Rural and Microfinance Regulation in Ghana: Implications for Development and Performance of the Industry

In Ghana, microfinance regulation and legislation evolved with the market. The main microfinance institutions and the laws governing them are:

• Small unit rural and community banks (RCBs) are accommodated under the Banking Act;
• Savings and loan companies are under the Non-Bank Financial Institutions (NBFIs) Act;
• Credit Unions will be covered through a new law, designed to recognize their dual nature as cooperatives and financial institutions.

According to the authors, the major outcomes of regulation and supervision are:

• Opened possibilities for new types of institutions: Several layers of different types of rural finance institutions with strong savings orientation have come into existence;
• Prevented weak performance from excessive entry into the market;
• Ensured greater role of the licensed institutions relative to the NGOs.

Some of the institutional initiatives which have led to microfinance market development are:

• Some RCBs have partnered with NGOs to introduce microfinance methodologies such as village banking, and are now being strengthened as the backbone of the rural financial services;
• Linkages have occurred between informal savings based institutions, RCBs and savings and loan companies.

The regulatory approach of Ghana has resulted in:

• A number of rural financial institutions with a variety of products suitable of enhanced outreach;
• A diverse, robust system of MFIs;
• Few failed institutions;
• Moderate drain on the supervisory mechanism.