s GDP, mobile money is seen as a way for currently unbanked Ghanaians to get better connected. More people in Ghana have mobile phone accounts than have bank accounts – penetration for mobile phones recently passed the 100% mark, and penetration for mobile broadband is at least 33%. Indeed, it may be that more Ghanaians use high-speed internet than use banks.
The central bank has worked to make mobile money as open and easy as possible. Under its 2008 guidelines on mobile payments, it insists on interoperability and forbids exclusive partnerships for online financial services. Because of Ghana’s experience with ATMs, which for years were exclusive to each bank and hence inconvenient for most, the BoG wanted the mobile money market to be open, although press reports suggest this structure may have led banks to promote the services less heavily than they might in an exclusive relationship.
Nevertheless, activity seems to be picking up. In 2014 mobile operator Tigo signed a $2m deal with the IFC and MasterCard to develop mobile money services with an eye to improving financial inclusion. In mid-2014 MTN announced that 5m subscribers had made transactions in single month using its mobile money service. The company said that the key to success has been its partnerships with many banks, of which it currently has 10: Access Bank, ADB, Cal Bank, Ecobank, Fidelity, GT Bank, Universal Merchant Bank, Stanbic, UBA and Zenith. MTN has also developed a scheme with Ecobank that allows its mobile money service to withdraw from Ecobank ATMs without the use of an ATM card. “With MTN Mobile Money it is important to identify the desired corridor and fully develop infrastructure on both ends before rolling out the service,” Serame Taukobong, managing director of MTN, told OBG. “Doing this ensures that you can maintain momentum and service support, which is critical with a new concept.” Other developments in mobile finance include Airtel’s cooperative agreement with Ghana Post. The operator already has relationships with Databank, Ecobank, Energy Bank, Fidelity Bank, GT Bank, Standard Chartered Bank, uniBank, UBA and Zenith Bank. “There are opportunities in the rural sector we believe are being neglected,” said Desmond Nartey, executive director of CDH Securities. “Because of the extension of services, especially electricity, things are opening up.”
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