Institute of African Studies,
University of Ghana - Legon
Institute of African Studies
University of Ghana
Legon
Telephone: 0302-213820 ext 2051, 5577
Email: iasgen@ug.edu.gh
Website: http://ias.ug.edu.gh
2013 AngloGold Ashanti Lecture
on Business in Africa
Felicity Acquah
Microfinance: Its revolution and impact on
the economic development and growth of
emerging economies over the past three
decades - lessons for Africa and Ghana
Institute of African Studies
 Institute of African Studies, University of Ghana - Legon

2013 AngloGold Ashanti Lecture on Business in Africa

Felicity Acquah

Microfinance: Its revolution and impact on the economic

development and growth of emerging economies over the
past three decades - lessons for Africa and Ghana

October 16, 2013.

Kwabena Nketia Conference Hall, Institute of African Studies,

University of Ghana, Legon

The lecture was Chaired by the Pro-Vice-Chancellor (Academic and

Student Affairs), University of Ghana, Legon, Professor E. Kweku
Osam

The AngloGold Ashanti Lectures on Business in Africa are a

collaboration between the Institute of African Studies, University of
Ghana, and AngloGold Ashanti. Instituted in 2008, they highlight issues
related to business in Africa as broadly defined. AngloGold Ashanti
also support the Kwame Nkrumah Chair in African Studies.

Published by the Institute of African Studies, University of Ghana, P. O. Box LG73, Legon, Accra - Ghana

© Institute of African Studies, University of Ghana, Legon. 2013

1 | IAS-AngloGold Ashanti (Ghana) Lecture on Business in Africa

WELCOME ADDRESS BY
PROFESSOR AKOSUA ADOMAKO AMPOFO, DIRECTOR, IAS

- Mr. Pro-Vice-Chancellor, Professor E. Kweku Osam

- Mr Peter Anderton, Snr. Vice-President, Anglogold Ashanti, Ghana,
- Mr Kwame Addo-Kufuor, Vice-President Corporate Affairs, Anglogold Ashanti,
Ghana.
- Mr Giri Venkatensan, Vice-President Finance, Anglogold Ashanti, Ghana,
- Mr Cicelo Nthuli, MD Iduapriem Mines
- Colleague Senior and Junior members of the University of Ghana;
- Invited guests,
- Members of the Press;
- Ladies and Gentlemen,

It gives me great pleasure to make some brief comments on the fourth lecture in the
series of annual AngloGold Ashanti Lectures on Business in Africa, three of which
have taken place during my tenure as Director. I am particularly pleased because this
lecture was delivered by an eminent woman—Mrs. Felicity Acquah. Felicity Acquah
is an accomplished entrepreneur, and former Chief Executive of Eximguaranty
Company Ghana Limited. Her lecture, “Microfinance: its evolution and impact on the
economic development and growth of emerging economies over the past three decades
– lessons for Ghana and Africa” remains topical as so many SMEs continue to
struggle to survive despite the vibrancy of African businesses. While microfinance is
now a common feature of our socio-economic landscape, people are less familiar with
the evolution, prospects and challenges of the sector in Ghana. Acquah proposes that
microfinance should be promoted as a human rights institution to assist low income
and poor families.

We continue to enjoy our relationship with Annual AngloGold Ashanti (AGA) who
support the annual lecture, a significant event on the University’s calendar. The series
was instituted in 2009 following the establishment of the Kwame Nkrumah Chair in
African Studies, also supported by AGA, which was established in 2007 in honour of
Ghana’s first President, Osagyefo Dr. Kwame Nkrumah, for his significant intellectual
contributions to African thought and to promote research, teaching and outreach on
Africana Studies..
2 | IAS-AngloGold Ashanti (Ghana) Lecture on Business in Africa

It gives me great pleasure to make some brief comments on the fourth lecture in the
series of annual AngloGold Ashanti Lectures on Business in Africa, three of which
have taken place during my tenure as Director. I am particularly pleased because this
lecture was delivered by an eminent woman—Mrs. Felicity Acquah. Felicity Acquah
is an accomplished entrepreneur, and former Chief Executive of Eximguaranty
Company Ghana Limited. Her lecture, “Microfinance: its evolution and impact on the
economic development and growth of emerging economies over the past three decades
– lessons for Ghana and Africa” remains topical as so many SMEs continue to
struggle to survive despite the vibrancy of African businesses. While microfinance is
now a common feature of our socio-economic landscape, people are less familiar with
the evolution, prospects and challenges of the sector in Ghana. Acquah proposes that
microfinance should be promoted as a human rights institution to assist low income
and poor families.

We continue to enjoy our relationship with Annual AngloGold Ashanti (AGA) who
support the annual lecture, a significant event on the University’s calendar. The series
was instituted in 2009 following the establishment of the Kwame Nkrumah Chair in
African Studies, also supported by AGA, which was established in 2007 in honour of
Ghana’s first President, Osagyefo Dr. Kwame Nkrumah, for his significant intellectual
contributions to African thought and to promote research, teaching and outreach on
Africana Studies.
3 | IAS-AngloGold Ashanti (Ghana) Lecture on Business in Africa

BRIEF PROFILE

MRS. FELICITY ACQUAH

Felicity Acquah holds an Executive Masters degree in

Business Administration; MBA (Finance), a BA in
Economics and Law and a Postgraduate diploma in
Project Appraisal and Management. She is also a -
certified trainer in Entrepreneurship and a Certified
Business Development Advisor. She is a Project Analyst
and Development Banker by profession.

With over 30 years of banking and business development experience, she has served
in senior positions in the Agricultural Development Bank, National Investment Bank,
Merchant Bank and Women’s World Banking. She served as Managing Director of
Eximguaranty Company (GH) Limited, a Finance House for ten years.

She was also a pioneer in establishing an Entrepreneurship and Business Development

Institution (Empretec Ghana Foundation) initially sponsored by UNCTC; UNDP;
DFID, World Bank. She served with Empretec Ghana for eight years and assisted in
installing Empretec programmes in Botswana, Zimbabwe, South Africa and Sierra
Leone.

She pioneered and led the implementation of the Relationship Management Workshop
for Bankers between 1995 and 1997 for the benefit of the Agricultural Development
Bank, Merchant Bank Ghana Limited and Barclays Bank.

She won meritorious awards on the celebration of Empretec Ghana Foundation’s 10th
Anniversary. Ghana association of Women Entrepreneurs accorded her two awards for
her contribution to business development in the country, having led the conduct of
over 30 Entrepreneurship Workshops and over 40 Management Seminars for SMEs
in Ashanti; Greater Accra; Western and Northern Regions. She won an African
Leadership Award in 2005.
She was adjudged the Marketing Woman of the year 2006 by the Chartered Institute
of Marketing Ghana and is a fellow of the Chartered Institute of Bankers.
She was accorded the Ghana Women’s Excellence Award through the Ministry of
Women and Children’s Affairs in April 2012. An International NGO, GWIN awarded
her a medal and certificate at the innovative Women in Business; Workplace and
Leadership Awards ceremony in April 2012.

She had previously served on the Boards of: Food Research Institute; Gold Coast
Securities; Metropolitan and Allied Bank; National Board for Small Scale Industries;
4 | IAS-AngloGold Ashanti (Ghana) Lecture on Business in Africa

Women’s World Banking; Empretec Ghana Foundation; Ghana Education Trust Fund
(GETFund); Ghana Social Marketing Foundation (GSMF) the Chartered Institute of
Bankers, the Association of African Development Finance Institutions (AADFI) the
Guarantee Committee of the Guarantee Fund for West Africa (GARI) and
Eximguaranty Company (GH) Limited. She is currently serving on the Boards of the
Catholic Institute of Business and Technology (CIBT), and is the Vice President of the
Business Council of Africa (Ghana). She is a patron of FIDA (Ghana) and a patron of
Empretec Women’s Forum ( Accra Chapter).
She has two children.
5 | IAS-AngloGold Ashanti (Ghana) Lecture on Business in Africa

Abstract of Lecture
Microfinance has evolved over the past three decades as a microcredit delivery system
that often brings micro banking to the doorstep of low income earning people engaged
mainly in informal trade and agro-based business segments of economies. It gained
global recognition in 1983 when Nobel Prize was conferred on Professor Mohamed
Yunus for (i) contributing to the creation of the Grameen bank in Bangladesh and (ii)
creating a micro finance system that enabled many rural dwelling people, majority of
whom were poor women, to have access to banking services thereby improving the
value of their businesses and the well being of their families. One key objective of the
bank was to reverse the age old vicious cycle of low income, low savings, low
investment into a virtuous cycle of more income, more savings, more investment.

Over the past three decades, through the practice of microfinance, individuals and
businesses in both the formal and informal sectors have tripled turnovers, improved
quality of housing, facilitated access to education for school going children, and
empowered many women to operate businesses consistently to lessen their
dependency on husbands and families. The challenge remains for policy makers in
most African countries, particularly in Ghana, to promote the establishment of an
Apex Microfinance bank to exemplify policies, best practices and standards for the
industry. The application of such practice will trickle down to impact positively on
business growth, employment, education, housing, health and productivity generally
in the country.

Such an Apex Microfinance bank will constitute the Forum that can help improve on
policies and develop networking strategies and framework through collaboration with
the microcredit bodies, MDAs, Development Partners, the Central Bank of Ghana,
Ministry of Finance and Economic Planning and other Apex bodies of microfinance
associations.

The large informal sector will have to be properly defined and structured in order to
make future policies more relevant, and guide Microfinance operations in Ghana and
other African countries over the next decade.
6 | IAS-AngloGold Ashanti (Ghana) Lecture on Business in Africa

Microfinance – Its Evolution and Impact on the Economic Development and

Growth of Emerging Economies over the Past Three Decades – Lessons for
Ghana and Africa

Mr. Chairman, honourable Ministers of State and Members of Parliament, Vice

Chancellor and Pro-Vice Chancellor, Your Excellencies Members of the Diplomatic
Corps, Directors and Chief Executive of AngloGold Ashanti, Captains of Industry,
Distinguished faculty of the Institute of African Studies, Nananom, Niimei,
Distinguished Academia of the university of Ghana, my Colleague Bankers and
Practitioners in the Microfinance Business, members of the Press Corps, Ladies and
Gentlemen,

I deem myself most privileged to be here among this august audience to deliver the
2013 AngloGold Ashanti lecture on Business in Africa. I wish to thank the Institute of
African Studies for extending such an invitation to me.

Mr. Chairman, the statement made by Dr. Kwame Nkrumah in his speech delivered at
the opening of the Institute of African Studies on 25 th October 1963 that “the
magnitude of the changes taking place in Africa today is a positive index of the scale
and pace necessary for our social reconstruction”, is true today as it was then in the
early 1960s.

My presentation will be a slight departure from those of previous speakers since I

intend to cover this topic mainly from a practitioner’s perspective. This topic which is
‘Microfinance – Its evolution and impact on the economic development and growth of
emerging economies over the past three decades – lessons for Ghana and Africa’
considers also to some extent the societal characteristics in Africa which promote
microfinance. Due to the existence of the large informal sector in Africa it is important
for all African countries to pay attention to defining the informal sector which has a
direct correlation to the success of any micro finance programmes installed by
Governments of emerging economies.

INTRODUCTION:

Microfinance is defined generally as the practice of granting small loans to

entrepreneurs who would not ordinarily qualify for conventional bank loans. Other
experts however stipulate that Microfinance means a lot of different things depending
on where in the world you are and what type of industry you are in.
7 | IAS-AngloGold Ashanti (Ghana) Lecture on Business in Africa

Section 46 of the Non Bank Financial Institutions Act, 2008 (Act 774) defines
Microfinance services as financial services provided by institutions, however
organized, whether as companies limited by liability or unlimited, Non- Governmental
Organizations, cooperatives or cooperative societies, rotating savings and credit
associations or groups, common bond institutions, self-help groups or associations
promoting self-help groups, providing loans not exceeding an amount determined by
the Bank to a single borrower whether directly to borrowers, contributors or members
or through intermediaries and whether accepting deposits from members or not.

Globally, microfinance initiatives are aimed at breaking a cycle of poverty in

emerging economies. It can for instance allow a woman who works in a textile mill
start and scale, her own small business. Domestically, microfinance initiatives often
serve minority and low income communities by enabling them to operate their own
small businesses.

The microfinance system was generally recognized by the world when economic
players assessed its effectiveness through the Grameen Bank which was initiated by
Professor Mohammed Yunus in 1976. A professor at the University of Chittogong,
Bangladesh, he launched a research project to examine the possibility of developing a
credit delivery system to provide banking services targeted to the rural poor. In
October 1983, the Grameen Bank Project was transformed into an independent bank
by Government legislation. The key objectives were to extend banking facilities to
poor men and women; eliminate the exploitation of the poor by money lenders; create
opportunities for self –employment for the vast majority of unemployed without
providing collateral securities; bring the disadvantaged, mostly the women from the
poorest households, within the fold of an organizational format which they could
understand and manage by themselves, and also to reverse the age-old vicious cycle of
low income; low savings; low investment into vicious cycle of low income injection
of credit; investment; more income; more savings. Today Grameen bank is owned by
the rural poor whom it serves. Borrowers of the bank own 90% of its shares while the
remaining 10% is owned by the Government through a Bangladeshi Government
ordinance of October 2, 1983.

Bankers Ron Grzywinski and Mary Houghton of Shore Bank, a community bank in
Chicago, USA, helped Yunus with the official incorporation under a grant from the
Ford Foundation. By the beginning of 2005, the bank had loaned over USD4.7 billion
and by the end of 2008, USD, 7.6 billion had been loaned to the poor through its
branches numbering over 2,100 in the country. The bank’s success inspired similar
8 | IAS-AngloGold Ashanti (Ghana) Lecture on Business in Africa

projects in more than 40 countries around the world. In Africa, Microfinance

companies have grown over the last three decades in every country in mainly East
Africa, West Africa and Southern Africa.

It is well known that the Grameen Bank is based on the voluntary formation of small
groups of five people to provide mutual morally binding group guarantees in lieu of
the collateral required by conventional banks. At the start only two members of a
group are allowed to apply for a loan. Depending on their performance in repayment,
the next two borrowers can apply, and subsequently the fifth member as well. The
assumption is that if individual borrowers are given access to credit, they will be able
to identify and engage in viable income generating activities – simple processing such
as paddy husking, fruit juice making, pottery, weaving and garment sewing, storage,
marketing and transport services. Women were initially given equal access to the
schemes and they proved to be reliable borrowers and astute entrepreneurs.

The operations of the bank are carried out by “Bicycle bankers” in branch units with
considerable delegated authority. The rigorous selection of borrowers and their
projects by the bank workers, the powerful peer pressure exerted on these individuals
by the groups and the structured repayment scheme contributed to the success of
Grameen. Under the scheme, there is provision for 5 percent of loans to be credited to
a group fund.

The success of this approach shows that a number of objections to the poor having
access to loans can be overcome if careful supervision and management are provided.
For example, it had earlier been thought that the poor would not be able to find
remunerative occupations. It was felt that the poor would not be able to repay loans.
In fact, repayment rates reached 97 per cent. It was considered that poor rural women
in particular were non bankable; in fact they accounted for 94 per cent of borrowers in
early 1992. It was thought that the poor could not save. Contrary to this widely held
view, savings by such clientele grew, to a large extent, at the same time. In fact group
savings have proven as successful as group lending and other innovative approaches,
such as:

 Targeting - referring to adapted combinations of direct targeting using an

effective indicator-based means test and indirect targeting through self and
peer selection.
 Screening out “bad” clients through group organizing - charging market
related interest rates and client involvement in group selection.
9 | IAS-AngloGold Ashanti (Ghana) Lecture on Business in Africa

 Ensuring repayment – intensive borrower supervision by field staff, peer

group monitoring, performance incentives to staff, progressively larger loan
sizes and compulsory savings.
 Reducing costs – Accessing no-interest or low interest loans from donors,
building up low cost client savings to on –lend, cost recovery by changing
market related interest rates.
It was further thought that rural power structures would make sure that such a bank
would fail. However the Grameen bank has been able to expand rapidly. Indeed from
fewer than 15,000 borrowers in 1980, the membership had grown to nearly 100,000
by mid-1984. By the end of 1998, the number of branches in operation was 1128, with
2.34 million members (2.24 million of them being women) in 38,957 villages. There
were 66,581 centres of groups of which 33,126 were women. Group savings had
reached 7,853 million Taka (US$ 162 million) out of which 7,300 million Taka
(US$152 million) were saved by women.

There are many overlapping explanations why the Grameen model worked. Some
people have attributed the success to a number of factors, such as (i) the making of a
product that met client needs, (ii) development of relatively low cost delivery
mechanisms, and (iii) generation of resources that allowed survival and expansion.
The findings from Hulme and Mosley (1996) and Jain and Moore (2003) provide
other attributes for the success: namely, administrative efficiency; working with
groups; transferring transaction costs to clients; and standardized products and
procedures.

It is worth noting that the Grameen Bank has its critics too. According to a publication
by the Global Poverty Research Group, not everyone in Bangladesh and beyond is
happy with the “microfinance paradigm”. In some cases, the microfinance approach to
poverty alleviation has been criticized in terms of its focus on the market and poor
people’s financial liquidity rather than on the socio-economic structures that underlie
poverty. Others note that the very success of microfinance as an industry is based on
its failure to challenge the foundations of class structure and that the home-based self-
employed often emphasized by MFIs, limit the potential for people to escape poverty
and marginalization. Nevertheless, most of the critics nowadays focus on moving the
models forward and not discrediting the approach in general.

It is noteworthy that some of the objectives for the setup of the Grameen Bank
currently apply to Ghana and other African countries. It is generally accepted that the
microfinance boom in Asia and Africa has arisen out of the old communal lifestyle of
10 | IAS-AngloGold Ashanti (Ghana) Lecture on Business in Africa

lending monies to family members to operate micro business. This development has
resulted in Susu-collecting Companies, Savings and Loans Companies, Credit Unions
and Financial Non-Government organizations (FNGOs).

EVOLUTION OF MICROFINANCE IN GHANA

Mr. Chairman, the concept of microfinance is not new in Ghana. Traditionally, people
have saved with and taken small loans from individuals and groups within the context
of self-help to start businesses or farming ventures. Available evidence also suggests
that the first Credit Union in Africa was established in Northern Ghana in 1955 by
Canadian Catholic Missionaries, according to Ghana’s Ministry of Finance and
Economic Planning.

Susu which is one methodology of microfinance is thought to have originated in

Nigeria and spread to Ghana in the early 1990s. In line with global trends,
microfinance in Ghana has evolved through four distinct phases and these are as
follows:

Phase one involved the provision of subsidized credit by Government starting in the
1950s when it was assumed that the lack of money was the ultimate hindrance to the
elimination of poverty.

Phase two comprised the provision of micro credit mainly through Non-Governmental
Organizations to the poor in the 1960s and 1970s. During this period sustainability
and financial self sufficiency were still not considered important.

Phase three involved the commencement of formalizing the Microfinance Institutions

(MFIs) in the 1990s.

Phase four covers the mainstreaming of microfinance and its institutions into the
financial services sector since the mid-1990s. The MFIs have consequently gained
importance and visibility.

In Ghana microfinance is seen as encompassing the provision of financial services and

the management of small amounts of money through a range of products and a system
of intermediary functions that are targeted at low income clients. The sector
comprises: (a) formal suppliers such as Savings and Loans Companies, Rural and
Community Banks as well as some Development and Commercial Banks; (b) semi-
formal suppliers such as credit unions, financial non-governmental organizations
11 | IAS-AngloGold Ashanti (Ghana) Lecture on Business in Africa

(FNGOs) and cooperatives; (c) informal suppliers such as susu collectors and clubs,
rotating and accumulating savings and credit associations, traders, money lenders and
other individuals, and (d) public sector programmes that have developed financial and
non-financial services for their targeted clients.

With time microfinance in Ghana came to be practiced through certain registered

unions and associations, such as the Ghana Cooperative Credit Unions (GCCUA);
Ghana Cooperative Susu Collectors Association (GCSCA); Association of Financial
NGOs (ASSFIN); Ghana Association of Micro Finance Institutions (Ghamfin); ARB
Apex Bank; and other donor supported microfinance projects, e.g. MIDA credit for
the agricultural sector; and Support for Enterprise Empowerment and Development
(SPEED).

Johnson Asiamah and Victor Osei (2007) of the Bank of Ghana argued that
microfinance can make significant contributions through several channels when
properly harnessed.1 It can promote higher investment for economic empowerment
which in turn will promote confidence and self esteem, particularly for the vulnerable.
They recommend that efforts must be geared towards the improvement of the
institutional capacity as well as the regulatory framework of the microfinance sector in
Ghana.

The Central Bank of Ghana has recognized the major impact of microfinance on the
economy by providing for its operations under the Non-Bank Financial Institutions
Act, 2008 (Act 774). Currently there are over 228 licensed institutions contributing a
capital of over GH¢407 million. The Ghana Association of Microfinance Institutions
however estimates that there could be over 1,000 entities in the system. The Secretary
of the Association of Microfinance Institution, Maxwell Adombila Akalaare, stated in
a recent article that a cumulative sum of GH¢ 940.17 million worth of deposits was
mobilized by 180 microfinance institutions.

Most Central Banks in the world have evolved regulatory systems to control the
operations of MFIs. In Ghana such Non Bank Institutions have been categorized into
four tiers, namely Tier One requiring a minimum capital of GH¢7.0 million, mostly
found with Rural Banks Finance Houses and Savings and Loans Companies; Tier Two
being required to raise and keep at least GH¢100,000 This has recently been reviewed

1
See Asiama, J. P. and Osei, V. (2007). Microfinance in Ghana: An Overview. Accra, Ghana:
Research Department, Bank of Ghana.
12 | IAS-AngloGold Ashanti (Ghana) Lecture on Business in Africa

to GH¢500,000 in order to contain the level of economic growth in the country. The
units are also allowed to take deposits. Tier Three consists of money lenders, allowed
to keep a minimum capital of GH¢ 60,000 as paid up capital and Tier Four consists of
susu-collecting companies who do not have any minimum paid up capital but can take
daily contributions and are required to do formal registration of the Groups and
contribute to an Insurance Fund to be set up by the Groups / Associations.

The demand for microfinance services all over the world has been on the increase and
is greatly impacting on the creation and growth of micro and small businesses. The
consistent growth in size and numbers of Micro Finance Institutions clearly exposes
the inability of Commercial Banks to satisfy the loan and credit requirements of most
businesses and individuals.

Women’s World Banking Ghana

Mr. Chairman, the history of Women’s World Banking Ghana (WWBG) shows the
important role Ghanaian women played in the evolution of MFIs in Ghana in
particular. I hereby take this opportunity to recognize the invaluable contributions
made by Professor Florence Dolphyne, who chaired the council for over six years,
Mrs. Eleanor Arthur, Mrs. Dora Gordon, and Mrs. Engmann. I had the privilege of
working with the Group between 1999 and 2002. I wish to join my former colleague
Chief Executive Officers of WWBG - namely Madam Aba Quainoo, Mama Biana
(nee Mrs. Paulina Dzane) - and the current CEO, Mrs. Adwoa Annang, to pay tribute
to the founding mothers for their foresight and the brilliant work done.

Women’s World Banking Network was established after the UN International

Women’s Conference held in Mexico City in 1975 during which two eminent
Ghanaians namely, the late Dr. Mrs. Esther Ocloo, and the late Justice Mrs. Annie
Jiagge, a Supreme Court Judge, presented a paper on the “Empowerment of Women
Globally” which was accepted. As a follow-up to the Conference, “Stitching to
Promote Women’s World Banking” was established in the Netherlands in 1978. I take
this opportunity to specially recognize their immense efforts in setting up Ghana’s
affiliate of the Women’s World Banking International.

Women’s World Banking Ghana (WWBG) was originally registered as an NGO in

1983. Its shareholders originally consisted of 116 individuals and groups, such as the
Presbyterian Women’s Fellowship; Vegetables Sellers Association of Greater Accra
Region; Aba Fynn Ladies Welfare Group; Greater Accra Federation of Business and
13 | IAS-AngloGold Ashanti (Ghana) Lecture on Business in Africa

Professional Women Association; Western Region Business and Professional Women

Association; Akpa Futorji Association and WWBG- International, etc. 80% of the
shareholders of WWBG were women and 20% were men.

WWBG became operational in 1988 providing access to credit through guarantee

schemes to micro entrepreneurs – primarily women. It also provided training in
business and financial management. Its main aim since inception was to empower and
enhance the advancement of women in micro and small-scale enterprises through the
provision of savings and credit facilities, training and other technical services. WWBG
subsequently incorporated a solely owned subsidiary company – Women’s World
Banking Ghana-Mutual Assistance Susu Limited (WWBG-MASU) in 1991 under the
Non-Bank Financial Institutions Act 328 (NBFI). The main objective of this
subsidiary was to handle its savings mobilization and lending operations. Patterned
after the traditional ‘Susu’ (thrift collection method), WWBG-MASU became a leader
in the market. WWBG-MASU became incorporated into WWBG Savings and Loans
Company limited in 1996.

The features of the micro banking Women’s World Banking of Ghana carried the
expected objectives of the original “Stitching to Promote Women’s World Banking”,
with its Head Office in New York, to,

 target at least 70% of the total client portfolio at women;

 engage in mobile banking by moving to clients in markets, transport
stations, etc.;
 collect family statistics on client savers and borrowers, type of residence,
number of children, educational status, consumed food content;
 conduct periodic survey (1-5 years) to establish changes in standard of
living and growth in business;
 conduct workshops and training for customers to appreciate basic book-
keeping for their businesses, marketing concepts, and product development
modules.
Mr. Chairman, it is worth noting that the shareholding structure of WWBG has
changed over the years to include other institutions, individuals and an international
micro funding organization. The initial Mutual Assistance Susu Union initiated in
1983 has now been transformed into a Savings and Loans Company supervised by the
Central Bank under the Non Bank Financial Institutions Act, 2008 (Act 774).
14 | IAS-AngloGold Ashanti (Ghana) Lecture on Business in Africa

However the link to some of the benchmarks set by WWB-International has not been
lost, and these include, among others:

 Minimum 70% of its (WWBG) clients are still expected to be women.

 Its key products cover working capital; mortgage; insurance; education;
health; consumption – being consumer goods such as household items; and
others.
 Its loan portfolio has increased from GH¢ 583,000 in 2005 to GH¢ 17
million to date.
 Deposits have increased from GH¢ 2 million in 2005 to GH¢ 13 million in
2013.
 Active clients have increased from 59,180 in 2007 to 84,000 in 2013.
 Interest rate charges vary from 1.5% to 5% per month depending on the
product subscribed.

SOME BENEFITS FROM MICROFINANCING

Some of the benefits obtainable from micro-financing are listed as follows:

 The provision of microfinance empowers individuals to engage in viable

income generating activities.
 Women operating such microfinance businesses have lessened their
dependency on their husbands and raised their status. These women have
also improved the nutritional status of their children.
 Over the last two decades, the microfinance industry has been able to
come to a broad consensus on the best practices for increasing outreach
to women clients, especially with respect to credit activities. This has
resulted in significant progress in terms of women’s access to credit.
 Employment levels generally increase especially in the informal sector
segment irrespective of gender.
 Savings are encouraged and repayment rates improve overtime through
close supervision.
 The development of umbrella associations has given rise to the provision
of educational programmes for clients of such microfinance institutions
and the micro institutions themselves.
15 | IAS-AngloGold Ashanti (Ghana) Lecture on Business in Africa

 In the situation of Grameen Bank, the average household income of the

members is about 50% higher than others. This has resulted in a sharp
reduction in the number of the Bank clients living below the poverty
line.
 Generally, there has been a discernible shift from agricultural wage
labour to self employment in trading. Such a shift in occupational
patterns has an indirect positive effect on the employment and wages of
other agricultural waged labourers.
 Over the past three decades individuals mainly in the informal sector
engaged in micro businesses have tripled turnovers; quality of housing
has improved; many more children have had access to education and
women have been empowered with the provision of capital to sustain
businesses.
 Development efforts of respective Governments are intermediated to the
rural and communal centres through the practices of microfinance
institutions.
 In some well acclaimed institutions in Kenya, Malawi, Nigeria, and
Bangladesh systems on intensive discipline, supervision and servicing
characterize the operations of credible microfinance institutions,
resulting in operational viability and growth in the economy.
 Rigorous selection of borrowers and projects, the powerful peer pressure
exerted on the individuals by the groups and the repayment scheme,
often based on weekly installments, contribute to operational viability to
the microfinance institutions.

CHALLENGES TO THE MICROFINANCE INDUSTRY

Global challenges

Eight notable challenges, among others, confront the microfinance industry globally;
namely

 Many emerging economies face the challenge on inadequacy in availability

of strong regulatory and monitoring regimes to protect deposits of clients.
 The largest beneficiary groups emanate from the informal sector which
exhibits high defaulting tendencies resulting in loss of capital and also its
characteristics have not been well defined and applied.
16 | IAS-AngloGold Ashanti (Ghana) Lecture on Business in Africa

 Prevalence of high interest rate charges by the micro Finance Institutions.

 Inadequate screening of new entries of unskilled operators that endanger
welfare of clients.
 The inability to establish the extent of growth in the informal sector and also
establish the differential improvement over time in entrepreneurial activities
within the sector to transform survivalist micro enterprises into
entrepreneurial micro and small businesses capable of self propelling
themselves into larger better managed and competitive businesses in the
formal sector of the economy.
 Some finance companies licensed as micro-finance bodies rather operate as
quasi banks accepting collateral, etc.
 Some regulatory bodies are not well resourced to regulate effectively.
 Beneficiaries of such microcredit can be mostly found in the informal sector
and often do not appreciate the full impact of the high interest charges
which can wipe out their capital in the medium term.

Some challenges facing MFIs in Ghana

In Ghana some of the main challenges facing MFIs include: (a) inadequate policy
guidelines for the subsector; (b) inappropriate approaches to microfinance delivery;
(c) inadequate enforcement of business rules and regulations specified under the Bank
of Ghana notice BG/GoV/SEC/2011/0; and (d) absence of a formal MFI coordinating
institution for all micro groups and finance institutions in the country.

 Inadequate policy guidelines for the subsector - Between 1950 and 1980 the
subsector operated without specific policy guidelines and goals and this
partially accounts for slow growth of the sub-sector, and the apparent lack of
direction, fragmentation and lack of coordination. According to Asiamah and
Osei (2007), mentioned above, the constraints facing the subsector in 2007
included inappropriate institutional arrangements, inadequate capacities, lack
of coordination and collaboration, poor institutional linkages, inadequate
skills and professionalism and inadequate capital. This state of affairs has
however improved tremendously over the past five to ten years.
17 | IAS-AngloGold Ashanti (Ghana) Lecture on Business in Africa

 Inappropriate approaches to microfinance delivery - The traditional and

commercial banking approaches to microfinance delivery often do not work.
According to traditional commercial banking principles the loan/credit
methodology requires documentary evidence, long-standing bank customer
relationship and collateral, which most micro and small businesses do not
possess. There is still room for expanding the microfinance sector in Ghana
since the commercial banking system, which has about 29 major banks,
reaches only about 5% of households and captures 40% of money supply.

 Inadequate enforcement of business rules and regulations specified under

the Bank of Ghana notice BG/GoV/SEC/2011/04 – In terms of regulatory
framework, microfinance institutions are currently regulated under Act 774
(the Non-Banking Financial Institution, 2008). Due to the broad
categorization of the businesses affected under the law, the necessary
attention to the implementation of business rules and regulations for the
sector is inadequate on the side of practitioners.

 Absence of a formal MFI coordinating institution for all micro groups and
finance institutions in the country – Currently the absence of a formal
institution mandated to coordinate activities of all umbrella associations, such
as GhamFin, Cooperative Council, etc. associated with microfinance is a
major gap. There is an urgent need for the establishment of a formal
institution that will be responsible for coordinating all activities associated
with micro-finance. There is also no existing national forum that provides a
platform for dialogue among stakeholders on policy, practicing and
regulatory issues of the sector. GhamFin, one of the key umbrella bodies for
microfinance in the country, needs to be strengthened. Their membership
does not include all practitioners and service providers resulting in the
fragmentation and inadequate collaboration between and among Ministries,
Departments and Agencies (MDAs); Metropolitan, Municipal and District
Assemblies (MMDAs); development partners; and end users.

MAJOR PLAYERS IN THE INDUSTRY

Mr. Chairman, Microfinance can be as informal and local as money lending or loose
confederation of business people who lend to those who are in the community. Some
18 | IAS-AngloGold Ashanti (Ghana) Lecture on Business in Africa

influential global leaders in the Microfinance Industry include KIVA, Tontine system,
ACCION, and ROSCA.

KIVA represents micro funds accumulated from over five hundred not-for- profit
organizations that allow people to lend money via the internet to people in developing
economies through KIVA’s 191 field partners. KIVA Ghana is a microfinance NGO
that provides financial and social services to underserved urban communities in the
country. With five branches in Accra, the organization has a loan portfolio of over
US$1 million and about 9,300 active clients, including about 6,200 borrowers.

Tontine system is an investment plan for raising capital; each indigenous investor
pays a sum into the Tontine. Each investor then receives annual dividends on his
capital. As each investor dies, his or her share is reallocated among serving investors.
Each subscriber receives only dividends, the capital is never paid back. This was
initiated in the 17th and 18th Century. Strictly speaking, there are four different roles in
the transaction and they are as follows: (a) The government or corporate body which
organizes the scheme, receives the loans and manages the capital; (b) the subscribers
who provide the capital; (c) the shareholders who receive the annual dividends; and
(d) the nominee on whose lives the contracts are contingent.

ACCION – Accion Microfinance Bank Ltd. is one of the largest microfinance banks
in Nigeria with a capitalization of 1.7 billion Naira as at December 2012. Its
shareholders include three of the leading commercial banks in Nigeria (Citibank;
Zenith Bank and Ecobank); IFC; SME managers and Accion investments. Accion
Microfinance Bank Ltd (AMB) is a member of Accion International Network of
Microfinance Institutions with the mission of building a financially inclusive world by
giving people the financial tools they need to improve their lives. A world pioneer in
microfinance, it was founded as a community development organization in 1961 and
issued its first microloan in 1973 in Brazil. Over time, it has helped to build 63
microfinance institutions in 31 countries on four continents that are reaching millions
of clients.

ROSCA is a rotating savings and credit association. It is a group of individuals who

agree to meet for a defined period in order to save and borrow together. They are
prevalent in both developed and developing countries. ROSCA has been defined by
Mr. Bomnya Varadharajan, an Indonesian, as informal indigenous savings and credit
institutions, which are prevalent in both developing and developed economies around
19 | IAS-AngloGold Ashanti (Ghana) Lecture on Business in Africa

the world. A typical Rosca works in the following manner: A group of individuals
meet together on a regular basis (once monthly or weekly) and contribute some fixed
amount of money, decided either mutually or by the leader of the ROSCA, into a ‘pot’
every time they meet. At the end of each meeting, one member of the group is selected
to receive the pot. This process continues till every member of the group receives the
pot of money once, after which the group is disbanded or restarted with different
members, different contributions and possibly different duration between subsequent
meetings.

Some strong Microfinance Institutions also float bonds to source funding as a means
to long term funding. Others raise funds through acceptance of fixed deposits from
individuals and corporate clients.

SOME NOTABLE LESSONS AND RECOMMENDATIONS

Mr. Chairman, microfinance or microcredit has now become a common business

system that has been imputed to mean everything to everybody. The term
microfinance can mean agricultural credit or rural credit or cooperative credit or
consumer credit from the Savings and Loans Companies or from Credit Unions or
from money lenders.

A broader classification can be placed into the following aspects:

 Traditional informal microfinance within the informal market.

 Microfinance based on traditional informal groups such as the susu.
 The Tontine system
 ROSCA
 Activity-based microfinance through conventional or specialized banks such
as agricultural credit; handicraft credit; nontraditional export credit.
 Rural finance /credit through Rural Banks.
 Consumer microfinance or trade credit.
 Bank-NGO partnering based microcredit.
 Financial Non Governmental Organization credit.

This categorization helps Governments know how many low income borrowers access
the product, their gender, growth over period, loans disbursed, repayment rate, etc.
20 | IAS-AngloGold Ashanti (Ghana) Lecture on Business in Africa

and somehow also defines the type of microfinance institutions that exist in all
emerging economies.

Some of the lessons learnt from microfinance and microcredit operations in emerging
economies are mainly drawn from the experience of the Grameen Bank, as earlier
mentioned, which informed the world of the effect of structured micro finance
delivery on low income groups and economic growth, even though they also had their
challenges.

Its relevance to Africa, where most sub-Saharan countries register substantial informal
market operations, registering “one man business” ownership, is still applicable.
Government and policy makers will need to recognize some of the features of the
Grameen Bank and use them to develop additional policies and systems such as
creating an umbrella Micro Finance Bank owned by Public/Private bodies to set the
standards and best practices for the industry and to ensure good effect on the
economies and eventually uplift the poor in business to the level of sustenance and
growth.

In the light of the submissions made in this address, I wish to recommend the
following for further consideration:

 Microfinance/credit should be promoted as a human right. Ghana, through the

efforts of the Central Bank, has shown leadership in this regard.
 The mission of Microfinance/credit should be to assist low income and poor
families; sole enterprises help themselves to overcome poverty.
 It should not be based on any collateral or legally enforceable contracts but rather
on ‘building trust’ and ‘close monitoring’.
 It should be offered to create self employment through income generating
activities and housing for the poor as opposed to consumption.
 It should continue to reject the basic methodology of conventional banking and
adopt its own methodology. This work will be enhanced if the personal
identification system prevailing in most African countries is further developed to
be robust and resident in strong institutions.
 Borrowers must ideally join groups of borrowers. Loans can be received in a
continuous sequence. New loans become available to previous borrowers of loans
repaid.
 All loans to be repaid in weekly/monthly installments.
21 | IAS-AngloGold Ashanti (Ghana) Lecture on Business in Africa

 The product should come with both obligatory and voluntary savings’
programmes for the borrowers.
 General loans are sometimes given through non-profit organizations or through
institutions owned primarily by the borrowers. If it is done through for-profit
institutions not owned by the borrowers, effort should be made to keep the
interest rate at a level which is close to a level commensurate with sustainability
of the programme rather than bringing attractive returns for investors.
 The thumb – rule is always to keep the interest rate as close to the market rate
prevailing in the commercial banking sector as possible, without sacrificing
sustainability. In fixing the interest rate, market interest rate is taken as the
reference rate, rather than the money lenders’ rate. Reaching the poor is its non-
negotiable mission.
 Reaching sustainability is a directional goal. It must reach sustainability as soon
as possible, so that it can expand its outreach without fund constraints.
 An umbrella microfinance bank should be established. Such a bank should give
high priority to building social capital. This is promoted through formation of
groups and centres, developing leadership quality through formation of groups
and centre leaders, electing board members when the institution is owned by the
borrowers. Such groups give special emphasis on the formation of human capital
and concern for protecting the environment. It monitors children’s education,
provides scholarships and student loans for higher education. For formation of
human capital it makes efforts to bring technology, such as mobile phones, solar
power and provision of mechanical power to replace manual power.
 Some sort of deposit insurance scheme could be attached to the licensing process
of Micro Finance Institutions.

CONCLUSION AND MAIN RECOMMENDATION

Mr. Chairman, I believe Ghana can rise above the challenges raised and establish a
Microfinance Apex Bank to help lift the country from this poverty syndrome. The
Microfinance Apex Bank can be set up along the lines of the ARB Apex Bank with all
umbrella microfinance bodies having a stake in its ownership together with Ghana
Government. It could be best positioned as a public-private venture also involving
other interested bodies and individual collaborators in the public and private sectors.
Such a bank can do the following:
22 | IAS-AngloGold Ashanti (Ghana) Lecture on Business in Africa

 Put in place the best practices and standards that will accommodate the
interest of its clients and the economy.
 Serve as the standard for the multiple microfinance enterprises that are
springing up everywhere in Ghana.
 Serve as the institution that will help define the informal sector and also
promote policies and objectives for the large informal sector in the country.
 Promote capacity building activities for the numerous small micro-finance
businesses, licensed by the Central Bank.
 Collaborate with the Central Bank and the Ministry of Finance and
Economic Planning to effectively enforce the business rules and regulations
for the microfinance sector within the Non Bank Financial Institutions Act,
2008 (Act 774).
 Construct business start up profiles for the different kinds of typical viable
micro businesses prevalent in the economy to guide individuals, technicians,
graduates, etc. to initiate their own businesses.
 Conduct continuous research into the design of new products and services
for the industry.
The premise for policy makers in Ghana and Africa is that the poor and low income
persons have skills which remain unutilized or underutilized. I therefore share in the
belief recently espoused by Grameen that poverty is not created by the poor; it is
created by the institutions and policies which surround them. In order to eliminate
poverty we need to make appropriate changes in the policies and institutions we have
and also create new ones. Charity is not an answer to poverty; it only helps poverty to
continue, and it creates dependency and takes away the individual’s initiative to break
through the wall of poverty. Unleashing of energy and creativity in each human being
is the answer to poverty.

Thank you for your attention.

23 | IAS-AngloGold Ashanti (Ghana) Lecture on Business in Africa

References

1. Addeah Kwaku, Financial Services Laws of Ghana- Stakeholders Handbook

2. Boeh-Ocansey O, Ghana’s Micro Enterprise and Informal Sector
3. Asiama, J. P. and Osei, V. (2007). Microfinance in Ghana: An Overview.
Accra, Ghana: Research Department, Bank of Ghana
4. McCanuck Amanda, about.com.guide
5. http://:www.gremeenbank.com
6. Global trends in microfinance - MOFEP
7. WWBG – Statistical data
8. Global Poverty Research Group – Why has microfinance been a policy
success in Bangladesh (and Beyond) – GPRG – WPS – 041.
24 | IAS-AngloGold Ashanti (Ghana) Lecture on Business in Africa

Some Senior Members of the University of Ghana as well as officials of AngloGold

Ashanti present at the 4th Annual AngloGold Ashanti lecture on Business in Africa

Mrs. Felicity Acquah delivering her lecture on “Microfinance: Its

revolution and impact on the economic development and growth
of emerging economies over the past three decades - lessons for
Africa and Ghana”.
25 | IAS-AngloGold Ashanti (Ghana) Lecture on Business in Africa

Prof. Akosua Adomako Ampofo, Director, Institute of African Studies,

delivering her welcome address

ure

Professor Akosua Adomako Ampofo, Director, IAS, presenting a plaque to Mrs. Felicity
Acquah after her lecture. Looking on is Professor E. K Osam, Pro-Vice-Chancellor
(Academic and Student Affairs), University of Ghana, Legon, who chaired the event

A cross-section of the audience at the event