Ghana's Microfinance Sector : Challenges, Risks and Recommendations
Broadening and deepening financial inclusion in Ghana is important for ensuring inclusive growth and achieving the objectives of the Financial Sector Strategic Plan. Deeper and more inclusive financial sectors allow poor households to manage risks...
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| Format: | Report |
| Language: | English |
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World Bank, Washington, DC
2018
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| Online Access: | http://documents.worldbank.org/curated/en/646871533059561411/Ghanas-microfinance-sector-challenges-risks-and-recommendations http://hdl.handle.net/10986/30214 |
| Summary: | Broadening and deepening financial
inclusion in Ghana is important for ensuring inclusive
growth and achieving the objectives of the Financial Sector
Strategic Plan. Deeper and more inclusive financial sectors
allow poor households to manage risks and smooth
consumption; they provide opportunities for very micro and
small enterprises to survive and grow; they can bridge
geographical dispersion by providing access to savings and
payment services to populations in rural and remote regions.
Ghana fares well on some indicators of financial inclusion
compared to other Sub-Saharan African countries, and is
comparable to lower middle-income countries. However, it
lacks a clear strategy for financial inclusion and
development of microfinance institutions (MFIs) and other
methodologies of making financial services more widely
available. Microfinance - the provision of savings, credit,
and other financial products to the poor - grew rapidly in
Ghana during the 2000s in existing institutions, performing
well by international benchmarks for MFIs and raising the
percentage of the population that is financially included.5
While the universal banks have the bulk of the assets of the
financial system, microfinance institutions (MFIs) reach
more clients (around 8 million) through over 3,000 outlets
spread throughout the country. Although not all such
institutions were directly regulated by the Bank of Ghana
(BoG), capacity building, oversight and monitoring support
from MFI Associations and donor-supported programs helped
ensure stable growth. During the late 2000s, however, new
types of unregulated microfinance service providers
proliferated, increasing the number of operators who lacked
sufficient capacity, skills, governance, transparency, and
accountability to act as responsible financial
intermediaries. This posed a risk to the sector, with
increasing incidents of reported fraud, insolvency, and loss
of savings by low-income households. In 2011, BoG initiated
measures to bring all types of MFIs under a consistent
regulatory framework by issuing Guidelines for MFIs. This
paper summarizes the situation and development of
microfinance institutions in Ghana, reviews progress and
problems in implementing the BoG regulations for MFIs,
highlights current risks and challenges, and proposes
strategies for mitigating risks. The analysis includes three
different levels: BoG and Government of Ghana (GoG); MFIs
and their associations; and the public. It is aimed at
providing information on the complex issues in the
microfinance sector as a basis for dialogue on concrete reforms. |
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