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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Main Author: World Bank Group
Format: Report
Language:English
Published: World Bank, Washington, DC 2018
Subjects:
Online Access:http://documents.worldbank.org/curated/en/646871533059561411/Ghanas-microfinance-sector-challenges-risks-and-recommendations
http://hdl.handle.net/10986/30214
id okr-10986-30214
recordtype oai_dc
spelling okr-10986-302142021-05-25T09:16:52Z Ghana's Microfinance Sector : Challenges, Risks and Recommendations World Bank Group MICROFINANCE REGULATION BANKING MONEY LENDERS NGOs FINANCIAL CONSUMER PROTECTION LEGAL FRAMEWORK FINANCIAL INCLUSION 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. 2018-08-14T21:21:53Z 2018-08-14T21:21:53Z 2016-04 Report http://documents.worldbank.org/curated/en/646871533059561411/Ghanas-microfinance-sector-challenges-risks-and-recommendations http://hdl.handle.net/10986/30214 English CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Economic & Sector Work :: Other Financial Sector Study Economic & Sector Work Africa Ghana
repository_type Digital Repository
institution_category Foreign Institution
institution Digital Repositories
building World Bank Open Knowledge Repository
collection World Bank
language English
topic MICROFINANCE
REGULATION
BANKING
MONEY LENDERS
NGOs
FINANCIAL CONSUMER PROTECTION
LEGAL FRAMEWORK
FINANCIAL INCLUSION
spellingShingle MICROFINANCE
REGULATION
BANKING
MONEY LENDERS
NGOs
FINANCIAL CONSUMER PROTECTION
LEGAL FRAMEWORK
FINANCIAL INCLUSION
World Bank Group
Ghana's Microfinance Sector : Challenges, Risks and Recommendations
geographic_facet Africa
Ghana
description 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.
format Report
author World Bank Group
author_facet World Bank Group
author_sort World Bank Group
title Ghana's Microfinance Sector : Challenges, Risks and Recommendations
title_short Ghana's Microfinance Sector : Challenges, Risks and Recommendations
title_full Ghana's Microfinance Sector : Challenges, Risks and Recommendations
title_fullStr Ghana's Microfinance Sector : Challenges, Risks and Recommendations
title_full_unstemmed Ghana's Microfinance Sector : Challenges, Risks and Recommendations
title_sort ghana's microfinance sector : challenges, risks and recommendations
publisher World Bank, Washington, DC
publishDate 2018
url http://documents.worldbank.org/curated/en/646871533059561411/Ghanas-microfinance-sector-challenges-risks-and-recommendations
http://hdl.handle.net/10986/30214
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