Financial Inclusion in Ghana

Introduction

The World Bank contends that, financial inclusion is individuals and businesses having access to useful and affordable financial products and services that meet their needs- transactions, payments, savings, credit and insurance- delivered in a responsible and sustainable way.

The conversation on financial inclusion is important in Ghana because approximately 85% of enterprises in the Ghanaian economy are estimated to be Micro, Small and Medium Enterprises (MSMEs). Estimates of MSMEs contribution to Ghana's Gross Domestic Product (GDP) is approximately 70%. It is also estimated that about 95% of the MSMEs are microenterprises belonging to the informal sector[1].

Financial Inclusion for an economy with such an estimated statistics as Ghana has is therefore not only a rhetoric for formalising and transforming Ghana's economy, but the only viable pathway to economic transformation in Ghana. Financial inclusion conversations are usually had with regards to Mobile Money penetration, but this article is an analysis of the National Financial Inclusion and Development Strategy (NFIDS) which was developed to improve Financial Inclusion in Ghana.

The policy document is the Government's framework paper for driving financial inclusion in Ghana. The problem appears, as recognized by the policy, to be the lack of innovation in the financial services, especially products suitable for MSMEs and thus we shall not limit the scope of this article to Mobile Money Penetration. This article discusses the NFIDS of Ghana and shares possible pathways to improving financial inclusion.

The National Financial Inclusion and Development Strategy (NFIDS)

The NFIDS has a policy directive to increase the availability of a broad range of affordable and quality financial services that meet the needs of all Ghanaians. The policy seeks to increase access to formal financial services to 85% of the adult population by 2023 and to focus on relatively excluded groups.

The increase in access to financial services is expected to create economic opportunities and contribute significantly to the Sustainable Development Goal Number 1: No Poverty in Ghana. The World Bank argues specifically that, financial inclusion is an enabler for 7 of the 17 Sustainable Development Goals. Financial inclusion is therefore a key if we must unlock answers to extreme poverty.

The NFIDS is structured around five mutually reinforcing pillars of financial sector development: (a) Financial Stability; (b) Access, Quality, and Usage of Financial Services; (c) Financial Infrastructure; (d) Financial Consumer Protection; and (e) Financial Capacity.

Implementation of the National Financial Inclusion Development Strategy (NFIDS)

The NFIDS sets as a key objective the achievement of financial systems development by improving MSMEs' access to financial services through support to improve the supply of need-based financial and insurance services as well as accompanying measures to develop capacity of MSMEs to access and benefit from these services. We must endeavor to implement the NFIDS as financial services sector players as the success of the policy paper is important for the overall growth of the financial services sector.

In this essay, I discuss pathways to attaining financial systems development. I argue that we must implement interventions at various levels of the financial ecosystem. At the customer level, MSMEs must be supported to develop financial competencies and improve their bankability. At the financial institutional level, the institutions must be supported to develop financial products and services that are suitable for the MSMEs. At the policy level, the regulatory institutions must be supported with technical assistance to create a favourable regulatory environment.

• Pillar I- Financial Stability

The objective for financial stability pillar of the NFIDS is to ensure a sound and stable financial sector capable of facilitating sustainable financial inclusion. Having had the rare privilege of working in the financial services sector as Head of Credit Analytics, Operational and Market Risk as well as coordinating Information Security and Environmental and Social Risks for over a decade, in three banks, it appears to me that we must pursue aggressively the strengthening of Ghanaian owned banks, Savings and Loans, Microfinance Companies, Rural and Community bank, and Insurance Companies if we will achieve financial stability.

As industry players interested in the financial inclusion agenda, we must ensure that we have stronger institutions through the implementation of the frameworks that consolidate Enterprise Risk Management, Business Continuity and Disaster Recovery, Environmental and Social Risk, Anti-Bribery and Corruption, Supplier Management, Information Security, Fraud Management, Assurance and Audit, Anti-Money Laundering, Counter-Financing Terrorism, and Compliance.

Regulators and Compliance practitioners sometimes prefer to be the law, but unbridled liberty for Regulators will only derail the financial inclusion agenda. We must strengthen and support Regulatory bodies and financial service providers to develop a risk assessment framework that is contextual to the nature and climate of the Ghanaian businesses, in order to accurately assess risk profiles both for the overall market as well as the specific financial service providers.

Regulators and financial service providers must improve their monitoring and evaluation regimes, implement Scenario Planning and Stress Testing Regimes which always sounds like science fiction but is the sure gateway to being prepared for the future.

The goal for financial services providers should be risk management and contingency planning to withstand shocks when uncertainty hits people, infrastructure and systems, process and procedures because uncertain sure is finance.

• Pillar II – Access, Quality and Usage of Financial Services

The central objective of Pillar II is to increase the availability and usage of innovative financial products and services tailored to the needs of the financially excluded population. To achieve this objective, we must pursue as industry players, a financial services model that increases the proximity of financial access points. Financial Agency Agreements and frameworks and expanding digital financial services by integrating FINTECHs and digital channels have become the obvious routes.

At a time when Ghana is having a conversation about e-levies (with its possible unintended consequence of derailing the financial inclusion agenda), we must not lose sight of the fact that the continuing usage of mobile money and its evolving infrastructure for building solutions and applications is absolutely critical for financial inclusion.

The goal should be to promote seamless solutions development through innovative digital solutions. It is in this regard that concerns about the Electronic Transaction Levy are legitimate as it can further worsen the drive towards financial inclusion.

• Pillar III – Financial Infrastructure

The goal of the third pillar is to support innovation and efficient delivery of financial services and to increase information on borrowers and MSMEs. The baseline legal architecture for banking services in Ghana is the Bank and Specialised Deposit-Taking Institutions Act (Act 930) or the Non-Bank Financial Institutions Act (Act 774).

Based on the activity in scope (electronic money issuance and wallet-based transactions), the Payment Systems and Services Act, 2019 (Act 987) will apply. Laws such as the Credit Reporting Act, 2007 (Act 726) must fully allocate for the digital ecosystem as a data source for Credit Reporting. Current and interesting development in the financial services is the Security and Exchange Commission issuing a guideline to regularise the operations of Credit Rating Agencies (CRA) in Ghana in November 2021.

The activity of lending and full operationalisation of the rules for the collateral registry and collateral frameworks as well as the Borrows and Lenders Act, 2020 (Act 1052) must fully contemplate in its operationalisation the MSMEs as that will be an important step towards stronger financial services for the financially excluded population.

The growth of insolvency practice and business restructuring regimes is a necessary development for the management of Nonperforming loans (NPLs), as the informal MSMEs sector contribute to about 75% of the entire NPLs in the industry. We must seek to fully operationalise the Corporate Insolvency and Restructuring Act, 2020 (Act 1015) for the benefit of MSMEs.

• Pillar IV – Financial Consumer Protection

This pillar of the NFIDS has become more important considering the challenges imposed by the rise of digital payments and electronic delivery of financial services. Financial Services providers could reach millions of financial consumers (who are informal and sometimes ill-educated) with no prior interaction with financial services.

Pillar IV aims to instill confidence in financial products and services and to increase accountability. A provider of a service should not be understood to be doing the consumer a favour and that is why in pursuing financial inclusion we must endeavour to review and enhance the regulatory and institutional framework for financial consumer protection.

Regulators must take their ombudsman role seriously and build an oversight capacity to monitor and evaluate complaints. The full operationalisation of consumer protection guidelines for Financial Service Providers is important to maintain a balance; protection of consumers on Data Protection should absolutely be priority considering that the digital channels have become the pathway for driving inclusion.

Conversations of sustainability and information security must matter while we pursue the financial inclusion agenda. Conversations on market conduct are as important as accessibility of market and thus we should seek to implement standardized disclosure requirements for financial service providers. Reports on Environmental and Social impact of financial services providers will give a holistic assessment of providers impact on the economy in addition to the financial returns and profits. In pursuing inclusivity, we should be interested in safeguarding the communities and consumers as much as the service providers.

• Pillar V – Financial Capability

The final pillar aims to increase capability, awareness, and use of financial products and services by increasing consumers' understanding of financial products and their capacity to manage their personal finances.

The design and implementation of a financial literacy curriculum must be prioritized. We must teach ourselves about money as much as we do productivity; we must implement financial literacy programs through technical and vocational training systems as well as through traditional secondary and tertiary schools.

We must seek to create opportunities for MSMEs to be guided and mentored in developing bankable, sustainable and profitable businesses. It is in this regard that the author is completely devoted to MSME training and mentorship.

Financial literacy seminars and symposiums are not superfluous but a need for the education of MSMEs on the current developments as well as building business knowledge, skills and competencies.

Conclusion

In conclusion, we must seek to align financial services providers' organizational culture to drive innovation for financial inclusion. The traditional narrative of banks as unreasonably conservative and fully adaptive of regimes that are not fit for Ghanaian purpose must evolve.

Financial Services providers must develop products that enhance customer experience and engender inclusion. In pursuing financial inclusion, we must build solutions that allow for high degree of personalization while holding financial services providers accountable.

As lawyers and financial services experts, we must form strategic partnerships for growth and awareness creation. Partnerships across the financial services landscape which will aid education and inclusivity.

Above all things, we must work together with Financial Services Providers and relevant stakeholders to design and implement awareness training for excluded populations including MSMEs, rural communities, women and the youth on a continuing basis.

We must pursue financial inclusion without compromising regulatory compliance, and this is our charge. My name is Yaw Sompa, I am a lawyer and a financial services expert. I believe in financial inclusion and advocate for the Sustainable Development Goals.

[1] The estimates for MSMEs in Ghana were obtained through policy dialogues the author was a part of. The figures were shared by a credible developmental partner through a stakeholder engagement session. The estimates are however expert opinion based on all the information available to the developmental partner.