Bank Managers Hot

As Ghanaian bankers crack their brains on how to mobilise the vast financial wealth of the informal sector without exposing themselves to a sector regarded as extremely high risk, a new crop of young, finance-savvy entrepreneurs operating in the non-bank financial sector seem to be making a go of it. With a combination of innovative savings products and credit arrangements, non-bank financial institutions in Ghana are sprinting ahead of the still sluggish banks in tapping the vast wealth of the informal sector.

First Capital Plus Saving and Loans (FCP) is arguably the fastest growing non-bank financial institution at the moment, having expanded its branch network to six within its first full year of operation with a view to increasing it to 18 by the end of this year.

In June last year, the entity introduced a new product onto the Ghanaian market that enables customers to deposit money into their accounts 24 hours a day via their mobile phones, the first in Ghana’s banking history. Called SpeedBanking, it is akin to loading credit onto a mobile phone. What one needs to do is first to open an account with FCP. Subsequently, the account holder can buy SpeedBanking Vouchers with face values ranging from GH¢2 to GH¢1000 which you scratch to send a codified 12-digit number, just like loading mobile phone credit, to particular number for all networks and you receive immediate notification via SMS of the face value of the voucher being credited to your account.”

The Chief Executive Officer of FCP, Mr. William Ato Essien, was quoted by Ghana Business & Finance Magazine as saying that “the new service is targeted at the unbanked and under-banked to integrate them into the formal banking sector.” This solution makes banking simple and more accessible, thereby roping in a lot more people into the formal banking system, he added.

Mr Ernest Osei, a retailer at Accra’s Kaneshie market who now uses SpeedBanking, told this paper, “I now do not worry too much about the risk of carrying my daily sales to the bank. After any substantial sales, I just buy a voucher and send the money into my account.”

With innovations that either seek to advance credit or mobilize excess liquidity in the informal sector, it is no surprise that there has been a recent explosion of finance in the microfinance sector.

The numbers speak for themselves. Statistics from the Survey of Apex Bodies show that by the first quarter of 2011, there were more than 300 formally registered and regulated credit unions nationwide. Registered microfinance companies operating under the lenders ordinance number at least 200, but there are estimates of over 1,000 such companies existing throughout the country. Individual susu collectors, categorized as informal financial suppliers, also have approximately 2,000 members registered with the Ghana Cooperative Susu Collectors Association. Again, more than 5,000 are estimated to exist nationwide.

Mr Dzigbordi Agbekpornu, Chief Operating Officer of Dalex Finance & Leasing, one of the country’s fast growing non-bank finance institutions, said the expansion of credit to the informal sector is a positive development.

“The proliferation of financial institutions that provide entrepreneurs easy access to credit, even if not at comfortable rates, can only be a healthy development given numerous complaints by entrepreneurs that the lack of access to credit is hindering growth of their businesses,” he told Economy Times in Accra.

The country’s commercial banks may be green with envy about the inroads non-bank financial institutions are making into rich virgin territory, but the Bank of Ghana, the industry regulator, is anxious to see banking make an even greater impact on the informal sector.

Ghana’s banking sector has grown rapidly in the last five years owing to fresh capital injection by existing banks to meet minimum regulatory capital requirements, as well as the entry of nine banks from the West African sub-region and Asia, bringing the country’s total number of banks 27.

A couple of years ago, the Bank of Ghana itself rolled out a smart card, the e-zwich, by which it hopes to mop up excess liquidity, as well as encourage the banking habit among informal sector operators.

But the product has not yet caught the fancy of both informal sector operators and the banking public and now faces tremendous competition from innovative products that enable mobile phone subscribers to carry out financial transaction via their handsets.