AFRACA REGIONAL WORKSHOP ON RURAL FINANCIAL INTERMEDIATION ACCRA, GHANA

1. AFRACA REGIONAL WORKSHOP ON RURAL FINANCIAL INTERMEDIATION ACCRA, GHANA REGULATORY FRAMEWORK FOR FINANCIAL INCLUSION IN GHANA Bank of Ghana

2. OUTLINE • INTRODUCTION • WHAT IS FINANCIAL INCLUSION • BANK OF GHANA’S ROLE IN FINANCIAL INCLUSION • CHALLENGES IN REGULATION FOR FINANCIAL INCLUSION • BANK OF GHANA’S APPROACH • CONCLUSION Bank of Ghana

3. INTRODUCTION • No debate about the need for financial inclusion. General agreement exists about the benefits of providing increased access to financial services. • Access to finance is critical for broad-based economic development and growth. Lack of access inhibits lives and limits the choices. • 2005 - UN declared as year of microfinance - to focus attention on innovative ways of providing and sustaining access to finance by countries and governments for the underserved segments of their populations. Bank of Ghana

4. INTRODUCTION-cont. • The debate has been about how to achieve financial inclusion. The crux of that debate is: what policy frameworks support financial inclusion and how can access to financial services be broadened and deepened. • It is appropriate therefore that AFRACA has chosen the theme ‘Rural Financial Intermediation for Growth and Wealth Creation’, for this Regional workshop. Bank of Ghana

5. WHAT IS FINANCIAL INCLUSION? • Encompasses the processes for providing opportunities for people to save, to access credit and to insure against relevant risks that they face. • Challenge is: Developing the appropriate institutions, products and services that ensures that people desiring these services are able to access them. • Access means more than availability; services and products should be cost effective, timely and appropriate. • Regulatory policy has a critical role to play in enhancing access to financial services. Bank of Ghana

6. BANK OF GHANA’S ROLE IN FINANCIAL INCLUSION - 1 • BOG has responsibility for fashioning regulatory policy aimed at ensuring the safety, soundness and stability of the banking and financial system. • This role includes licensing and supervising an appropriate mix of institutions to ensure financial service provision to all segments of the population. • Ghana boasts of a well diversified financial system, which now comprises: • BOG and the 26 universal banks • The ARB Apex Bank and the system of rural and community banks (RCBs) – Apex Bank and 136 RCBs. • Deposit taking non-bank financial institutions – savings and loans companies (19), finance houses (21) • Non-deposit taking financial institutions – leasing and mortgage companies (7) • Credit Reference Bureau (1) Bank of Ghana

7. BANK OF GHANA’S ROLE IN FINANCIAL INCLUSION -2 • These institutions are governed by clear legal and regulatory framework – The Banking Act, 2004 as amended by the Banking (Amendment) Act 2007 and the Non-bank Financial Institutions Act, 2008, ARB Apex Bank Regulations, LI 1825 • RCBs and Savings and Loan Companies have been the key formal institutions for delivering financial services to the poor and the marginalized. • Some commercial banks have also set up microfinance departments/SME units to deliver banking and credit services to small and micro-credit customers. Bank of Ghana

8. BANK OF GHANA’S ROLE IN FINANCIAL INCLUSION - 3 • BOG is supporting the harnessing of ICT to deliver financial services through a number of ways: • The establishment of GhIPSS -the e-zwich payments platform and smart card – involving the use of biometric smart card technology to facilitate savings and payments for the unbanked and underbanked – applications to cocoa farmers, salary customers, student remittances, etc • The introduction of branchless banking which allows banks to partner telecom companies to deliver mobile money services. MTN mobile money and Zain zap already operating –payment facilitation. • Objective is to increase access across a variety of platforms. Bank of Ghana

9. BANK OF GHANA’S ROLE IN FINANCIAL INCLUSION - 4 • An unregulated microfinance sector has emerged and is growing in numbers and size and posing challenges to safety and soundness. • FNGOs estimated at about 50 countrywide • Money lenders are over 200 • Available data (2009) on susu operations indicates a membership of over 1500 (including companies) with over GH¢44 million in savings (about USD 31 million). • Mini savings and loans companies ?? Bank of Ghana

10. CHALLENGES IN REGULATION FOR FINANCIAL INCLUSION - 1 • For formal sector institutions such as banks, RCBs, S&Ls, - cost in terms of human and financial resources. BOG has borne this up to now. Issue is should regulated institutions be charged? Fully? Partially? – Implications! • Expanding the perimeter of regulation to: • Microfinance institutions, • Money lenders, • Susu companies and Susu collectors – while critical for expanding access to the poor in rural areas and or the urban peripheries, costly to supervise. Bank of Ghana

11. CHALLENGES IN REGULATION FOR FINANCIAL INCLUSION - 2 • This group of institutions present a different set of challenges to regulation and supervision such as: • What level of regulation is appropriate? • How can regulation be made cost-effective? • How can regulation be achieved without stifling innovation? • How do we ensure integrity in financial services, especially microfinance? • Credit Reporting Act, Borrowers and Lenders Act. – can these help? Bank of Ghana

12. BANK OF GHANA’S APPROACH - 1 • BOG believes that appropriate regulation and supervision is necessary to achieve safety and soundness as well as protection for depositors and creditors. • In that regard, deposit taking institutions require closer supervision than non-deposit taking institutions. • Regulation and supervision has taken the form of: • Licensing of institutions • Setting minimum capital requirements • Requiring periodic prudential reporting • On-site visits • Installation of risk management systems Bank of Ghana

13. BANK OF GHANA’S APPROACH - 2 • Expansion of the perimeter of regulation and supervision • To bring in hitherto unsupervised institutions – Susu companies, money lenders, microfinance institutions. • Possibility of creating lower tiers of institutions below S&Ls and FHs. • Establish licensing criteria for such institutions, including minimum capital requirements as appropriate, prudential reporting, limits on operational areas, branching, etc. • Require membership of a trade association with jointly approved operating guidelines – element of self-regulation. Bank of Ghana

14. CONCLUSION • Financial inclusion is essential for poverty reduction and wealth creation • Regulatory policy can contribute by: • engendering a safe and sound financial system; • supporting the creation and development of appropriate institutions, products and services for meeting the needs of the poor and excluded; • encouraging the harnessing of technology to deliver cost-effective financial services; and • balancing the need for regulation with the risks posed to the financial sector. Bank of Ghana

15. T H A N K Y O U Bank of Ghana