By Francis Beinpuo (2004)
http://www.seepnetwork.org/content/library/detail/1061
Abstract
While several attempts to provide credit to self-help groups have been implemented in Ghana, the Credit with Education methodology has been the most successful intervention. This paper discusses the environment for financial intermediation in Ghana, and it presents the case of the successful partnership between Freedom from Hunger (NGO) and a rural bank.
Beinpuo discusses the following key ideas:
- Rural banking in Ghana has failed to reach its full potential, but linking with NGOs and adopting their methodologies allows banks to reach out to a good mass of clients.
- The Credit with Education methodology allows the banks to mobilize savings from a large pool of people.
- The program has seen an impressive growth of savings balances of above 15% of loan holdings.
- In only three years the program was able to cover full operating costs, and it is expected that it will become a major earner for the bank.
- The program faces the challenges of having enough loan funds and a credible methodology for intermediation.
Summary
Rural banks have existed in Ghana since 1976, however, under the Banking Law, their impact in providing financial intermediation services in rural areas has been extremely limited. Close to 60% of money circulating in the country does so without the intervention of a formal financial institution.
To fill the gaps, several other institutions have been developed. Savings and credit services are currently provided by institutions founded on traditional or innovative methodologies, such as Susu collector services, credit unions, etc.
Banks have attempted to reach out using various methodologies of group-lending, but the one that has proven to be the most successful is the Credit and Education program developed by Freedom from Hunger (NGO).
Credit with Education is a village-banking program with a strong component on health and nutrition education. The program joins together an NGO and a bank. The NGO provides the training and know-how on the village banking methodology; the bank provides the infrastructure for financial intermediation, the initial funds for lending, and the management and monitoring of credits and savings.
The results of this partnership have been very positive. The program has reached operational sustainability in only three years, and it has the potential to become a major earner of profits for the bank. Clients' savings make up 15% of the loan portfolio, which has boosted the savings mobilization of the bank as well as its cash flow conditions. Similarly, the support provided to the self-help groups managed by Freedom from Hunger has resulted in better conditions for the women and their children.