Are you part of the financial system?

To be financially healthy, we must be finance wise, says Bernard Otabil. If you are reading this column at the minute then it is obvious that you have some interest in the finance world. But, unfortunately, that does not mean that you are necessarily part of the financial system. This is because over the years l have come to meet people who finance-speak, but hardly play finance.

Financial institutions in the country seem eager now to push forward an agenda that will ensure that more people appreciate and use more of the available financial products on the market- so there is hope for those yet to join the system.

This is a laudable initiative given the fact that despite all the reforms in the financial sector in recent years, the percentage of the unbanked per population has not increased significantly in tandem, even though generally the financial inclusion index has improved.

More so, as Ghana has achieved a middle-income country status, albeit at the lower level of the ladder, it is the expectation that more and more people should be using the formal banking sector or at least, use other financial products like insurance as incomes improve — literally speaking.

Financial inclusion, a commonly used term in recent years does not only refer to the availability and delivery of financial services, particularly to sections of disadvantaged or low-income segments of the society but also that such services must be affordable to this group.

Available data points to more than two billion adults globally with no access to formal financial services. In this case, the measure is that such financial services institutions must be a regulated one and therefore, it goes without saying, that since one way or the other such “excluded” groups need some form of “financial” help, where such help is not readily available from friends and family members, they have often resorted to informal, underground services that come with high costs.

In Ghana however, available data gives some hope of progress. The recent global market report on financial inclusion, the 2015 Global Index Survey, shows a good sign that Ghana is heading in the right direction.

The revelation that the proportion of adult population using formal financial services rose from 29.4 per cent in 2011 to 40.5 per cent in 2014, as explained by an official of the central bank at an event to launch a programme to further deepen financial inclusion in the country is encouraging.

“As you may well know, within the intervening period of the two surveys (2011 and 2014), the Bank intervened with some policy responses to enhance financial inclusion,” Millicent Narh, the First Deputy Governor of the Bank of Ghana(BoG) said.

The fact, however, is that the story of financial inclusion is told in many ways. The general view among actors, as to whose responsibility it is to promote financial inclusion may be different though, but ultimately the goal is the same.

The United Nations defines the goals of financial inclusion as follows: access at a reasonable cost for all households to a full range of financial services, including savings or deposit services, payment and transfer services, credit and insurance.

The other services are sound and safe institutions governed by clear regulation and industry performance standards; financial and institutional sustainability, to ensure continuity and certainty of investment; and competition to ensure choice and affordability for clients.

The Ghana Digital Financial Services programme, which is a five-year programme aimed at increasing access to low cost financial services, is the latest initiative to help improve financial inclusion.

The programme, designed and executed by the Consultative Group to Assist the Poor (CGAP) and the International Finance Corporation (IFC) of the World Bank, is also sponsored by Switzerland’s State Secretariat for Economic Affairs (SECO).

There are identified pillars on which financial inclusion can be built. And one of such pillars is the need for a robust financial infrastructure. A robust financial infrastructure is one that enhances payment systems and ensures that easy access to cheap and affordable financial services is readily available.

Money transfer services is a case in point and other electronic payment options too. Mobile money float balances value which stood at GH¢223.3 million in 2014 was at GH¢547.9 million in December 2015. Again, mobile money transaction is said to have moved from GH¢2.4billion as at 2013 to about GH¢ 11.6billion in 2014.

There are policy actions to strengthen the payment system, such as the new National Payment Systems Strategy, which, it is claimed, seeks to promote both the use of electronic payments over cash, and ultimately improve financial inclusion.

Also, an Electronic Money Issuers and Agent Guidelines is also promoted by the regulators to promote safe and secure issuance and acceptance of digital money as a means of promoting financial inclusion.

That is not all, as a robust financial infrastructure must also ensure that effective use is made of the credit reporting (recording and retrieving of client data) system, and other identified areas like strengthening creditor rights, enhancing collateral regimes and modernising insolvency laws.

Another area that provides an impact point is a robust regulatory environment that allows micro and small-and-medium financial institutions to flourish.

This is a point of serious consideration because in recent times, some micro and medium financial institutions have called on the regulator to ensure that adequate provision is made in the review of the regulatory environment to accommodate them.

Mr Charles Arkuh, the Deputy Group Chief Executive Officer of Ideal Finance Holdings, has appealed to the BoG to include the Non-Bank Financial Institutions (NBFI) in its process of strengthening mobile financial activities in the country.

Furthermore, innovation is also touted as necessary to building financial inclusion in a country. The argument here is that finding new actors to provide low-income financial products to the poor would increase adoption and possibly the wider usage of such products. In effect, financial innovation should allow a diversity of skills and products catering to the varying needs of clients to be applied.

Financial inclusion is critical to socio-economic development and there is no doubt that as many more in the country adopt the use of financial services, the deepened market will ultimately create a multiplier beneficial effect for many more. Be a part of the system.

botabil@gmail.com