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1、 INTEGRATING FINANCIAL SERVICES INTO POVERTY REDUCTION STRATEGIES: - Institutional Experience of GhanaBYE. ASIEDU-MANTE1ST DEPUTY GOVERNORBANK OF GHANABeing a Paper Presented At THE REGIONAL WORKSHOP ON INTEGRATING FINANCIAL SERVICES INTO POVERTY REDUCTION STRATEGIES ABUJA, NIGERIASEPTEMBER 13 15, 2
2、005Organised ByAFRICAN RURAL AND AGRICULTURAL CREDIT ASSOCIATION (AFRACA)SEPTEMBER, 2005TABLE OF CONTENTSPAGE1. INTRODUCTION 1.1 Poverty in Africa3 1.2 The Role of Finance in Poverty Reduction42. ECONOMIC DEVELOPMENTS IN GHANA 2.1 Social, Political and Demographic Environment12 2.2 Economic Growth a
3、nd Production12 2.3 Recent Developments13 2.4 The Way Forward15 3. GHANA POVERTY REDUCTION STRATEGY 3.1 Poverty Profile of Ghana 17 3.2 Background of the GPRS 18 3.3 Highlights of the Ghana Poverty Reduction Strategy 21 3.4 Governments Medium Term Priorities 263.5 Monitoring and Evaluation of Povert
4、y Reduction Programmes 264. THE FINANCIAL SYSTEM IN GHANA 4.1 Overview of the Financial System 28 4.2 Structure of the Financial Sector 29 4.3 Financial Sector Reforms 30 4.4 Impact of the Financial Sector Reforms 365. USING MICROFINANCE AS A STRATEGY FOR POVERTY REDUCTION IN GHANA 5.1 Introduction
5、42 5.2 Role of Government and Its Agencies in Microfinance Development 43 5.3 Mainstreaming Informal Finance Through Networking 48 6.0 Conclusions 541.INTRODUCTION1.1.Poverty in AfricaWhile Africa is a richly endowed continent with abundant natural resources, it is faced with high levels of poverty,
6、 with Sub-Saharan Africa ranking lowest in terms of human development. Life expectancy at birth in Sub-Saharan Africa is the lowest in the world and fewer people in Africa have access to safe drinking water. With population growing about the same rate as output, per capita income in Africa has remai
7、ned stagnantly low over the years. The majority of Africans live on less than $1.00 a day. In addition to severe geographical constraints and natural disasters, civil wars and poor governance, and economic mismanagement have contributed to the general impoverishment of the continent. More people are
8、 now on the poverty line than was the case twenty years ago. With all its agricultural potential, Africa is now a net importer of food. Threat of famine and starvation has made some parts of the continent dependent on international aid for survival. (Sowa, 2000)Several factors have been identified a
9、s the root cause of the problem of poverty in Africa, and the most notable ones include the following: Low productivity, poor infrastructure, and inappropriate macroeconomic policies; Inadequate health and social services, and high illiteracy rates, especially in the rural areas among women; Weak in
10、stitutions, both private and public; Poor governance, civil conflicts and political instability; and Heavy indebtedness and deteriorating terms of trade for Africas major exports.Rising income inequality in an era of globalization also undermines the prospects for equitable growth and meaningful pov
11、erty reduction. (African Development Bank 2001/2002).In most sub-saharan African countries, the rural poor are predominantly subsistence farmers and families who derive the bulk of their income from the informal sector. Other category of the poor include the urban poor who are either unemployed or i
12、n the informal sector while people working in the formal sectors (private and public) have significantly lower rates of poverty.The absence of sustained per capita income growth due to low investment and an inefficient parastatal sector is often the primary cause of income poverty in most African co
13、untries. Furthermore, slow increase of employment opportunities results in a fall in real wages in most sectors of the economies.1.2 The Role of Finance in Poverty ReductionSmall enterprises in developing countries typically site lack of access to finance as an important constraint on their operatio
14、ns. This lack of access is often associated with financial policies and bank practices that make it hard for banks to cover high costs and risks involved in lending to small scale farmers and entrepreneurs.Sowa (2002) pointed out that finance is the oil of growth and indeed the life-blood of the eco
15、nomic system and that the financial system is the vessel that carries this life-blood through the economic system. It is the system of institutions and operations that channels the financial resources into productive use. Thus finance is very vital in any economic activity and can therefore help all
16、eviate poverty from two basic angles. The first role that finance can play is to support productive activities to engender growth in the economy while it can contribute directly to income generation and therefore improve the welfare of the poor.If the conventional notion which depicts poverty as a c
17、ondition in which people live on income below some specified minimum level and are unable to provide or satisfy the basic necessities of life, needed for acceptable standard of living is used, one wonders what kind of financial services the poor will demand. The issue is whether those with little or
18、 no money save or invest?Zellar and Sharma (1998) pointed out that “the myth that poor households in developing countries, who often earn less than a dollar a day, are not credit worthy or able to save has been firmly put to rest in recent years”. This view is supported by other writers like Rutherf
19、ord (1999). In their opinion, poor households place special value on reliable and continued access to different types of financial services, which are available at reasonable cost and cater for their specific needs. The authors noted that the availability of credit and savings facilities could help
20、poor rural households manage and often augment their meagre resources and acquire adequate food and other basic necessities for their families. In addition, short-term borrowing or savings are often used to maintain consumption of basic necessities when household incomes decline temporarily, for exa
21、mple, after a bad harvest or between agricultural seasons (Sowa 2002).Serving peoples demand for savings instruments is just as important as satisfying their demand for credit.Rutherford (1999) gave three reasons why the poor need to save to accumulate large sums as life-cycle needs, emergencies, an
22、d opportunities and argues that there are three ways in which the poor raises the large sums they need: by selling assets they already hold (or expect to hold). by taking loan by mortgaging those assets by finding ways of turning their small savings into large sums. The first method does not usually
23、 require financial service but the second and third usually require the use of a financial institution. A survey by Zellar and Sharma (1998) in nine countries, including 5 from Africa, found that, among others, a large number of poor households in developing countries experience real constraints in
24、the financial market due to unfavourable prevailing transactions terms and that poor households in Africa and Asia face complex multiple constraints on earning opportunities. They lack education, markets, and other essential services. Thus the impact of financial services on welfare is likely to var
25、y with accessibility to complementary inputs such as irrigation, education, and market services. Because of the rejection by the formal sector, the poor receive their financial services from the informal sector, which have mechanisms which largely do not cater for the poor. Rutherford (1999) argues
26、that these mechanisms are time-bound, while the needs of the poor for basic financial services are never ending. In addition, the poor lose interest by saving through the mechanisms. Furthermore, the mechanisms do not have the flexibility of the formal system in terms of savings and withdrawals and
27、are built on trust and carry too much risk. Just like everyone else, poor people need a wide range of financial services that are convenient, flexible, and reasonably priced. Depending on their circumstance, poor people do not only need credit, but also savings, cash transfer and insurance. Access t
28、o credit on sustainable basis is more important to the poor than receiving credit at subsidized interest rates. In the circumstance, interest rates should be set to cover the intermediation costs, so that the financial intermediary can become financially viable and therefore able to provide credit o
29、ver a long term. This is more important to rural entrepreneurs than subsidized credit programmes which may not be sustainable.For many African countries, the latter half of the 1980s was a turning point in the struggle to alleviate poverty. In response to a marked deterioration in the living standar
30、ds of the poor and growing unemployment caused by deteriorating economic situation and by some austerity measures instituted to control it, governments added explicit poverty alleviation objectives to their development policies.These objectives are usually set out in Poverty Reduction Strategies (PR
31、S) which in most cases clearly identify sustainable growth and poverty reduction in the overarching objectives with focus on the following among others: Agriculture and rural development; Human capital development; Development of Health and education; Promotion of the private sector; and Cross-cutti
32、ng issues of environment and gender. Achieving household food security continues to be one of the Critical objectives of rural development in most rural areas of developing countries. Food security could be attained by increasing agricultural productivity and off-farm income, and by improving the ab
33、ility of households to stabilize their income and food purchasing power.This calls for the combination of a range of potential policy instruments to achieve food security. This approach tends to be more effective than reliance on a few sector specific, single policy instruments. The available policy
34、 instruments can be systematized into policies that (i) aim to increase the households income (ii) stabilize and/or lower food prices or (iii) improve the households access to inter-temporal markets (Zeller et al 1997).Zeller and the others pointed out that the first two policy sets re geared toward
35、s increasing the households income and purchasing power, while the last policy set aims to improve the households ability to adjust its consumption and investment between periods, through access to savings, credit and insurance markets. These policy measures enable households to make inter-temporal
36、adjustments to disposable income.According to Zeller, many poor households are faced with transitory food insecurity, even though their incomes seem to be sufficient to provide sustainable standard of living over several years. Thus there is potential demand for financial services (savings, credit a
37、nd insurance) which more efficiently can contribute to consumption stabilization.Zeller et al (1997) identified the following three ways through which access to financial services (or lack thereof) may influence food security and therefore provide framework for identifying institutional arrangements
38、 that address the diverse demand for savings, credit and insurance services by the poor: Improved income generation: Access to credit can temporarily be used to enhance the level of the households productive and human physical capital. Secondly, access to credit and savings services can increase the
39、 risk bearing capacity of the household (Eswaran and Kotwal 1990)This may enable the poor improved inputs for their activities. Decreasing costs for self-insurance through more cost-efficient assets and liabilities of households: Improved access to financial services is expected to reduce the holdin
40、g of assets with lower risk-adjusted returns, such as traditional forms of savings using food product. Consumption Credit: Access to credit has the potential of substituting for some higher-cost traditional savings, self insurance and community-level co-insurance strategies as well as substituting f
41、or some of the higher-cost informal credit sources.It is therefore worthy of note that financial policies may perform better in alleviating poverty and contributing to food security and rural development, if they address all of the above pathways for food-insecure households and their members. Gover
42、nment has crucial roles to play in the implementation of Poverty Reduction Strategies. Today, it is widely recognized that the basic roles of government are to establish macroeconomic stability; to ensure that financial markets are free to respond to economic incentives while enforcing a legal frame
43、work that ensures contract compliance. (Zeller and Sharma, 1998).Improvements in advances in banking technology, financial sector reforms and institutional innovations that reduce cost of service delivery and improve its usefulness to the poor are essential for enhancing the efficiency and long-run
44、sustainability of rural financial programs. In this regard, it has been argued that there is the need for public resources to be committed to rural financial institutions since provision of financial services is a potent tool for poverty alleviation.Integration of financial institutions which provid
45、e financial services is therefore considered to be necessary in the implementation of poverty reduction strategies. It is however pertinent to not that building financial systems for the poor requires the development of a wider range of institutional models in order to achieve the scale and sustaina
46、bility that will make a durable impact on poverty.This paper presents Ghanas experience on the integration of financial services into the implementation of Ghana Poverty Reduction Strategy (GPRS). The rest of the paper covers the following issues: Economic Developments in Ghana; Highlights of the Ghana Poverty Reduction Strategy (GPRS);
