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Financial inclusion lessons from Ghana (1)

By Obadiah Mailafia

I WAS  in Ghana recently to undertake a study on financial inclusion commissioned by the Bill and Melinda Gates Foundation. I did extensive field work, interviewing key stakeholders such as officials of the Bank of Ghana, leading commercial bankers, TELCOs and microfinance operators.

It was my good fortune to be hosted by my friend H. E. Muhammadu Bawumia, a renowned Oxford-educated economist and Vice-President of the Republic of Ghana, who is also principal anchor for the Ghana financial inclusion agenda.

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By financial inclusion we mean the provision of financial services to socially and economically marginalised and excluded segments of the population. It entails provision of bank and other financial services to as broad a spectrum of the population as is possible in a manner that empowers them economically while enabling access to the life-blood of credit and other financial services.

Ghana is a medium-sized West African country and a regional member-country of the ECOWAS regional economic community.  With a landmass of 239,567 km2, Ghana has a population of 27 million, with a nominal GDP of US$45.5 billion and a per capita income of US$1,607.  Ghana fairs reasonably well in terms of human development, with a HDI of 0.579 and a medium Gini Coefficient estimated at 42.8 percent.

The country, like many others on the continent, went through periods of instability, turbulence and military dictatorship before returning multi-party democracy in 1992. Ghanaian political traditions stand out in West Africa by the absence of large-scale ethno-sectarian conflict, unlike us in Nigeria.

At independence in 1957 – the first in colonial Africa — Ghana was one of the most prosperous countries in the  developing world. The economy was dependent largely on agriculture and mining, particularly cocoa, gold and bauxite.

A combination of poor leadership and weak economic governance plunged the country into crisis. In the eighties, Ghana became the poster-child for economic reform under the tutelage of the IMF and the World Bank.

Although the impact of these reforms remains open to debate, there is no doubt that they set the country on the straight and narrow path of more prudent macro-economic management.

More recently, the country discovered oil in commercial countries. Unlike their neighbour Nigeria, Ghanaian leaders are anxious to avoid the so-called “oil curse” and to ensure that the benefits accruable are spread throughout all sections of society.

After slippages in 2016, the economy has seen growth averaging 3.5% in 2017. However, the country’s external debt burden is reaching rather unsustainable levels, having risen from US$29.2 billion in 2016 to US$31.7 billion in 2017, amounting to a whopping 68.1.% of total GDP. Headline inflation still hovers above single digit, but has eased from 12% to 11 percent.

The central bank’s monetary policy rate (MPR) currently stands at 21%, posing a major challenge to bank borrowing.

Following the famous 2007 currency redenomination exercise by the Bank of the Ghana, the cedi was almost at parity with the US dollar, although it has inched downwards to the present US$1/GhC 4.52. Thanks to improvements in global oil prices, external reserves have increased from US$4.9 billion in 2016 to US$5.9 billion in 2017, representing 3.4 months of imports.

After presidential elections in 2016, the National Patriotic Party, NPP, won with a significant margin. In January 2017, a new administration was sworn into power with Nana Dankwa Akufo-Addo as president.

The administration’s principal policy thrust is to diversify the economy, pursue industrial development and reduce the country’s dependence on external aid for its development financing. The prospects for the country remain positive, given the likelihood that global oil prices could continue to improve, with a strong outlook for gold and cocoa.

In the late 1980s, the Ghanaian authorities instituted a number of banking reforms to ensure a more robust banking environment. The banks were required to ensure a certain minimum requirement in terms of capitalisation, with some restraints placed on single-obligor limits for commercial banking credit.

In the 1990s, further changes were made to upgrade the quality of the banks. The number of banks expanded from three to more than a dozen.

Today, there are some 29 commercial banks in Ghana. They include several subsidiaries of Nigerian banks, notably First Bank, Access Bank, Fidelity, Guaranty Trust Bank, Stanbic IBTC, UBA and Zenith.

According to available data, licensed banks in Ghana have risen in number from 28 in 2014 to 33 in 2016 while branches rose from 967 in 2014 to 1,341 in 2016. Microfinance institutions rose from 503 in 2014 to 564 in number.

The number of active mobile money agents has also risen from 20,722 in 2014 to 107,415, demonstrating the employment-creation value of financial inclusion. The number of ATMs also rose from 923 in 2014 to 1,928 in 2016. Non-bank financial institutions, on the other hand, have improved only marginally from 60 in 2014 to 64 in 2016.

The matrix of institutional infrastructure underpinning the Ghanaian payments system aims to enhance ease and speed of transactions by business agents, government, banks, traders and other business entities.

The overall objectives, according to the Bank of Ghana, are to develop an integrated electronic payment infrastructure that will enhance interoperability of payment and securities infrastructures while containing risks in payment, clearing and settlement systems while deepening financial intermediation and enhancing overall efficiencies in the financial system.

In 2008, the Bank of Ghana, BoG, issued branchless banking regulations and guidelines to enable commercial banks leverage digital technologies in the financial inclusion space. But those guidelines limited the role played by mobile network operators, MNOs. Subsequently, Ghana signed the Maya Declaration in 2012 while joining the Better Than Cash Alliance, BTCA, in 2014.

By so doing, the authorities were demonstrating a firm commitment to digital financial inclusion. To help manage the growing digital financial services sector, which grew from an estimated 150,000 active users in 2011 to more than 4 million in 2015, the central bank released new guidelines governing e-money issuers and the use of agents in financial services.

Ghana currently has 38 million mobile subscribers, which amounts to 130% telephony penetration.

There was much initial resistance by commercial banks to development of mobile banking by TELCOs. Within the central bank itself, with its known conservative bent, there was some resistance with regard to mobile banking. The BoG gradually overcame these barriers through legal creativity. The TELCOs were allowed to float independent companies in which they were major shareholders. These companies became legal entities independent of the TELCOS and able to do essentially banking business while not being commercial banks in the full sense of the word.

By year 2015, there were six main digital financial services providers across Ghana. These are: MTN, Tigo, Airtel, Vodafone, Fidelity Bank and e-Zwich. MTN, Tigo, Airtel and Vodafone are all mobile network operators offering mobile money services throughout the country. In addition to these financial services providers, there are more than 27 commercial banks, some 60 non-bank financial institutions, 138 rural and community banks, 503 licensed MFIs and hundreds of licensed individual susu collectors that have become active across the country.

Mobile money, a core element in financial inclusion, is clearly making progress in Ghana. It is used, in most instances, to pay utility bills, buy goods and services, make direct payments for loans and savings contributions, buy airtime and data bundles, send to/receive money from other mobile money users, and send money to and withdraw money from a bank.

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