Documents
Country Feasibility Studies
Ghana
UNDP
Microfinance Assessment Report
Prepared
as a component of the MicroStart Feasibility Mission - September, 1997
Ben Mbai, International Consultant, and
J. Akwasi-Kuma, National Consultant
Table of Contents
Ghana located in West Africa with a coastline of 554 kilometres along the Atlantic Ocean has an estimated population of 17.8 million with a growth rate of 3%. 84% of the population is rural. Most of this population is engaged in either agriculture or informal trade. The main constraint in both cases is lack of access to the financial services. The per capita GNP was US$410 in 1995 according to the World Bank.
Rural banks were opened in all parts of the country at the instigation of the Government and financial support from the Bank of Ghana. These have done little in providing access to financial services to micro-entrepreneurs who could only have an alternative from money lenders at an astronomical cost, sometimes at an interest rate of 20% per month with a processing fee of between ¢5,000 and ¢10,000 depending on the region.
The Agricultural Development Bank (ADB), a Government owned bank with branch network all over the country that has served the mainly agro based enterprises is in the process of being privatised like many other government owned financial institutions.
The result of this privatisation has created a wide gap for financial accessibility needs and in response several Non-Bank Financial Institutions and Non-Governmental Organisations have come up to provide access for financial services. Most of these institutions are still in the process of designing the appropriate packages to suit the demands of the large potential clientele. Some have already put in "Best Practice Performance" criteria adopted by worldwide practitioners into practice and results are rewarding. However, due to lack of appropriate legislation the micro-finance practitioners are not adequately regulated by either the government or an apex body. They also lack strong capital base and capacity to effectively deliver the financial services.
The micro-finance institutions have become a focal point for micro-credit delivery and savings mobilisation as they have more business friendly procedures and methodologies in dealing with the entrepreneurs and are set to not only fill the gap created by privatisation of banks but become the strong and dependable channels for financial services delivery to the needy poor as a means of poverty reduction in Ghana. (Return to top.)
Ghana, formerly Gold Coast, gained independence from British rule on March 6, 1957 and became a republic on July 1, 1960. The capital city is Accra (it was formerly Cape Coast) and some of the major cities are Kumasi, Takoradi, Koforidua, Cape Coast and Tema.
The total land area is 238,533 sq km. (92,000 sq miles) and the estimated population in 1996 was 17.8 million with a growth rate of about 3 % per annum. The last population census was carried out ten years ago. The population is expected to reach 20 million by the year 2000.
The country is bounded on the west by Cote D'Ivoire (850 km.), on the north by Burkina Faso (373 km.), on the east by the Republic of Togo (873 km.) and on the south by the Atlantic Ocean. The length of the land frontier is 2,060 km. with a coastline stretch of 554 kilometres. The northern region has a savannah climate and the southern region with tropical forests. The central part is characterised by mountains stretching to the east. (Return to top.)
C. Political And Administrative Structure
Before becoming a British Colony in the 19th Century Ghana was under a kingdom system that the Portuguese, the Dutch and the British, mainly attracted by gold and later slave trade, did not dismantle. The Chief and Queen Mother leadership is still in practice. The British introduced a central government system under the governor and regional commissioners. The first elected president, Kwame Nkrumah, overthrown by a military coup in 1966 governed with the same British system. Between 1966 and 1981 Ghana had six different governments all through military coups.
Flt. Lieutenant Jerry John Rawlings came to power for the second time in 1981, the previous time being for only three months in 1979. The country was divided into regions during independence and currently there are 10 of them and each has 11 districts and an elected regional minister. (Return to top.)
Since 1966 the economy suffered serious declines with inflation rising as high as 140% in 1979. This was caused by the frequent change of military led governments most of whom had little concern for economic development. During this period the export crops and minerals such as cocoa and gold production fell to all time low and at the same time they were smuggled across the borders.
The country produces and exports cocoa, timber, gold, manganese, diamond and aluminum. Some non-traditional exports now gaining prominence are yam, handicrafts and sea foods. Tourism is becoming an important foreign exchange earner. The traditional export products come from Ashanti, Western and Eastern regions respectively. Industries are concentrated in Tema in the Greater Accra region. Other industries are in Ashanti's capital, Kumasi. There are hardly any industries in other regions except saw milling, tomatoes and beef processing which are in small scales.
As a step to reverse the decline, Ghana on April 23, 1983 embraced and embarked on a World Bank sponsored Economic Recovery Program (ERP). The policy measures of the Structural Adjustment Program (SAP) aim at re-aligning relative prices in favour of production and away from trading and non-productive activities. Its centre-piece is a market determined exchange rate system, institutional and financial sector reforms, and restructuring, human and human resource development, environment management, decentralisation of political governance, private sector development, privatisation, export drive particularly in the area of non-traditional exports and small business promotion. By 1994 the country had received more than US$1 billion from World Bank.
In addition to the World Bank several bilateral donors came in to support the recovery of the Ghanaian economy. The funding covered grants for technical assistance as well as reduction of balance of payment deficit. This was followed by IMF Financial Sector Adjustment Program (FINSAP) in 1988. The economic growth in 1994 was 3.5%, GDP 2.2% against a background of inflation rate of 34.2%. These rates are lower than the previous years indicating instability.
The FINSAP reformed and structured the financial sector. This helped stabilise but still far from streamlining the sector.
The structural adjustments have recorded a positive impact mainly on the macro-economies. Many roads have been constructed, electricity and piped water are now supplied to the rural areas and goods and services are readily available.
The structural adjustments are not all a success story particularly with low income earners.
Retrenchment put many people out of employment. There has not been significant industrial growth to absorb the increasing labour market. The poor lack the necessary cushion against the high commodity prices and inflation currently at 35%. The Bank of Ghana base rate is 40% and the cedi has depreciated from ¢1,050 to ¢2,200 to a US dollar between 1994 and now. The depreciation of the currency has been consistent with increase of inflation rate.
This puts most goods and services out of the reach of most people and with the current negative inflationary trend combined with 3% population growth and declining economic growth means that it will take much longer, not less than 10 years, for the SAP's positive impact to be felt by the poor. Much more requires to be done to stabilise and sustain a positive substantial growth of the economy, improvement in infrastructure, liberation of the economy and reform of the financial sector notwithstanding. In 1987 the government, assisted by the World Bank and other agencies, launched the PAMSCAD program which consisted of 23 individual projects in the social sector with a total cost of US$86m to assist the majority of the rural poor negatively affected by the SAP. An evaluation done in1990 concluded that the PAMSCAD program did not impact positively on the poor due to its lack of long term social orientation and poverty focus. (Return to top.)
Ghana is one of the most densely populated countries in West Africa with an average of 75 people in every square kilometre. About 40% of the people are of Akan ethnic group, this includes the Ashantis whose heartland is around Kumasi. Another 20% of the population is the Ewe ethnic group mainly in the east. The rest is made up of the Ga, around Accra, Gonja and Dagomba in the north and other smaller groups. Lebanese are important participants in trade. In the industrial sector foreigners are involved in a small scale.
The main religions are Christianity mainly in the southern part and Islam in the north. Traditional religion is also practised throughout the country.
The northern part is not endowed with mineral resources but have some cash crops and timber. It is less developed compared to the central and southern regions which have plenty of minerals, cocoa and timber for export. People in the forests regions have more wealth than those in the savannah regions of the north and small part in the south.
The people speak several languages but Twi is generally spoken in the whole country. This has helped strengthen the otherwise strong common cultural bond that traverses the tribal divide and strongly enhances the traditional kingdomship still in practice. (Return to top.)
Before the World Bank sponsored a Financial Sector Adjustment Program (FINSAP) in 1992 the banking system was on the verge of collapse mainly due to economic decline, currency instability, unpredictable banking regulations. The banking sector has been substantially streamlined and it is still in the process of being modernised. There are credit cards, local travellers cheques, foreign exchange bureaus and ATM systems.
Before restructuring and divestiture Ghana had 8 government owned banks and several government controlled rural banks. Only 4 private banks operated in Ghana at the start of FINSAP that followed ERP.
Virtually all the government owned banks have been privatised with a few still in the process. Six more private locally owned banks have come up and 125 rural banks under control of shareholders are spread throughout the country.
In addition, there are 7 savings and loans companies, 12 finance houses and 11 other non-banking financial institution in operation. The savings and loans companies focus on low income groups as their target clients. The Ghana stock exchange is fully operational.
a) Public Banks
The privatisation process of the remaining government banks will take some time particularly because they were set up mainly to promote rural development hence created wide and sophisticated branch networks. One of these banks, the Agricultural Development Bank (ADB), with the widest network finances the agricultural sector in production, processing and marketing. It has been the main intermediary for affecting rural financing and thus social-economic development.
The ADB has experienced several problems ranging from substantial bad debts, weak capitalisation to incompetent management and demotivated untrained staff. The bank is also actively involved in commercial banking services.
The bank receives substantial donor funding. It is managing an IFAD program with loans to borrowers at 29% interest rate. This highly subsidised interest rate distorts the portfolio quality and transmits social rather than commercial signals to the borrowers. The current average repayment rate is 72% with the construction sector at 4.1%.
With ADB's social economic development bias in its financial services and therefore a government strategic tool the privatisation implementation is not only financially but also politically complex.
There is also the question as to where the private investors will come from as the would be investors have already incorporated own private banks. To divest through stock exchange will require costly restructuring.
b) Private Banks
Perhaps one of the most significant evidence of economic liberation is the number of private banks that sprung up thereafter. There are 6 new banks in addition to 3 that survived the restructuring. Some could not cope with new business style and they closed doors. Two of the survivors are multinationals, have solid financial base as well as competent management and good high level business contacts that are ever loyal including the large multinational investors. The chief executives of these banks are appointed from the headquarters outside the country. They are traditional in their business approach and are risk averse and impersonal when it comes to dealing with small clients.
The newcomers are doing both merchant banking and retail business. They are small in size and more refined but have largely adopted the same banking methodologies of the big ones. It is no wonder most of the senior staff in the new banks crossed over from the large banks for better packages and carried along with them their assistants into the new banks. They however a have a flavour for more flexible banking business but have not developed new and attractive products to attract many. They largely rely on personal business contacts and are equally risk averse.
The new banks have benefited from the old large ones in that the latter are reducing their small clients with preference for the large investors, importers and exporters. The small investors inevitably end up at the smaller banks.
The banks have however not succeeded in mobilising the estimated 40% of cash circulating outside the banks' halls. This has not caused serious pressure to the banks because they have more liquid cash than they can effectively manage precisely because they are not willing to risk by lending to borrowers who are not likely to support their credit worthiness with material or cash collateral. Instead the banks have put the money into government instruments particularly treasury bills that are currently yielding 43% for 90 days.
c) Rural Banks
The rural banks were established at the instigation of the government in order to provide financial services to the rural population. At the formation shareholders drawn from the respective communities invested in these banks. The government put large sums of money and was de facto major shareholder. The government went further to appoint the managers and senior staff as well as providing backstopping services in all aspects of the banking operations. For all practical purposes these became government banks. Management and staff were not necessarily competent but political appointees. Inefficiencies and other government business culture driven by social-political pressure set in. Several of them folded in even after spirited financial and technical support from the Bank of Ghana.
The ones still in business are in the process of transforming to business oriented institutions. Some have embraced good banking practices but still suffer the consequences with weak capital base, non-attractive products and lack of clear savings mobilisation strategies.
The government has virtually pulled out of the rural banks management and investment. Sometimes the Bank of Ghana lends money to the rural banks at 27% interest as it would do to any other bank. The Bank of Ghana is however more sympathetic with the rural banks when it comes to repayments.
Because of the rural banks network they are strategically well placed to deliver micro-finance services if a careful selection is made from the lot.
d) Semi-Formal Financial Intermediaries
To fill the gap left by the banks Non-banking Financial Institutions (NBFIs) and NGOs offering credit delivery services have sprung up. These have focused on both commercial and agricultural sectors.
In recognition of the negative impact by SAPS on the low income people of Ghana the government set up several poverty alleviation economy recovery programs, among them are FUMSED, BAF and PAMSCAD. The latter program managed by NBSSI has so far distributed over 280 million cedis to the low income groups. This has made little impact on poverty reduction and is now derailed by government bureaucracy, mismanagement and weak capitalisation.
The alternative for the government was to facilitate opening of new financial institutions particularly savings and credit companies as well as allowing as many NGOs as are willing to offer credit delivery services.
Non-banking Financial Institutions and NGOs increased rapidly. The NGOs combine credit delivery services with social activities such as health, education and agriculture. The NBFI are showing keen interest in working with those who have no access to credit or savings services because they do not fit in the formal banking culture. The NBFI lack both technical and financial capacity to effectively offer the financial services to the micro-entrepreneurs. This is aggravated by restrictive Bank of Ghana regulations that they have to comply with; one being the requirement to keep 52% of their cash reserves with the Bank of Ghana while they are not allowed to maintain checking accounts for their clients.
While the savings and credit companies operate under rather tight regulations the government has not excluded the delivery of micro-finance services through banks.
The NBFIs have a distinct advantage over the banks in relation to the micro-finance practitioners who generally shy away from the banks where they do not feel welcome. They are increasingly warming up to the NBFI who are more friendly and relatively easy to deal with. It will be upon the NBFIs to take advantage of the informal sector which is keeping about 40% out of the banking system but in active business circulation.
e) Legal Framework
The government is very keen in promoting micro-finance sector growth. Rather than moving quickly to promulgate a law and define the regulatory framework the government preferred to go slow at it to allow for natural growth and stability as it studies the development and the economic impact the micro-finance practitioners have in the economy. The micro- institutions currently operate under different laws, namely; Banking Non-Banking Financial Institutions, Cooperative and Credit Unions and NGOs. None of these is considered ideal by the micro-finance practitioners for their business.
The government is now prepared to put things in order. A workshop to be organised by the Ministry of Finance involving all the micro-finance stakeholders including NGOs and donors will be convened in October, 1997 to collect opinions and suggestions as to the best way forward. This would form the basis of developing the appropriate regulatory framework. After consultations and careful analysis the government will convene another meeting in April, 1998 to launch the draft document on the laws and regulations.
Some of the key issues expected to feature prominently are the current prudential guidelines from the Bank of Ghana for Non-banking Financial Institutions, NGOs on credit delivery, the definition, inventory, regulatory associations and membership and the role of the Bank of Ghana.
The Government started inventorising the micro-finance institutions but suspended the exercise when it became clear that there is need to firstly define the nature and characteristics of institutions to be inventorised and exactly what data is required. USAID is said to be inventorising the Micro-finance Institutions. This could not however be confirmed with USAID. (Return to top.)
The strategy of UNDP in Ghana is to promote sustainable management of resources in the fight against poverty. This fits within the Government's broader national poverty alleviation strategy that promotes an integrated approach to poverty alleviation.
Building on what has been done and achieved, UNDP assistance for 1997-1999 will be within the overall framework of Poverty Reduction. That will include focusing, on two programs - i) Poverty Reduction Program and ii) Capacity Development and Utilisation Program with Governance, Environment and Natural Resource Management and Gender as cross-cutting thematic issues. UNDP's assistance in these sub-program areas would provide support to government's own initiatives in the Ghana Vision 2020 and reiterated in the CSN process and the AN related consultations with both traditional and non-traditional partners.
In view of the multi-disciplinary nature of these programs, UNDP would work closely with other UN Agencies and multi- and bi-lateral donors. By so doing UNDP will draw on its capacity and mandate, while complementing efforts of the government and other development partners.
2. Program Overview
The Ghana Country Program has three main tenets. These are:
- Government support for economic management
- Sustainable management of natural resources, and
- Reduction of poverty
1. Government support for economic management
UNDP is assisting the government in building capacity at an institutional level to produce adequate data concerning the economy. UNDP is also assisting the government to manage and coordinate external aid and technical assistance.
2. Sustainable management of natural resources
UNDP is strengthening the capacities of the National Environment Office to manage environmental issues. It is also financing a program to protect marine life and coastlines.
3. Reduction of Poverty
This is one of the main components of UNDP's national intervention. It is focused around programs with significant job creation components. The creation of jobs and the improved access to financial services is the foundation stone of the UNDP's assistance in the fight against poverty. Income generating agricultural and fishing activities and improvement of appropriate technologies in construction form part of this strategy.
3. Relationship to Micro Finance Initiatives
a. Poverty Reduction Emphasising Participatory Development
UNDP will want to make participatory development anchored among poor communities its niche in programming this sub-program area. Building on the national framework for poverty reduction prepared with the assistance of UNDP, a Program Support Document (PSD) and Program Support Implementation Arrangement (PSIA) have already been finalised through collaborative work of UN agencies and various program stakeholders and approved by government respectively in December, 1996 and January, 1997.
Program implementation which is now underway, will seek to emphasise at the upstream the strengthening of national management capacity of the government agencies, district assemblies, etc. for policy analysis and developmental promotion of participatory methodologies. The capacities of the Ghana Statistical Service (GSS) and the Institute of Statistical, Social and Economic Research (ISSER) will be enhanced for annualised tracking and monitoring of poverty reduction programs and through publication of a National Human Development Report (NHDR).
At the downstream, the program will support the testing of the participatory methodologies within the five selected districts. It will enhance the capacity of the poor to participate in the development process, enhance productive capacities for income generation, increase the availability of basic services and enhance the capacity to access, use, manage and maintain basic services and to provide resources for community-based initiatives. UNDP will lead the other development partners, ADB, World Bank, etc., in supporting government's efforts at establishing a social development fund to facilitate institutionalisation of an easily accessible fund for sustainable community development projects and private sector initiatives. Already, feasibility studies are underway in partnership with the Africa Development Bank (AfDB), UNESCO, FAO, ILO, UNIDO and UNDP. It is envisaged that the pro-grassroots focus and access to credit by the poor will be the mainstay of this fund.
b. Environment and Natural Resource Management (ENRM)
UNDP will continue to support government policies directed towards maintaining sustainable and environmentally sound policies aimed at harmonising the economic and social development goals on one hand the environment on the other. These policies are expected to reverse the trend in environmental degradation caused by ineffective agricultural practices, inappropriate harvesting of forest products, expansion of manufacturing including mining and construction which have led to soil, water and air pollution.
Under the National Capacity 21 Program, which has now been approved, UNDP will assist Ghana to revise its development priorities and plans and make the strategic, institutional and social changes necessary to achieve development that is sustainable. The program will support the government's decentralisation program which gives greater responsibility for development planning to the local communities at the district level. It will focus on 10 of the 110 districts representing diverse ecological zones of the country. Specifically, Capacity 21 will address the following:
- Develop capacity to integrate environmental considerations into district level planning;
- Establish capacity of decentralised organisations to establish management information systems for sustainable development.
In furtherance of responding to conventions on climate change, the project: "Building Capacity in Sub-Saharan Africa to respond to the UN Convention on Climate Change" has been approved by UNDP/GEF. Ghana stands to benefit from this regional project by developing national capacity for inventories of greenhouse gas emissions and their mitigation. The project will eventually lead to developing a national action program on climatic changes.
Ghana will continue to benefit from UNDP/GEF project on "Water Pollution Control and Bio-diversity Conservation in the Gulf of Guinea Large Marine Ecosystem". Ghana's participation in this regional project would aim at developing a regional approach to prevent pollution of the Gulf of Guinea and conserve bio-diversity in its large marine ecosystem. It covers institutional strengthening, water quality and ecological monitoring, training and development of mechanisms to promote the health of the Gulf of Guinea Large Marine Ecosystems.
Under the project Renewable-Based Electricity for Rural Social and Economic Development in Ghana, 12 pilot communities in the northern region will be equipped with DC photovoltaic power systems on renewable based AC micro-grid systems using low-carbon energy technologies. The pilot communities would therefore be provided with power for development of cottage industries and electricity for schools, hospitals, etc. which would otherwise not be possible from the national grid.
Ghana will also continue to benefit from the Montreal Protocol Facility, under the ongoing project Institutional Strengthening of Ozone Depleting Substances. One of the main activities is to assist four foam manufacturing companies in the country through the substitution of CFC-11 with methylene bromide. The project was designed to assist the government of Ghana to phase out the use of Ozone Depleting Substances (ODS) notably, chlorofluoro-carbon CFCs and Halogens by the year 2010.
Africa 2000 is among other agencies involved in environmental and natural resource management in the country. In its integrated community development approach, Africa 2000 has integrated community agro-forestry, fish and water management activities into its program. Under GEF Small-Grants Program, Ghana is to protect bio-diversity and their habitats and deal with issues concerning climate change, reducing pollution to international waters and protection of the ozone layer. UNDP intends to provide supplementary financing from the core funding under the Poverty Reduction Program for the continuation of the two programs.
Finally, within the overall context of the poverty reduction program, UNDP, proposes to address the problem of solid waste management, especially, in the cities of land degradation as well as pollution of rivers resulting from the activities of the extraction industry, especially, timber and mining companies. NGOs will be equipped with basic skills to undertake environmental education at the community level. Community waste management will equally be emphasised to reduce the environmental related diseases.
c. Gender
The strategy to be adopted in assisting government efforts at mainstreaming gender will continue to be at the level of advocacy. In this direction, UNDP fully supports government's positive affirmative action which is soon to be approved by cabinet. While gender will be incorporated in all the sub-program areas, specific post-Beijing intervention will be to assist government in the formulation of a national plan of action for the implementation of the Africa and Global Platform for Action.
Expected output: i) Strengthened institutional capacity of the National Development Planning Commission to coordinate this sub-program area as a whole, manage it and institutionalisation of the Social Development Fund. Providing demand driven credit to the poor; monitoring capacity of the Ministry of Rural Development and Local Government and the capacity of the Ghana Statistical Service among others will be strengthened; as well as the capacity of district units to be able to synchronise effective self-drive and self-evaluative mechanisms. Increased use and capacity of NGO and CBO infrastructures developed for implementation of community based activities. ii) With regard to the environment, it is expected that government policies will reverse the trend in environmental degradation caused by ineffective agricultural practices, inappropriate harvesting of forest products, expansion of manufacturing including mining and construction which have led to soil, water and air pollution. The human and institutional capacities involved in environmental management at the national, regional, and district levels will equally be strengthened.
d. Capacity Building
Under the sub-program area, UNDP has during the Fifth Cycle Program, supported the national capacity strengthening seeking to develop and rationalise utilisation of the nation's capacity for accelerated economic growth and sustainable human centred development in the five priority areas of
1) public policy development;
2) private sector promotion;
3) public sector management;
4) decentralisation, and
5) human resource management.
UNDP proposes to consolidate its support to government's implementation of the three year (1996-1999) on on-going GHA/93/001 support to the private sector component of the national program. The central objective is to promote entrepreneurship development especially in the private sector, particularly, medium and small scale enterprises in three identified sectors of non-traditional exports, tourism and construction. It will also facilitate and provide support to aid coordination, national policy formulation, management, monitoring and evaluation. Implementation of this sub-program for a duration of three years commenced in January, 1996.
The sub-program has already created a national forum for collaboration among public and private sector institutions involved in employment issues. By bringing together these institutions, the sub-program intends to facilitate: national consultation and linkage building; optimum decision making process; participatory policy making process; and coordination resource mobilisation.
The Draft National Employment Policy, prepared under the completed Umbrella Program for Sustainable Employment Generation (GHA/89/007), approved by cabinet in 1996 will have to be translated into concrete national plan of action and sustainability mechanisms will have to be put in place. Likewise the National 15-year Tourism Development Masterplan prepared under project GHA/92/013: Integrated Tourism Development, has been finalised in 1996.
Though the UNDP support program is executed nationally, the UN technical agencies' expertise is being utilised to support implementation.
e. Governance and Public Sector Management (GPSM)
It is the view of UNDP that the accelerated economic growth and the sustainable human centred development envisaged under the national capacity program can be attained when (1) public sector institutions, NGOs, Civil Society Organisations are result oriented and sensitive to the private sector aspirations, (2) opportunities for popular participation and access to the resources resulting from the market economy exist and (3) the rule of law is affirmed. To this end, UNDP is proposing to support government to develop a sub-program on governance to focus on the following:
The support on governance will include re-examination of technical support to institutions related to the economic and political empowerment of people and their communities ranging from national to local authorities - as well as civil societies organisations and their infrastructures. Building upon the principles of democracy, fundamental human rights, the rule of law, the independence of the judiciary and just and honest government as essential ingredients of the Commonwealth's political values set out by Commonwealth Heads of Government in their 1991 Harare Declaration, UNDP will support GOG to promote good practice in the development and management of democratic local self-government and to the practical implementation of reform, capacity-building and institutional development at local level.
The capacity of the district assemblies, especially in the northern sector to take preventive measures aimed at promoting peace, as well as, conflict resolution will be developed.
At the socio-political level the community mobilisation shall recognise the need for empowering the citizens for a challenging liberalization and democratisation environment. The harsh realities of economic structural adjustments have to be explained and understood for internalisation by the communities. As long as it is done under transparent conditions the commitment of the affected people must be addressed. Accordingly the participatory methodologies and the involvement and mainstreaming of the community actors must be the rule rather than the exception.
At the economic level the productive empowerment will be in the form of promoting a community controlled and community driven material base expansion. Therefore, the participants in productive pursuits will be complemented by a well designed program of support to ensure access to assets.
In developing participatory development applications in selected communities, attention can be given to mobilising communities for civic responsibilities at both the economic and the socio-political levels.
UNDP supports fully the national institutional renewal process which seeks to re-orient public sector institutions to be result-oriented, adaptive and sensitive to private sector aspirations. Application of the state of the art technological information, accountability, aid flows and support to be the media to facilitate communication and the democratisation process are some of the interventions.
f. Private Sector Development (PSD)
UNDP proposes to expand activities in support of the government's effort in the private sector.
The main features of this program will be:
Legislative Instruments: re-examination of the laws and regulatory instruments so that they can be streamlined for liberalisation.
Private/public sector dialogue: while the private sector interests are articulate about the needs of the constituencies, those needs are not matched by the capacity of the public sector to accommodate the same. Therefore, promotion in matching these needs will be pursued. In this direction the private sector will be supported to prepare an advocacy plan which will facilitate the interactive process with the public sector.
Credit facilitation: under this area, several aspects may be targeted:- a) micro-start-ups which UNDP headquarters has already developed.
Strengthening pro-poor intermediaries: UNDP is taking a lead in organising micro-credit and non-bank financial institutions both at the community and the sub-regional level. Through EMPRETEC experience in Ghana UNDP is promoting the globalisation of such experience.
Strengthening NGO infrastructure in community based delivery of credit: Links will be established between Northern and Southern NGOs, so that capacity of Southern NGOs to support communities and their community based groups under economies of scale in credit absorption will be enhanced.
Promoting the diversification of exports through rural based Export Production Villages: UNDP pioneered these in the country and they have proved very successful in identifying and encouraging the growth of new projects. (Return to top.)
H. Donor Interventions In Sector
The micro-finance practitioners have benefited significantly from donor interventions; some of the main ones being World Bank, CIDA, UNFEM, UNFPA, USAID, IFAD and UNDP. Freedom from Hunger and Technoserve, US based NGOs, are also playing a major role in facilitating access to credit for micro-entrepreneurs mainly in agriculture and trade sectors.
Donors are supporting micro-finance and embrace micro-finance. Some of the key donors in the sector such as the World Bank have not yet established the framework for expansion of their current programs. Several others such as USAID, IFAD, UNFPA, UNFEM were not contacted for comments regarding the Micro-finance.
1. World Bank
The World Bank is currently carrying out a study on Micro-Finance Institutions and their needs. A consultant is currently attached to the Ministry of Finance.
The programs that have been in existence have channeled the funds for credit through the government to the commercial banks and non-banking financial institutions. The impact of this methodology to NBFIs is being evaluated.
2. CIDA
In recognition of the need to broaden the base of economic development after the successful implementation of SAP by the Ghana government, CIDA has been providing technical support to Credit Union Association (CUA) through the donor's Partnership Branch, the Canadian Cooperative Association (CCA) since 1988. This has resulted in significant improvement in CUA's capacity to plan and manage programs and provide services to its membership of 60,000. CIDA has contributed in excess of US$800 million since 1957 under different programs and is currently financing the Ghana Regional Technology Industrial Services (GRATIS) under which the small scale sector received US$9 million. In the 1995-2005 CIDA Program Framework in discussion one key target will be on micro, small and medium private sector. The aim is to expand on existing projects, deal with key gaps and constraints not fully addressed and complement other donors. CIDA is still working on their performance indicators which are expected to be substantially the same as those accepted by other donors.
3. USAID
This is a bilateral donor and channels its funding through the government to the respective recipients. The main focus of USAID has been to support Trade and Investment Program (TIP) at Macro level. The current budget is US$360,000 which has been used in support of artisans and agriculture. Technoserve receives grants to support its initiative to intermediate between financial institutions and farmers by way of guarantees and capacity building.
USAID has sponsored several trade fairs, workshops and facilitated industrial training under the human resources management department. Under TIP, USAID supports non-traditional exports and creates linkages between larger exporters and in an effort to achieve this effectively they plan to change the delivery strategy where funds are given directly to the micro entrepreneurs as opposed to being channeled through the government.
This is expected to be in place by the year 2000. Before this time they will continue funding American-based NGOs such as Technoserve to deliver micro-finance services in selected sectors like agriculture. The performance indicators of these activities are more qualitative than quantitative and do not conform to any set standards.
4. IFAD
The first systematic approach for IFAD to design a strategy for its involvement in Ghana was in 1987. IFAD strategy was developed on the basis that the issue of poverty alleviation and food security should be addressed in the context of a balanced economic growth.
IFAD has so far financed six projects in Ghana, one of which is credit delivery in Ashanti, Brong Ahafo and Volta regions. All other projects are in agricultural and rural development sectors. The projects are co-financed by World Bank and WFP and have a total budget of US$124 million. The funds are distributed through commercial banks which include the rural banks, with a subsidised interest rate of 36%. ADB acts as the implementing bank for IFAD loans, in addition to several rural banks. Lending through, ADB for IFAD funds, amounted to cedis 2.49 billion as at 31 December, 1995.
The loan repayment rates are on average less than 80% with some as low as 4.1% for loans administered by ADB. The management of the IFAD credit program has distorted the micro-finance sector where these loans exist and most rural banks are not any more keen on administering them.
5. DANIDA
DANIDA has launched a pilot project for credit delivery through a local bank, Prudential Bank. This very young program focuses on the Accra market with a radius limit of 20 kilometres and the maximum loan is cedis 20 million per client. So far the program targets tourism and trade sectors. This program is operated in two schemes, one tailored for micro-finance and another tailored for medium scale business which requires the borrower to pair up with a Dane in either supply of goods or technology and equity.
This is very unlikely to appeal to serious micro-finance practitioners even for those who have graduated from the informal credit limits. (Return to top.)
I. Local Ngos Interventions In Sector
Majority of the NGOs in Ghana started providing micro-credit delivery service as a by- product of the main social development activities. With increased awareness and demand micro-finance now take the centre stand in many NGOs activities. The leaders in this vibrant and rapidly developing financial sector are Technoserve, Freedom from Hunger, Women's World Banking Ghana Limited and African Centre for Human Development. Relatively new comers but with a strong philosophy for micro-finance services are ISODEC, ENOWID and Action Aid.
1. Technoserve
Technoserve, established in Ghana in 1977, is perhaps the first NGO to start working with micro-finance practitioners particularly in the agricultural sector. The main objective of Technoserve is to assist rural communities in technical training and management of finances to achieve poverty reduction through increased productivity, incomes and employment creation. The institution is a match maker, trainer, product developer and packager. One of the major strengths of Technoserve is the long experience in working with the rural community.
The institution's financial inter-mediation strategy incorporates a number of practices that have evolved out of experience. They focus on post-harvest activities rather than agricultural production, in order to reduce the risk of loan default. The group farmers receive cash on credit and guarantee it with the harvested produce that is stored for better prices when demand is high. They use group lending with mandatory savings.
The loans are obtained from commercial banks with financial collateral from Technoserve which is also secured by the farm produce already in storage. To ensure that all this works well Technoserve trains on storage, crop management and cash management as well as technical support.
TNS Inventory Credit
This credit is designed for small scale farmers to realise higher gains and also reduce post harvest losses.
Farmers harvest maize in September-October, at this time the market prices are low due to large supply. The maize is shelled, dried, fumigated and stored with technical assistance from TNS and the Ministry of Food and Agriculture staff.
The farmers, using the stored maize, receive collateral from local banks and sometimes with Technoserve as guarantor. These farmers are able to pay up post harvest debts. During the lean season (April-June) when prices have risen to sometimes more than 200% the farmers sell and redeem some for home consumption.
The only costs they incur are loan interests and minimal storage charges but receive high prices for maize. If redeemed for home consumption then they avoid paying the high purchase prices.
They also save on about 30% post harvest losses due to use of better techniques of preservation and storage.
In its linkage with ADB, Technoserve sometimes provides 100% coverage for the funds lent to client groups. Once the trust is built between the client and the bank then Technoserve opts out. This form of lending is now accepted by some of the major traditional banks.
Technoserve receives its funding from USAID, Foundations, Church groups, etc. and is able to conform with the requirements of donors. This institution is a strong potential TSP in the area of capacity building. They are also in the process of starting a cash credit delivery program. At the moment they are the coordinators of MFI budding network.
2. Women's World Banking Ghana Ltd.
This is a registered trust since 1991 operating under the Non-banking Financial Institution. It has a strong presence in micro-finance and particularly with women in micro and small scale business. They have a well established network and mechanism for micro-finance services.
The trust is funded partly by shareholders and partly by grants. The current legislation only allows it to deliver credit and mobilise savings but cannot maintain checking accounts. They embrace the best practices concept and practise it. They now reach 10,000 clients of whom 60% are women and the average loan size is about US$40. They plan to open more branches and try to reach the medium size clients and eventually convert to a fully fledged bank. This is rather ambitious given that their loan repayment rate has steadily dropped from 87% in 1994 to 79% in 1997 and are making losses.
Although the trust views low capitalisation as the main constraint, based on my assessment the problem is at the board and management levels. The board is however in the process of being streamlined and this should have a trickle effect on the management. . Their priority should be capacity building more than more funds for lending. WWBG needs to also demonstrate the savings mobilisation capabilities that they have.
3. Freedom from Hunger (FFH)
In 1992 Freedom from Hunger introduced the "Credit with Education" concept with a purpose of eliminating chronic hunger in Ghana. The NGO targets the poor rural women. It is funded by UNICEF and other donors.
One of the main objectives is to develop a self-financing program to efficiently and effectively deliver credit and educational services. FFH uses financial institutions particularly rural banks and credit and savings companies such as WWBG.
The group concept is applied for delivery of social education and credit. The rural banks are the in country partners for FFH.
Credit and Education is purely for women solidarity groups. The loan sizes are between US$50 and US$300 and repayments as well as savings are weekly. Currently FFH is working with 5 rural banks. The repayment rates are as high as 98% and so far the 254 women associations have a total membership of 8,000. Indicators available show an average operational sustainability of 145% with one rural bank being 217%. However, the figures for the bank indicate serious liquidity problems and group members visited complained about the poor service they receive from the bank. Even accessing their savings is a big problem besides not having any educational benefits as would be expected. On closer look at the figures, it became obvious that some of the costs such as rent, bank manager's and employees' costs incurred in the program are not taken up.
It is difficult to perceive that once FFH pulls out at the end of the year the bank will be willing to finance the social costs and sustain the groups.
FFH requires funds to expand their operations. Currently they do not meet the best practice specification unless they are willing to modify and expand the methods of measuring performance.
4. ACHD
Established in 1987 ACHD is a development NGO which has been partly transformed into a credit delivery institution.
The objective was to transfer community development skills to the rural poor communities through training, workshops and use of community organisational structures for participatory development towards self-reliance.
With time credit delivery has become a key component of the organisation's activities.
The Sankofa, an Integrated Rural Development Program, is based in the Kadjebi District in the Volta Region. The credit and savings program started in November, 1996. To date savings mobilised amount to 6 million cedis. The scheme focuses on agriculture and micro-enterprise (metalworks, agro-processing and food marketing). The loan portfolio currently is 48 million cedis to 500 borrowers organised in 28 groups. 65% of the borrowers are women.
The credit scheme is financed by the Netherlands Development Organisation (SNV). The organisation manages other social development programs funded by international and multilateral donors including UNDP Ghana.
The credit and savings scheme has established good credit delivery methodologies and the loan-repayment rate is 95% with an interest rate of 40% of which 10% is compulsory saving.
The institution's capacity needs to be substantially enhanced as well as fine tuning the credit delivery and savings mobilisation. The institution has a distinct advantage in that it has a strong commitment and base in technical capacity and do clearly recognise that the first priority is to enhance that capacity and transfer it to the clients.
5. ISODEC
The Integrated and Social Development Centre is new.
This institution started two years ago and is probably the only organisation with serious plans for the northern part of the country, with the lowest incomes, poorest social services and hardly any financial services.
The main objective of the centre is to initiate and develop training capability, intermediate between the people and rural banks in order to give the population access to credit and support other NGOs to streamline the services to the north.
In an effort to eradicate poverty the centre recognises access to financial services as key among others.
A proposal to develop a credit scheme that will be operated by a company limited by guarantee has been prepared and funding is being sought.
Other social services such as training, water and sanitation, population growth have been funded by several donors including OXFAM, Action Aid, Safe the Children, Christians, Bread for the World, SNV and NOVIB. Consultancy services earn some income but this needs to be substantially complemented and expanded.
The credit savings will be set up in Kumasi, Tamale in the dry, far north and the priority will be to develop a financial services capacity.
The target groups are artisans, mechanics, seamstresses and micro-traders. These comprise 79.2% women who save daily with 'Susu' associations between ¢1,000 and ¢2,000 a day. The savings represent more than 50% of their daily earnings. 5,000 people per year are targeted to benefit. The proposed credit scheme is modeled on the K-Rep's Juhudi Credit Scheme and the centre is keen to embrace the best practice tenets which have proved successful in the world over.
6. ENOWID
The project on Enhancing Opportunities for Women in Development was initiated in 1990 as a collaborative effort between the government of Ghana, UNIFEM/NNDP, UNFPA, CIDA and USAID.
The implementing agency is the Department of Community Development (DCD). The project's rationale is to address poverty and to empower poor and marginalised rural women by enhancing their capacity to increase their incomes through provision of credit, training, improved marketing facilities and simple and appropriate technologies. This is achieved by linking women's increased income to improved family welfare, organising low income rural women for technical inputs and diversifying their economic activities.
The project covers Volta, Western and Brong-Ahafo regions.
An evaluation report done in July, 1997 by a Community Development Consultant indicates that the 7,000 women through groups have mobilised ¢80 million and have established improved systems of credit delivery and savings mobilisation. The credit and savings method modeled on that used by the Grameen Bank. The Credit Scheme has a revolving fund from various donors of ¢780 million with an infusion of over ¢600 million from UNDP since 1996.
The loan cycle is 6 to 8 months with a minimum of ¢200,000 and a maximum of ¢500,000 per woman as determined by the group members, with an interest rate of 45% and on time recovery rate of 98%.
The money lenders in these regions charge between 20-30% per month with a processing fee of ¢5,000 to ¢10,000.
The project has strong leadership and is working hard to transform to become a membership based institution, preferably a trust. The formal approval has not been obtained from the government awaiting UNDP sponsored evaluation. This is actively in progress.
7. Action Aid Ghana
Action Aid Ghana operates in the Northern and Upper East regions. The NGO has a credit and savings program within its activities. The savings mobilising started in 1994 long after the credit delivery services. As at that time 993 loans had been disbursed with a repayment rate of 60%. In 1995 alone 421 loans were disbursed with a repayment rate of 100% and 1,309 loans disbursed in 1996 with a repayment rate of 88%.
The loans are given to majority of women with income generating activities ranging from commerce and trade to agricultural processing.
Collection agents or susu collectors are appointed by the community. The funds are deposited in the nearest financial institution. In the urban areas groups are introduced to banks where they deposit the collections directly. The susu collectors operate under 17 regulations stipulated by Action Aid.
For credit the groups make an application to Action Aid. For one to qualify he/she is required to save for six months. The loan amount for each person is limited to the level of ¢200,000 and 5 times one's savings. Interest rate is charged at 42% for rural groups and 48% for urban groups.
Lack of banking services in the rural areas reduces the savings mobilisation rate.
Action Aid program operation is not financially sustainable in the short run and does not demonstrate strong vision on self sufficiency. The organisation as a whole is donor funded for primarily social development activities. This program was not visited.
8. Amasachina Self-help Association
Launched in 1967 as a Youth Club in the village throughout the northern region, the main objective was to participate in cultural activities and self-help development projects.
This is the only indigenous NGO in the North, having evolved from a club. It is also unique in that it has affiliates at the village level.
Through experience in community activities it has animated many groups to be involved in construction, environmental, educational and other project activities.
To date it has received funding from Village Aid, UK; World Bank/DFR; DANIDA; IFAD/SADP and UNDP for various activities including credit. The latter is not yet fully developed.
The strength in this group lies in 30 years track record of group formation and has a potential of mobilising a million people both men and women.
The association provides a potential opportunity for micro-finance services that are much needed but lacked in the north. It is a highly potential target group for an MFI.
The association would require some level of transformation into agents for funds mobilisation as well as a means of fighting poverty through accessing credit. (Return to top.)
J. Financial Institutions Interventions In Sector
Restucturing and privatisation of government owned banks coupled with liberalisation of the economy pushed some banks out of the market while others distanced further from the often perceived risky micro-finance practitioners.
To fill this gap some banks and other Non-banking Financial Institutions (NBFIs) are now focusing on the micro practitioners. These largely operate under Savings and Loans, Rural Banks and Credit Unions legislations.
1. Citi Savings and Loan Company
This is privately owned company by three former bankers of which a woman is the Executive Director in Marketing and Human Resources. The company has been in operation for 4 years and has a strong focus on micro-finance practitioners.
The company aims at becoming the micro-enterprise market leader and has developed a market niche with the 'Susu' and ROSCAS by facilitating easy access to financial services to the urban poor. The company has 3 branches and plan to open several satellite branches to be located where the target clients are, in the Greater Accra region.
The company contracted K-Rep, Kenya, to develop systems manuals as well as building up a corporate plan to year 2000. The mission has been completed. The directors will be increased to 7 and eventually the company plans to float the shares. This is however not evident from the corporate plan.
The company is restricted by law to open checking accounts but has gone round this by using another bank to do the clearing of cheques at a high cost. The prudential guidelines also require that the institution use 52% of the clients' deposits to purchase government stock and 10% in primary reserve. A small portion of the deposited funds are left for on-lending because over and above the statutory resources more funds are used to purchase treasury bills. The company's balance sheet is not healthy.
The directors together with other NBFIs are discussing with the Bank of Ghana to see how best the regulatory guidelines can be adjusted to be more responsive to those who are in the micro-finance sector. The clientele of this institution is on the upper end of micro-finance entrepreneurs and unless the trend reverses the company's services may well become inaccessible to the targeted urban poor.
2. Rural Banks
Some important points to note for rural banks in general are; the government institution culture is still hanging heavily on them. The institutions' financial systems show that most of them are making profit but at the same time they are experiencing liquidity problems. The treatment of interest in the account is suspicious and appears as if interest, for doubtful or non-recoverable loans, is accrued as income. The quality of the loan portfolios is also very suspicious and capitalisation is weak. Over time the rural banks have been investing up to as high as 80% of the lending funds in government treasury bills which yield high interest rate.
Apart from the inability to develop suitable products for micro-finance practitioners, (they instead copy ones developed by NGOs) it is unlikely that they will deliver credit to micro-finance practitioners at the time, when treasury bills are no longer blue chips and with more pressure to pay dividends to the shareholders. The profit motivation no doubt takes preference over the needed service to the micro-finance sector. Besides, the rural banks do not have the mechanism for effective monitoring of loans and mobilisation of savings. They are therefore capable of deserting the micro-entrepreneurs when the latter are in most need.
3. CUA
The credit union movement began in Ghana in 1955 in the Upper West region. The Ghana Co-operative Credit Unit Association was established in 1968 as an apex organisation of several unions in agriculture, service industry, industrial and financial sectors.
The main role of CUA is to supervise other credit unions, promote and educate members and monitoring through audits.
The association has 220 unions with a total of 60,000 membership and women form 30% of this number.
All credit unions save with CUA and the law requires that only 80% of the savings should be lent and a union should not take more than 40% of its asset's worth. The loans are at an interest rate of 32% while savings attract 25% interest.
At the grassroot level members save and get loans through the individual unions. The loan guarantees are given by colleagues and pegged on individual savings.
CUA has been funded by CIDA and Rabo Bank in the Netherlands for technical training, logistics and funds for on-lending.
4. Ghana Co-Operative Susu Collectors Association (GCSA)
The GCSA was formed in 1990 and has branches in six regions and plans to open more in the remaining four. Estimated membership is 791 nationwide but this is probably only 50% of the total susu collectors.
Each susu collector has an average of 300 clients and is able to mobilise an average of ¢7 million in a month.
The association was formed to regulate the activities of the members, instill credibility and provide a forum for addressing the socio-economic and political needs of susu collectors.
More details on susu collectors are covered in K below under Traditional Financial Services. (Return to top.)
K. Traditional Financial Services Interventions in Sector
The informal financial intermediaries that have a wide network among micro enterprises both in rural and urban settings are Susu Collectors and the Rotating Susu Club Associations (ROSCAS). The susu method of collecting money has been in existence for many years and very popular with women, particularly in the markets and other business and social activity centres.
Susu Collectors and ROSCAS
A susu collector will go round collecting money every day for a week's or a month's saving. The concept necessity is born out of the fact that one would want to keep some money safely for a particular purpose or for a rainy day but there is a high risk of using that money if kept in the pocket. The susu collector becomes the bank. The women in micro business accumulate their money for restocking, school fees or other social activities.
The susu collector keeps the money until the due day when he takes it back to the owner. The concept has become more sophisticated that the susu collectors do lend some of the money back before the due date to cater for an emergency. The savings per day could be as little as ¢200. If the cash is supposed to be kept for one month then the susu collector keeps one day's collection as his commission.
The Rotating Susu Club Associations (RSOCAS) operates more like 'Merry Go Round'. The club members meet to collect a certain amount of money and pass it over to usually one benefactor in a lump sum. The next turn is for somebody else. Some groups (clubs) have as many as 250 members.
The money collected by a susu collector does not bear interest. The susu collector will sometimes advance his good clients some money. This does not attract interest too.
A typical susu collector can be recognised with his bag strapped across his shoulder and a pack of cards for recording clients' deposits. Some now maintain record books. One susu collector will handle about 300 clients. Some collectors have 500 clients. At this level they become inefficient and tired.
Sophisticated susu collectors even employ assistants and open kiosks with a cashier for clients to deposit the money. The money is kept in a safe at home. This collection strategy as a micro-finance strategy for poverty reduction is gaining increasing recognition with some financial institutions having collaborative arrangement for savings mobilisation and credit delivery.
CITI Savings and Loans Company is so far most advanced in these arrangements. There is yet much more to be done to tap this potential. (Return to top.)
L. Government Programs Interventions In Sector
In response to the negative economic impact of SAP to the poor, the government instigated several programs with the help of donors to reduce the impact and as a means of eradicating poverty. Some of them came and went and others are still active. Some of the institutions actively involved in the micro-finance sector are CEDECOM, EMPRETEC and NBSSI.
1. CEDECOM
In 1990 the Central Regional Co-ordinating Council set up a commission to spearhead socio-economic development in the central region.
UNDP funded CEDECOM's credit scheme focusing on micro-entrepreneurs under the Central Regional Integrated Development Program (CERIDEP: GHA/93/007). The scheme was set up to avail credit to small and medium entrepreneurs, develop financial linkages between entrepreneurs and financial institutions and is expected to evolve to a credit finance company.
CEDECOM promotes tourism in the central region and the integrated program is expected to enhance the potential business linkages between tourism and the central region people. This includes promoting fishing industry, agriculture, small scale manufacturing and trade.
The start up capital from UNDP for the credit of ¢90 million in 1991, later increased to ¢200 million multiplied to ¢410 million mainly from the interest earned. The credit given is to finance working capital, purchase equipment and hire purchase for shipping and other business equipment.
Through the scheme CERIDEP has constructed 6 improved, more economical smokers to substitute the traditional 'Chorkor Smoker'. The new smokers use gas and charcoal. There have not been fully accepted by the traders.
A total of 1,113 clients of which 61.5% are women have benefited from the credit scheme. The average loan size is ¢350,000 for ten months at 45% interest rate. The repayment rate is 96%.
CERIDEP uses the group lending methodology which group members guarantee each other. The group organisation is done by the women using a "Queen Mother" concept (see below). The women receive the amounts as approved by the group officials, with fishing and fish processing accounting for 35% of total funds lent, the cash for buying fish stock is used to pre-finance the women's husbands and business colleagues (usually men) who go fishing. The men are also organised in groups and their catch is used to pay up the advanced cash after balancing the accounts. Even for purchase of canoes and other fishing equipment the money is given to the ladies for on-lending to the men. The strength of the women group lies in the unity and smoking of the fish that is not done by men.
As a development agency CEDECOM is promoting other activities such as tourism, agro-processing, salt winning and non-traditional exports. In addition the commission's autonomy is restricted.
The commission plans to open a finance development bank and is currently looking for financing. This is an overly ambitious plan whose timing is not right yet.
Queen Mother Concept
In Ghana social administration there are traditional chiefs. A queen mother is a sister to the chief but the queen mother nominates the chief to be appointed by the King. She is administratively very powerful. In business a queen mother is appointed by her business colleagues, based on her integrity, experience, business success and leadership qualities. The queen mother has other office bearers.
Every woman wanting to sell her wares in a particular market centre has to be approved by the queen mother. She can also take disciplinary measures on errant members of the business community. The queen mother is well respected and her decisions are final, although they are not dictatorial in nature. She always tries to act for the interest of the group.
The queen mother led groups are so powerful that they even form cartels. When they decide not to sell or buy at a certain price that is binding to all members. This can actually paralyse the whole business activity in a particular market centre. The government treads very carefully if it is to take a decision that affects the women groups. The women are able to use this peer pressure to instill confidence with trading partners, when borrowing funds or to influence market prices. They have a definite economic impact.
2. EMPRETEC
The foundation is a company limited by guarantee established to support small and medium entrepreneurs in the area of construction, tourism and non-traditional exports by providing credit and technical training. The foundation is funded by UNDP and have received seed capital totaling US$1 million. For the last two years since they started micro-finance activities in 5 of the 10 regions in Ghana have been covered from 5 credit centres. The focus is on the entrepreneurs with good business proposals but lack collateral and funding.
The funding to date has gone to construction (57 clients), tourism (45 clients), and non-traditional exports (13 clients), amounting to 115 beneficiaries of whom 35% are women. The average loan is ¢10.4 million. The interest rate applied is 35% and repayment rate is 98.4%.
A very small part of the fund has been disbursed so far due to the board and management that are not responsive enough to the potential clients' needs. There was no adequate financial data to facilitate better appraisal of the foundation appraisal. However its performance is of great concern to the UNDP office in Ghana.
3. NBSSI
The Board was established by an Act of Parliament in 1972 for the development of productive small scale enterprises in manufacturing, agriculture and agro-processing and service industries with a main focus on women.
Key operational objectives are to provide technical and managerial training to the entrepreneurs, assist in the preparation of business plan for accessing finance from banks and linking up micro-enterprises to micro-finance schemes. The head office is in Accra and has advisory centres in each region; which collaborate with the political administration to deliver the service.
The board gets funding from the government and bilateral agencies and administers funding through a total of 7 schemes.
The criteria used to finance micro-entrepreneurs; maximum 5 employees and US$10,000 worth of fixed assets excluding land. For small entrepreneurs the number of employees should be between 6 to 29 and a maximum of US$100,000 worth of fixed assets excluding land and buildings. Personal guarantees (thus no collateral) are used.
Up to 1996 over ¢500 million had been disbursed comprising 15,000 loans of which 40% are women. The average loan size is ¢500,000 and attracts an interest rate of 20%. Repayment rate is 84%. The Board is not authorised by law to mobilise savings.
4. Other Programs
Apart from the above programs no significant micro-finance activities are at present operational. A variety of small NGOs are preparing themselves to launch credit programs. The large majority of these do not have either the right institutional vision or commitment to become serious micro-finance service providers in the future. They are on the whole social service based institutions that are community development oriented. They are usually simultaneously implementing a number of activities ranging from health services, education and agricultural extension services.
Such institutions do not have the technical sophistication of the larger programs, and are seriously constrained by the lack of funds. Their strong grassroot structure and dedication to the savings and credit poverty alleviation initiative are their biggest assets in achieving sustainable micro-finance service delivery. (Return to top.)
The predominance of micro-entrepreneurs in Ghana is striking to the casual observer traveling across the country. On every street corner in urban areas, one sees numerous street vendors selling anything from newspapers, and household wares to fruit and vegetables. In rural areas, the presence of micro-entrepreneurs is most striking on market days. On such days, all micro-entrepreneurs travel long distances, sometimes from neighbouring countries, congregate at the local market. The size of market as compared to the size of the village is testimony to the large number of micro-entrepreneurs. Many of these are selling little more than one or two chickens, or maybe yam, fish, vegetables and sometimes goats. They have effective market networks, time tables and clear knowledge of particular market demands and supplies.
Activities that are evidence in the town streets, market centres, road sides and rural social centres confirm the heavy presence of actual integrated business links. No formal inventorisation has so for been done to ascertain the number of people involved in the micro-enterprises sector but informed opinion put the number at 40% of the eligible but unemployed workforce. Several initiatives including that of Ministry of Finance and World Bank is to address this issue in due course. However no set time table.
Like any business, a micro-entrepreneur requires capital to function and to expand. By definition, someone who is poor is someone with limited personal resources. It is therefore evident that micro-entrepreneurs require some form of external financing for their activities. In rural areas this financing has for the lucky few come in the form of ADB loan, whilst for the large majority, it has come from well-established middle-men. The regional specialisation in crop production has allowed wholesale buyers of agricultural produce to develop large scale practices.
A typical scenario for such activities would be the following. Having invested heavily in the planting of the land, farmers often face cash-flow problems during the period before the harvest of the crops. Unable to access a loan through conventional channels, they turn to the local money lenders for advance cash. The money they receive is used for the harvest. Due to pressure from the moneylenders the harvest is sold at very low margins. Having sold all or most of their harvest, farmers often find themselves short of food during the low season, thus having to borrow funds again from the middle-man. Such lack of liquidity in the farmer's business and the resulting cash-flow problems place farmers at the mercy of the middle-man. It is estimated that the latter charge an effective annual interest rate that can be as high as 600% per annum.
Even if farmers are not in need of cash before harvest, the costs associated with harvesting the crop will ultimately leave the farmer with no choice but to sell his produce right after harvest time. Due to large scale supply at this time, the price of crop is often the lowest of the whole year. The farmer is thus forced to accept the lowest return on his investment. The supply of affordable credit at harvest time allows the farmer to stock his produce until a time when supply has fallen and the price has increased, thus allowing maximum return on investment.
Similar financial constraints face the micro-entrepreneur in urban areas. In such areas micro-entrepreneurs, which are often involved in trading activities, have no access to affordable funds for the purchase of goods. The only available source of funding is either the trader or in some cases family sources. Financing from the trader creates a dependency of the entrepreneur on a single trader, thus limiting choice and allowing for the possibility of exploratory practices. Due to wide-spread poverty in the country, family sources of financing tend to be limited, and if existent carry with them important costs, associated with family obligations.
Given the above, it is therefore clear that micro-entrepreneurs in Ghana require nationwide sustainable sources of delivery for micro-finance services. The present development of micro-finance programs has built the founding stone for the delivery of such a service. The present achievements of these programs are impressive, but much remains to be done. On the other hand it is estimated that about 40% of the cash supply in Ghana is outside the banking sector. Most people do not have faith in banks hence the cash they hold does not circulate effectively enough to promote the micro-finance sector.
The continued expansion of the micro-finance sector in Ghana is constrained by two key factors. The lack of capitalisation of some programs, and the need for state of the art technical expertise.
Access to funding for loan capital is on the whole readily available for micro-finance institution in Ghana, and in particular for well-established programs. This capital is usually in form of loans. The growth of many of the smaller programs is seriously constrained by lack of access to capital. Moreover, some of the larger programs require grant capital to unable them to capitalise their programs and thus facilitate future access to loan capital. Savings mobilisation is key to a successful program strategy.
Micro-finance programs in Ghana have grown considerably over the past years, with many reaching not hundreds but thousands of clients. Many are now reaching a consolidation phase, particularly in view of the impending institutionalisation of their programs, and the introduction of new government regulations. This has created a growing need for state of the art technical assistance for these programs. Some programs are also facing growing demands for new financial products. The development of such products will require new skills. (Return to top.)
N. Risks and Special Considerations
i) Macro-economic stability
The last few years have seen significant improvements in macro-economic stability. Much more needs to be done to bring inflation and bank interest rates down substantially. The regulatory framework which responds to the particular aspects of micro-finance need to be put in place. There is evidence that government is taking the necessary initiative to achieve this. The continuing presence of this stability is of paramount importance for the success of micro-finance programs.
ii) Micro-finance methodologies
The lack of minimum standards by all programs will create a significant risk to the success of micro finance programs. Such standards include a minimum interest rate, a minimum acceptable repayment rate, and a general acceptance of "best practices".
iii) Donor intervention
Donor intervention in the field of micro-finance in Ghana has been significant. It is clear that donors will continue to fund this domain, and will most probably increase funding over the coming years.
iv) Demand driven service
As mentioned above, many programs that are active in Ghana have over the past few years acquired a solid understanding of their needs. The ITSP must therefore provide a service that is demand driven at a national level and meets the individual demands of various programs. Failure to do so may lead programs to seek readily available third party funding to meet their specific needs.
