Financial inclusion strategy piggybacks on recent gains

The Global Financial Index Database estimates that about 1.7bn people in the world are without access to any form of basic financial services. At the same time, financial inclusion is thought to be one of the surest ways to ensure the poor and marginalised in society are economically empowered.

If the poor have savings accounts, they are more likely to use other financial services, such as credit and insurance, to start or expand a business, invest in education or health, manage risk, and weather financial shocks, which can improve the overall quality of their lives.

More and better financial intermediation will have a positive impact on growth, mostly through lower transaction costs and better distribution of capital and risk across the economy.

Despite progress made in the adoption of digital financial services in the country, about 40 percent of the Ghanaian population are still financially excluded. Gender-wise, women are still less financially included than men, and demographic analyses show vast disparities in the progress recorded.

According to the World Bank’s Fourth Ghana Economic Update on Financial Inclusion, published last year, the five poorest regions (before the recent expansion in the number of regions)—Upper West, Northern, Volta, Upper East, and Brong Ahafo—remain the least financially included, despite the large gains in financial inclusion seen in these areas between 2010 and 2015.

Ghana this year joined about 60 countries worldwide that have taken a strategic approach to accelerating universal access to financial services by developing a national financial inclusion strategy.

The National Financial Inclusion and Development Strategy (NFIDS), developed by the Finance Ministry in collaboration with financial sector regulators and other stakeholders, is to address the fundamental barriers preventing the underserved population from accessing financial products and services.

The NFIDS has a three-tiered governance structure. A council, comprising high-level officials, provides strategic guidance and sets policy objectives. The council is advised by a steering committee consisting of department and unit heads of the various stakeholder organisations.

The secretariat, located at the Ministry of Finance’s Financial Sector Division (FSD), coordinates the overall implementation of the NFIDS and manages its day-to-day affairs.

The government’s overall goal is to achieve financial inclusion to allow the underserved population to generate income, build assets, manage financial risks, and become economically empowered.

The strategy supports Ghana’s vision of “increasing the availability of a broad range of affordable and quality financial services that meet the needs of all Ghanaians and are provided by sound, responsible, and innovative financial institutions.” More specifically, the strategy seeks to increase access to formal financial services from 58 percent to 85 percent of the adult population by 2023, and to focus on relatively excluded groups.

The Ghana Living Standards Survey (GLSS), conducted by the Ghana Statistical Service, classifies nearly seven million Ghanaians as poor. An increase in access to financial services among this population is expected to create economic opportunities and contribute to poverty reduction.

The NFIDS’s reform agenda is structured around five mutually reinforcing pillars of financial sector development: (a) Financial Stability; (b) Access, Quality, and Usage of Financial Services; (c) Financial Infrastructure; (d) Financial Consumer Protection; and (e) Financial Capacity. This structure reflects Ghana’s financial sector development context and constraints, as well as the financial inclusion landscape, and is based on the World Bank’s Reference Framework for Financial Inclusion Strategies.

In particular, the NFIDS acknowledges Ghana’s financial stability challenges and seeks to address them as a precondition to promote sustainable financial inclusion and development.

Five pillars

One of the five pillars highlighted by the policy is financial sector stability, which is considered as a precondition for sustainable financial intermediation and inclusion. This is because there cannot be a sustainable financial inclusion drive without a sound and stable financial sector.

This has also become particularly important given Ghana’s recent history, with a number of weak financial institutions that had their licences revoked. Thus, the policy regards the strengthening of the supervision of banks and specialised deposit-taking institutions as one of the foremost steps to increase financial stability.

The policy also wants to address the access and quality of financial intermediation tools as well as their general usage. Before mobile money became the dominant financial intermediation tool, the Ghana Interbank Payment and Settlement Systems (GhIPSS), owned by the central bank, had been championing its e-zwich card and other payment services. Over the years, the e-zwich card, which runs even offline, has been the channel for payment of the government’s handouts under the Livelihood Empowerment Against Poverty (LEAP) initiative.

While the NFIDS intends to encourage the development of more payment tools, Kweku Tettey, Head of Project Management Office at GhIPSS, believes that there are several tools already in existence that need to harnessed before new tools are developed.

The third pillar of the policy focuses on financial infrastructure as a way of supporting innovation and efficient delivery of financial services, and to increase information on borrowers and micro, small, and medium enterprises.

Pillar four is aimed at financial consumer protection to instill confidence in financial products and services and to increase accountability by enhancing the regulatory and institutional framework for financial consumer protection and building the oversight capacity of financial sector regulators.

There is no denying that a robust regulatory and supervisory framework for financial consumer protection is key to instilling confidence in financial products and services and to deterring, protecting, and providing recourse against misconduct by providers.

The objective of the last pillar is to increase capability, awareness, and use of financial products and services by increasing consumers’ understanding of financial products and their capacity to manage their personal finances.

While multiple financial literacy initiatives are conducted on a regular basis by several stakeholders, the Ministry of Finance intends to use the NFIDS secretariat to better coordinate these initiatives to harness synergies and reduce overlaps.

In furtherance of its financial inclusion objectives, the government aims, through the NFIDS, to add three million users to the current 14 million active mobile money users, and to raise the number of individuals with a Tier III Pension Plan to 350,000 from the current 148,000.

The government believes these targets are achievable if there is proper oversight and monitoring of the strategy, something it says it is fully committed to.