Ghana: Ghana’s microfinance industry, matters arising!

Ghana’s drive to mobilize deposits from the unbanked population and encourage savings habits has faced serious challenges from the activities of unscrupulous microfinance firms.

Hundreds of account holders in parts of the country have lost their savings to such institutions within the past couple of years.

Some of the microfinance firms have either been shut down by the regulator or collapsed as a result of poor risk and business management – some mangers are facing prosecution, others have absconded.

This has led to widespread public apathy in depositing funds with microfinance institutions, especially with the traditional ‘susu’ societies.

Enquiries suggest that most victims of financial scams are enticed with micro-lending facilities. They also lack access to information on the credibility of operators.

Some aggrieved financial service’ consumers have also questioned the proactive stance of the Bank of Ghana to protect depositors when the erring firms are being shut down.

To ensure stability and sanity in the industry, the Central Bank came out with new rules and guidelines to regulate the financial sub-sector, effective January 2012.

Regulated activities under the Non-bank Financial Institutions Act 2008, increased from a single tier to four tiers, to include Susu companies, Susu collectors, money lenders and Financial NGOs.

Regulation under the first tier, including rural and community banks, savings and loans companies and other financial intermediaries already regulated under the Banking Act, remained unchanged.

‘Susu’ companies taking deposits and making profits are now operating under the second tier of regulated regime, and such companies hold an initial minimum paid-up capital of not less than Gh¢100,000.00 for one unit office.

Operators under this category are also required to amend their company names to take on the word ‘microfinance’ as a distinctive identification from other susu operators.

Credit unions also fall under the second tier but the Bank of Ghana has yet to pass a Legislative Instrument to regulate activities in the sector.

The third tier of money lenders and non-deposit taking financial NGOs shall maintain a minimum paid-up capital of Gh¢60,000.00, whilst activities under the fourth tier include the operations of individual susu collectors, susu enterprises, individual money lenders and money lending enterprises.

The Ghana Association of Microfinance Companies (GAMC) is recognized by the Bank of Ghana as an umbrella professional association to help promote best practices in the microfinance industry.

In a bid to clean up the system, the Association has been building the capacity of members to successful sail through operational processes under the BoG’s new rules and guidelines.

“Regulation is not easy but a society that is not regulated does not function, so it’s something that we don’t have a choice. It’s something that we needed it long and I think we welcome it. We just have to do everything we can to get ourselves regularized so that we can help the economy grow in the area of poverty alleviation and also job creation and be able to give micro-credit to people to expand their businesses, to pay tuition, to rent houses”, stated Nicolas Osei, Northern Sector Vice-President for the GAMC.

The new guidelines are restoring hope to both the public and industry players but the licensing has not slowed the proliferation of firms taking deposits and lending to the public.

Ghana’s major cities of Accra, Kumasi and Takoradi continue to experience an upsurge in the number of microfinance establishments.

Today, over three thousand microfinance firms are estimated to be operating in the country – as at end of 2012, the Bank of Ghana had issued 77 full licenses and about 400 provisional licenses, with an additional 500 new applications still in the process.

But the Central Bank’s process of licensing microfinance companies under the new regulatory guidelines has been a worry to the GAMC.

It’s National President, Collins Amponsah-Mensah has observed a number of firms are venturing the sector without due consideration to the regulation.

He therefore wants the regulator to tighten entrance for new businesses in the sector until it completes the licensing and regularization of those already in operation.

“As it is now, as they [Bank of Ghana] try to process those who are already in operations, others are coming in and so the number gradually becomes overwhelming and that makes it very difficult for the regulator to work on”, he observed.

Mr. Amponsah-Mensah has also charged the Central bank to be bold in closing down firms flouting the regulatory guidelines early enough to protect public interest and image of the sector.

He suggested that commencement of operations should be suspended temporarily after business incorporation at the Registrar General’s Department.

There has neither been an improvement in the quality in financial services in the local economy and the proliferation has not necessarily resulted in poverty alleviation.

Microfinance institutions should be more committed to establishing networks in rural communities to holistically develop the national economy, said Sampson Ahmed, Chief Executive Officer of Mighty Microfinance Company.

According to him, the increase is the number of financial service providers should not be to the neglect of rural economic players, who are constrained in credit accessibility to transform their subsistent operations.

“Most firms are based in the cities, not realizing that there are some rural areas that we have to serve”, he observed. “I want to tell my colleagues to focus on the rural areas to help people with loans and advise; they should come to the needs of the farmers and support the rural areas to develop”.

Mr. Amponsah-Mensah believes the country needs more microfinance companies and he expects the regulator to ensure policy encourages operators to establish in deprived regions of the country.

The GAMC Directors’ forum held under the auspices of the GIZ and the Responsible Finance Project, aims at improving financial inclusion by ensuring sustainable access to financial services.

“We expect that the directors and their companies will be responsible in their dealings with the client in the sense that they’ll be transparent and they’ll provide all the necessary information that is required to their client”, noted Matthew Affram, National Expert, Banking Supervision under the GIZ project.

Ghana’s microfinance industry is said to be a path of reformation; but industry watcher are of the view that sustaining sanity to instill public confidence would much depend on the policy direction of the regulator, the Bank of Ghana.

By Kofi Adu Domfeh, Modern Ghana

Ghana: The Ghanaian susu scheme and key lessons for innovative financing

Susu is an informal deposits collection scheme that is common amongst Ghanaians. Literature has it that Susu was introduced to Ghana from Nigeria and was  first practiced in Ghana around  1965 by a Roman Catholic priest in the Northern Region of Ghana.

Susu as an indigenous deposit mobilizing scheme has contributed to instilling the act of thrift amongst many actors in the informal sector. This mode of deposit mobilization has thrived in places where most formal banks dare to go. The individuals involved in the collection of Susu are often referred to as Susu collectors. Although the scheme was formally more identifiable with people living in  the rural areas, today  the Susu scheme is very much popular and  can be found almost everywhere in Ghana even within  the major cities where there are a number of  several traditional banks and other financial institutions.

The Susu collector’s role within the context of financial development in Ghana cannot be overlooked. The Susu concept has existed before the establishment of most of the pro poor financial institutions.  For instance the rural banking concept in Ghana started around 1976,11 years after the first Susu scheme was practiced. Susu collection is as well older than any form of the microfinance institutions we have in present day Ghana. However they have been one of the few pro poor financial schemes that is still going through re-tooling to turn it into a very effective indigenous poverty alleviation tool to help in the fight against poverty.

With the expansion of the money economy, these informal financial institutions (IFIs) have not lost their vigor. Quite to the contrary, they have multiplied, both in numbers and diversity (Barclays 2005). The Susu system seems to have proven to be a dependable and cost effective mechanism of emphasizing state participation and encouragement of the domestic indigenous sector.

The Ghanaian banking sector has seen tremendous growth in terms of the number and type of the financial institutions available to assist towards deepening financial access. By the end of 2011 there were a total of 25 universal banks, 19 Savings and loans companies, 131 rural and community banks and a number of microfinance companies including Credit Unions all across the length and breadth of Ghana. Inspite of this, a recent report by the World Bank indicates that only 30% of Ghanaians have bank accounts. This finding therefore gives the clue that the number of bank branches in Ghana has not translated to increasing outreach, a condition that may be attributed to several reasons including the delivery mechanisms of the traditional banks something that the traditional Susu collectors have as the reason behind their successful  existence over all these years

How susu operates

Susu can be described as one of the most ancient traditional banking systems found in Africa. It has been used over the years as a medium for fund mobilization and ensuring the safety of the deposits of savers within the informal sector. Susu has remained an informal financial instrument use for the daily deposit mobilizations or collections by people known as Susu collectors. The Susu collector operates by visiting clients and potential clients  to collect their savings on daily basis for investment and safe keeping. Most clients in history only used the Susu for building assets through savings and not for the purpose of securing loans. In recent times, however, some susu operators provide loans to their clients in order to ensure client loyalty in the phase of competitions and also to meet the changing needs of the Susu clients.

In order to keep accurate records each customer or client of the Susu collector is given a card for the recording of   the daily savings made by each client. The Susu collector on the other hand also keeps a contra card that has the name and picture of the said client. The collector at all times ensures that both cards contain the same transactions and are used by each party to solve any discrepancy that may arise during the period of the contract.

Most Susu schemes are operated on monthly basis with savings cycle pegged to a month after which a client can withdrawal his or her total savings and take the decision to continue or discontinue with the Susu collector. Clients in most cases agree to take their deposits after the end of a cycle which is mostly one month and also made up of 30 days. In order to make the transaction simple for both parties, client are required to do their daily payment in  equal    amounts.  The operator of the Susu scheme charges a day amount saved out of the total number of days saved as his operating charges. The interesting thing is that the traditional Susu products mostly do not pay any interest on the clients’ savings.

Importance of the Susu Collector

In Ghana, the history of the growth and contribution of the microfinance sector cannot be written without making reference to the role and contribution of Susu. The Susu schemes  are the nucleus of the present day microfinance industry in Ghana.  They provide means by which individuals without formal   financial services can be assured of the safety of their funds. Currently there are 1,462 Susu collectors registered with the Ghana Co-operative Susu Collector Association (GCSCA) and have still indentified over 4,000 Susu collectors who are yet not registered with the Association.

For a lot more people, it is quite difficult to understand what motivates people to hand over their savings to other individuals who do not pay them any interest on their savings but rather take a fee for keeping their monies. This phenomenon is directly the opposite of what happens in the formal financial sector where financial institutions pay interest on depositors’ savings. Many  innovative financial observers  are yet to  understand  why the Susu scheme have rather registered growth to the extent that many of the MFIs today  have adopted  Susu as a deposit  moblising product to reach their clients.  In recent times some insurance companies have also modeled premium payment by their clients within the informal sector around the Susu scheme to reach their clients.   The Barclay’s Bank Ghana and Susu collector’s partnership in 2008 is also an additional recognition for the informal practice that has existed and contributed to deepening the financial frontiers for most low income earners.

What made Susu worked

There should be something that has sustained the scheme even in the era of financial sector growth in addition to the increasing complexity of the informal clients.  Trusting the Susu collector is one of the main ingredients that have sustained the activities of Susu collectors. Susu clients tend to trust the Susu collectors to safely keep their deposits. Although the aspect of trust has been challenged by some recent activities where some collectors sometimes abscond with client’s deposits, it has not entirely affected the number of clients who are using   the services of the Susu providers.

The nature of the economic activities of most of the Susu clients is such that they are the only key person managing their enterprises. In view of that, they mostly do not have the leisure of making time to go to the bank to transact any financial business. Most informal clients have a need for convenient banking and the Susu collectors have the their product tailored to solve the needs of these clients. Client of Susu schemes have the laxity of having to undertake the withdrawal of their savings from their work location by the Susu collector sending their amounts to the clients during the collector’s daily rounds.  The truth is that this kind of service in the formal financial sector is something most traditional banks will only do for their prestige customers.

For the informal clients, the understanding and acceptance they receive from the Susu collector is what keeps them glued to the Susu scheme. The clients remain loyal because they feel accepted by the Susu provider.  The Susu collector in most cases lives in the same communities with their clients and, therefore, tends to understand the value systems of their clients and this include the cultural mannerisms of the clients. The appearance, workout fit and the medium of expression of the Susu collector also makes it comfortable for the clients in dealing with the Susu collector. Literature reviews have proven that the way and manner bank officers dress and even decorate their plush offices somehow can scare most informal clients to cultivating relationship with the traditional banks.

Microfinance clients or informal clients have low or no literacy skills making it difficult to understand or read or fill the account opening or loan forms provided by most traditional banks. The transaction between the Susu collector and his clients are so simple that even without referring to their deposits cards most customers can establish their savings balance with the Susu collector because of the fact that savings are done in equal amount and on daily basis. Additionally, the transaction between them is mostly without much paper works. In most cases the only binding document is the card or savings booklets held by each party to serve as source  of verification in the event of any doubt.

Successful Susu collectors have been seen to demonstrate friendliness towards their clients and even potential clients. The Susu scheme has demonstrated very excellent client relationship and has generated into client loyalty the reason why the Susu schemes have remained stronger even in the era of financial sector boost in Ghana.

Conclusion

With the formalization of microfinance sector in Ghana , the principle that have preserved an indigenous act of “savings’(SUSU) can be modeled  by microfinance institutions seeking to improve outreach ,impact and sustainability of their operations. The Susu scheme has the client at the center of their operations and their operations are highly determined by the needs and demands of the Susu clients. If financial services meant for the low income are to effectively reached them for the purpose of improving their livelihoods, there will be the need for such financial institutions (whether downscaling bank or a microfinance institution) to create mechanisms to suit the lifestyles of the core clients rather than the institutions trying to get their clients to adopt to their systems. This is what the Susu scheme in Ghana have done so well.

By Roderick Okoampah Ayeh

Microfinance Technical Officer

ARB APEX BANK

roayeh@gmail.com