Microfinance Sector in Ghana

1. Microfinance Sector in Ghana Presented at Hotel White Sands, Dar es Salaam, Tanzania, from 17 – 28 November, 2008 Organised by International Development Law Organisation (IDLO) Under the Theme ‘Microfinance : Building Inclusive Financial Sectors and Supportive Legal and Regulatory Frameworks for the East African Region’ Presenters Nana Opare-Djan, CEO/Kraban Support Foundation, Ghana Adishetu Hamidu Apania, Asst. Econ. Officer, Min. of Fin. & Econ. Planning (MoFEP)

2. Presentation Outline • Background/Introduction • Key Stakeholders • Institutional framework • Previous MF Strategies • Current Country Strategies • Challenges • Way Forward

3. Background/Introduction • Economic profile of Ghana • MF & poverty reduction in Ghana • The evolution of MF sector

4. Economic Profile of Ghana • Main blueprint for development is the Growth & Poverty Reduction (GPRS II) document • Seeking Ghana to become a middle income country with per capita income of $1000 • Economy must grow at an annual average rate of 6.02% in Cedi terms to realize the $1000per capita income by 2015 • GDP was 5.8% as at 2007 • Relative shares of the various sectors and sub-sectors in GDP • Agriculture is about 36% • Industry is about 25 % • Services is about 29 % • Indirect Taxes constitute about 10 % • Inflation - 18.03% as at September 2008 • Prime Rate is 17 % • Commercial lending Rates (25 – 35%) • Currency is Ghana Cedis (USD 1.00 =GH¢1.21) • Population is 21 million • Birth Rate is 2.6% • Mortality is 57 years • Large informal sector (80%) & subsistence • Financial Literacy Rate is 38%

5. MF & Poverty Reduction in Ghana • The main goal of Ghana’s Growth and Poverty Reduction Strategy (GPRS II) is to ensure “sustainable equitable growth, accelerated poverty reduction and the protection of the vulnerable and excluded within a decentralized, democratic environment”. The intention is to eliminate widespread poverty and growing income inequality, especially among the productive poor who constitute the majority of the working population. • According to the 2000 Population and Housing Census, 80% of the working population are found in the private informal sector. This group is characterized by lack of access to credit which has become a key factor militating against the development and growth of that sector of the economy.

6. The Evolution of the Microfinance sector • Available evidence also suggests that the first credit union in Africa was established in Northern Ghana in 1955 by Canadian Catholic missionaries. Susu, which is one of the current microfinance schemes originated from Nigeria and imported to Ghana in the early 1900s. • Provision of subsidized credits in the 1950s. • Establishment of the Agricultural Development Bank in 1965 specifically to address the financial needs of the fisheries and agricultural sector. • Establishment of Rural and Community Banks, the introduction of regulations such as commercial banks being required to set aside 20% of total portfolio to lend to agriculture and small scale industries in the 1970s and early 1980s; • Shift from regulated financial sector regime to a liberalized regime in the 1986 leading to the emergence of other financial institutions; • Promulgation of PNDC Law 328 in 1991 to allow different categories of financial institutions including savings and loans companies, financial non-governmental organizations (FNGO) and Credit Union Associations (CUA) to provide a diverse range of financial services to Micro and Small Enterprises (MSEs).

7. MF Evolutionary Outcomes (1) • Access to financial services is imperative for the development of the informal sector and also helps to mop up excess liquidity either as surplus or investment capital for national development. The Ghanaian financial sector, in spite of the reforms, still experiences a gap between the demand for and the supply of financial services. • The observation was stressed in the International Monetary Fund Country report on Ghana of May 2003 that “weaknesses in the financial sector that restrict financing opportunities for productive private investment are a particular impediment to business expansion in Ghana.”

8. MF Evolutionary Outcomes (2) • Formal suppliers such as savings and loans companies, rural and community banks, as well as some development and commercial banks; • Semi-formal suppliers such as Credit Unions, Financial NGOs, Cooperatives and Susu Associations; • Informal suppliers such as; Money Lenders, Susu collectors and Rotating Savings and Credit Associations (ROSCA),

9. Key Stakeholders • End users • Main practitioners • Technical service providers • Government of Ghana • Supporting institutions

10. Main microfinance practitioners Microfinance Apex Bodies namely: • Association of Rural Banks (ARB) - Rural and Community Banks, • ARB Apex Bank • Association of Financial NGOs (ASSFIN) - FNGOs • Ghana Cooperative Credit Unions Association- Primary Societies • Ghana Cooperative Susu Collectors Association (GCSCA) - Susu Collectors • Savings and Loans Companies • Some development and commercial banks • Micro-insurance and micro-leasing. End Users • Economically active poor who are clients of microfinance products and services. Technical Service Providers  • Business Development Service Providers, Government of Ghana • Ministry of Finance and Economic Planning • Bank of Ghana • Ministries, Departments, Agencies (MDAs) and Metropolitan, Municipal and District Assemblies (MMDAs), Supporting Institutions • Microfinance and Small Loans Center (MASLOC); • The Ghana Microfinance Institutions Network (GHAMFIN); • Universities, Training and Research Institutions; • Development Partners and International Non-Governmental Organisations

11. Institutional Framework • Ministry of Finance & Economic Planning • Bank of Ghana (MoFEP) • Microfinance and Small Loans Centre (MASLOC) • Ghana Microfinance Institutions Network (GHAMFIN) • Ministries, Departments & Agencies (MDAs) • Metropolitan, Municipal & District Assemblies (MMDAs) • Assoc. of Rural Banks (ARB) • ARB Apex Bank Limited • Ghana Credit Unions Associations (GCUA) • Ghana Cooperative Susu Collectors Association (GCSCA) • Association of Financial Non-Government Orgs. (ASSFIN) • Ghana Savings and Loans Companies (GHASLOC)

12. Previous Country Strategies

13. Current Country Strategies

14. Other MF Services Linkages Technical Services only Support Program for Enterprise Empowerment & Development (SPEED) Ghana –Financial Literacy & Consumer Education-GTZ/DANIDA MoFEP-Rural Financial Services Project (RFSP) Value Chain Enterprises development – SNV/ACDI-VOCA/PCV • Barclays – Susu Collectors • ASSFIN – EB.ACCION S& L/Ghana Commercial Bank • Grain Banking Initiative – Technoserve/FBOs/NGOs • NTCD/E – ADRA Ghana MF/USAID /Smallholder Farmer Groups • Export Development Fund • Ghana Private Sector Development Growth Facility

15. Other Social Investors • Oikocredit EDCS – SAT • Vision Fund – APED • ECLOF International, Geneva – ECLOF Ghana • ABC Microfinance – KSF • Kiva Microfunds – SAT/CRAN • Planet Finance – APED

16. Grants • JICA – Physically Challenge Persons initiative • TIAW/KSF – Refugees on-lending program • UNICEF • CIDA • CCFC • Cordaid • DANIDA • Oxfam GB/Novib • NEW Energy • Etc

17. Challenges Institutional Arrangement Credit Delivery and Management Credit Delivery Mechanisms The current strategies for credit delivery are not adequately diversified and inefficient, and therefore, unable to meet the varying demands of the market. Categorization of Institutions There is no framework for categorizing and upgrading some of the emerging microfinance institutions in the semi-formal and informal sub-sectors in accordance with their operational capacities and capabilities. Classifying target groups The objective of the microfinance is to provide resources for the poor. Nonetheless, there is yet to be adequate, reliable and acceptable methods for classifying varied poverty levels to enhance the categorization of potential and actual MFI clients. Targeting the Vulnerable and the Marginalized People with disabilities People with disabilities and differently-abled do not have designed products to meet their needs and are also not adequately served by existing microfinance funds and services. The necessary skills training for this target group is currently non-existent. Women The existing skills training and funding arrangements for women do not seem to be market-driven. Thus, specific services and products that target women for entrepreneurship development to enable them engage in economic activities and become more self-reliant are inadequate and incoherent. Youth Young people aged 15-24 years account for about a third of the population of Ghana and constitute over half of the unemployed population. Yet, there are no special microfinance programmes that target the youth for entrepreneurial development. The stakeholders in the sub-sector play various roles which are expected to be complementary. Due to lack of defined areas of operation, the roles and responsibilities of stakeholders currently overlap in some cases. The overlap is also due partly to the fact that organizational and institutional hierarchy and reporting relationships among all the stakeholders are not clearly defined. There is the need therefore to clearly define relationships and roles to enhance effective implementation and delivery of services. Capacity Building Human Capacity To promote the sub-sector, the various stakeholders organize training programmes and activities with the view to upgrading the human capital in the industry. Though helpful, the competency level desired to be achieved with these training programmes is still below the expected. Thus, the human capacity of some key stakeholders and institutions including MASLOC, GHAMFIN, Bank of Ghana, MFIs, and relevant Ministries such as the Finance and Economic Planning and Technical Service Providers is currently inadequate. The random and incoherent nature of training programmes has also hampered the achievements of the projected gains for the sub-sector. The flaw in the human capacity of all the stakeholders has had a rippling effect on the governance and structure of the industry. Furthermore, the current Microfinance Apex bodies lack adequate cadre of in-house trainers and/or facilitators as well as in-house monitoring and evaluation units to continually measure progress of their activities consistently overtime.  Infrastructure Infrastructural capacity in the sub-sector is yet to be developed around an integrated and holistic logistical support and internal operating systems. Funding Funding for the sub-sector has been from three sources: the institutions themselves, government and development partners. Firstly, available funds do not seem to be adequate to meet demand and secondly, the varying sources come with their conditions, distorting the market in some cases. There is also no microfinance fund to which MFIs can apply for on-lending and capacity building support. 

18. Challenges (ctd) Data/Information Gathering and Dissemination National data and Reporting System Generally, there is paucity of information on microfinance institutions, their operations and clients in the country. Approaches to and methodology for data and information gathering at the national level are not uniform, leading to poor interventions and categorization of institutions. The current attempt to develop a national data bank on microfinance is yet to be fully realized. There is lack of well defined reporting system by both the government and development partners with regards to their interventions. The outcome is inadequate data base for decision-making and planning. nstitutional data At the institutional level, data/information gathering and dissemination are weak within and between institutions. The lack of common benchmarks, methods for measuring and information sharing further inhibits the performance of the sub-sector. Clientele Data Lack of adequate and reliable information on outreach in terms of depth and breadth remains one of the most daunting in the sub-sector. This lack of information has affected targeting of clients and ultimate poverty reduction. Regulation and Supervision National There is no forum for dialoging between and among the regulatory bodies, apex institutions, various categories of microfinance practitioners and the end the users in the formulation, implementation and review of regulatory and supervisory policies and procedures. The absence of a recognized system to identify and coordinate MFIs in Ghana leads to fragmentation in the operations of the sub-sector. Formal Institutions Microfinance institutions in this category face rigid regulatory and supervisory systems and these present some challenges for product innovativeness, outreach and ultimately the performance of the institutions. Semi-formal and Informal Institutions There is lack of well specified guidelines for operations and among apex bodies namely, CUA, GCSCA, ASSFIN and Cooperative Council. This leads to uncoordinated activities and invariably hampers the performance and outreach of their member institutions.

19. Challenges (ctd) Consumer Protection Current microfinance practices lack the mechanisms for ensuring consumer protection or sovereignty. The non disclosure and lack of transparency undermines the operations of some MFIs. Collaboration and Coordination National There is no national body which is responsible for coordinating all activities associated with microfinance. As a result there is lack of coherent approach, fragmentation, duplication and inadequate collaboration between and among MDAs, MMDAs, development partners, service providers, practitioners and end users. Institutions Apex institutions, their member institutions and service providers do not have an overall coordinating body that will ensure the institution fora, mechanisms for the transfer of best practices, identifying and use funds for on-lending and resolving multiple placement of clients. The existing institution does not include all practitioners and service providers. Research, Monitoring and Evaluation Current research activities within the sub-sector are weak and inadequate. Researches undertaken are uncoordinated focus areas of specific institutions. There is therefore no national research agenda to inform planning and policy formulation in the sub-sector.   Monitoring and Evaluation The current capacity of various institutions in the sub-sector to undertake monitoring and evaluation of programmes and activities is currently inadequate. No national monitoring and evaluation framework exists to guide practitioners on their activities. Different monitoring and evaluation frameworks are being used making it difficult to undertake comparative assessment of programmes and projects for their impact on the performance of institutions and clients.

20. Way Forward • Relationships and roles must be clearly defined to enhance effective implementation and delivery of services • Central Microfinance Fund could be established to provide on-lending and/or capacity building support. The experience of the RFSP Training Fund should be built upon • The current attempt to develop a National Data Bank should be carried through and fully utilized