Ghana: Booming Financial Services Sector Leaves Millions Behind

In a country where about 28 commercial banks are competing with over 100 rural banks, 100s of non-banking financial institutions (NBFIs) and a host of other traditional but modernised financial service providers, one would expect that at least a third of the populace should have access to formal financial services. But that is not the case in Ghana. There, the country’s Central Bank – the Bank of Ghana (BoG) – and the government are grappling with a sprawling financial sector whose impact, they admit, is yet to be felt by majority of the country’s over 24 million inhabitants.

Its Minister of Finance and Economic Planning, Mr Seth Terkper, said recently that although the country had witnessed an exponential increase in the number of private banks over the last decade, it was yet to feel the impact of their presence. That is not strange, given that not too many Ghanaians crave for or have interest in banking.

As noted by the Chief Executive of Jislah Financial Services, Mr Emmanuel T. Obeng, not too many Ghanaians have bank accounts nor do any serious financial transactions. Majority of them, especially the rural poor, see banking and its allied services as a preserve for the privileged few, urban inhabitants and the big-time businesses, also in the cities. And with that segment of the market – the privileged few (mostly made up of those in the middle and upper income bracket), the city dwellers and the established organisations – constituting a smaller chunk of the country’s populace, having a saturated financial services sector only profits the few, leaving the rural inhabitants and the majority poor behind.

Mr Obeng, whose Jislah Financial Services is among the 100s of NBFIs in the country, believes that such a problem is traceable to education. “About 20-years ago, no one would teach you about finance [in the schools] unless you studied a course like business administration or commerce. If you studied history or psychology, you would finish four years of university without knowing what profit is. Today, there are a lot of people in all sorts of careers who have very little financial knowledge and that is one of the problems we face as a nation,” he said.

That low financial literacy has also affected the savings culture in the country. Although data on savings in the country is readily not available, the World Bank recently reported that less than 30 per cent of Ghanaians have bank account, leaving the rest to take to the traditional but now modernised forms of banking. Such forms include the age-old susu, an ancient day form of banking in which an individual – a susu collector – collects and keeps the little savings of a group of people, often from the same society, for a fee and makes it available to them (lending it back to them) at a considerably lower interest. That practice is currently widespread in Ghana, especially in the markets and rural areas where the folks seem to have a lot of trust for the susu collectors, due to the neighbourliness, rather than the banks and similar institutions. Thus, there is more money in Ghana’s informal financial sector than there is in the formal sector and that contrasts sharply with the trend in the Western world.

But given that a good formal savings habit engineers a high investment culture, having a low savings culture, as currently pertains in Ghana, means that there is less savings (often considered cheaper funds) in the financial sector for lending to businesses, especially to the SME (small and medium enterprise) sector. A recent survey by the country’s Central Bank revealed that there was a credit squeeze to businesses in the first quarter of this year, leading a slow down business growth. Similar surveys by the Association of Ghana Industries (AGI), a grouping of business executives in the country, has consistently proven that businesses continued to content with high cost of and less flow of credit from financial institutions.

But if Ghana wants to sustain its current enviable growth rate of eight per cent, the country needs to stimulate growth in the SME sector, industry and manufacturing. That can only be done if the SMEs, which form a large chunk of the country’s business population, are given the needed funds at a relatively cheaper cost, to expand their operations, employ more people and subsequently contribute meaningfully to the country’s economic growth. And for financial institutions like UT Bank, which have their roots in SME financing, it’s imperative that they do not get carried away with the goodies in the nascent oil and gas sector as such would starve a critical segment of Ghana’s economy of real cash for growth.