Investors advised to take up shares in rural banks

Microfinance practitioner and Managing Director of Microfin Consult Limited, Ishmael Kwesi Otchere, has urged investors to take up shares in rural and community banks (RCBs) as a way of strengthening their balance sheets to make them more effective in expanding financial inclusion in rural parts of the country.

The microfinance expert argues that rural banks are in dire need of fresh capital injection to bolster their capital adequacy ratio, especially as the central bank’s GH?1 million recapitalisation directive for RCBs draw closer.

He told the B&FT in an interview:“Rural banks are positioned to accelerate socio-economic growth of our rural communities by assisting in the creation of jobs to improve the livelihoods of people in such parts of the country.

But looking at their current financial strength, there is the real need for RCBs to build their stated capital; and this can happen when we have investors and other well-to-do individuals taking up shares in rural banks.”

Such an intervention, according to Mr. Otchere, will not only get rural banks better-resourced to carry out their key function of financial inclusion, as such investors will also have a direct hand in helping to open up the rural economy.

“As an investor in any rural bank, you are helping to improve the balance sheets of the bank through equity investment; and at the same time, you will be contributing to creation of jobs in the rural economy even as you make good yields on your investment.”

According to Mr. Otchere, investors who are seeking to make good returns on their monies should look to the rural and community banks (RCBs), citing the recently released Ghana Club 100 (GC100) which featured 28 rural banks among the leading and prestigious businesses in the country.

To him, such an achievement should serve a strong signal to investors who will want to make good returns on their investments.

“Primarily, investors seek returns on their investments, and a look at the Ghana Club 100 indicates that rural banking is a proven place to invest.”

The need for good corporate governance

To make the rural banking sector more attractive to investors, the microfinance expert advised that RCBs to deploy good corporate governance that will drive performance in every aspect of the business.

“Investors may see rural banking as a risky business, and to correct that impression, banks will have to package the sector more attractively by improving their governance structure, to entice them.

Good corporate governance is when you have professionals and skilled hands in charge of operations to drive the required productivity.”

With regards to human capital, Mr. Otchere indicated that RCBs should learn to attract, train and retain competent staff with performance-based incentives.

“Investing in technology is another area that RCBs must pay attention because even though it is capital intensive, the end result makes the bank very competitive as it helps to reduce operational costs, which indirectly drive down interest on loans.

But such investments cannot be done with depositors’ cash and there is the real need for rural banks to build stated capital,” Mr. Otchere indicated.