College of Education

School of Continuing and Distance Education2014/2015 – 2016/2017

ECON 216

ECONOMY OF GHANA II

Session 1

Financial Sector Development in Ghana

Lecturer: Dr. F. Kwame Agyire-Tettey

Contact Information: fagyire-tettey@ug.edu.gh

Session Overview

The financial sector plays an important role in economic development and poverty reduction.

It must be emphasised that without the development of the financial sector economic growth and development may be hampered.

The sector assists in mobilisation of resources for developmental projects.

In this regard, understanding the structure and development of the financial sector is critical.

F. Kwame Agyire-Tettey, PhD Slide 2

Session Overview

This session seeks to introduce students to Ghana’s financial sector, emphasising on the structure and development of the sector over the years.

At the end of the session, the student should be able to:

Explain the structure of Ghana’s financial system

Be to comprehensive discussion on the role of the Central Bank (Bank of Ghana).

Appreciate the important role of commercial banks or Deposit Money Banks (DBM).

Gain an understanding and role of other elements of the financial system in Ghana.

F. Kwame Agyire-Tettey Slide 3

Session Outline

The key topics to be covered in the session

are as follows:

Definition of the Financial sector/system

Functions of the Central Bank

Deposit Money Banks/Commercial Banks

Elements of the Financial Systems

F. Kwame Agyire-Tettey, PhD Slide 4

Reading List

Read Chapters 3, 6 and 12 of Recommended Text –Bawumia (2010): Monetary policy and financial sector reform in Africa: Ghana's experience.

Kwakye, J. K. (2012). Key issues in the choice of an appropriate monetary policy framework for Ghana.

Additionally, Read the section IV under chapter 14 of Recommended Text – Killick, Tony (2010). Development economics in action: A study of economic policies in Ghana.

F. Kwame Agyire-Tettey Slide 5

DEFINITION OF THE FINANCIAL

SECTOR/SYSTEM

Topic one

Slide 6

What is the Financial

Sector/System?

This consists of institutional units and

markets that interact, typically in a

complex manner, for the purpose of

mobilising funds for investment and

providing facilities, including payment

systems, for the financing of commercial

activity.

Slide 7

What is the Financial

Sector/System?

As we have already noted, the primary

role of the financial system is to

intermediate between those that

provide funds and those that need

funds, and typically involves

transforming and managing risk

Slide 8

What is the Financial

Sector/System?

• At the heart of the financial system is

the central bank, here the Bank of

Ghana.

• The Bank of Ghana is responsible for

the control and supply of money in

circulation and the general

supervision of financial activity in

Ghana.F. Kwame Agyire-Tettey Slide 9

Functions of the Central Bank

(Bank of Ghana)

Topic Two

Slide 10

Functions of Bank of Ghana

• Institute measures which are likely to have a favourable effect on the balance of payments, the state of public finances and the general development of the national economy;

• Regulate, supervise and direct the banking and credit system and ensure the smooth operation of the financialsector;

Slide 11

Functions of Bank of Ghana

• Promote, regulate and supervise payment and settlement systems;

• Issue and redeem the currency notes and coins;

• Ensure effective maintenance and management of Ghana's externalfinancial services;

Slide 12

Functions of Bank of Ghana

• license, regulate, promote and

supervise non-banking financial

institutions;

• act as banker and financial adviser to

the government;

Slide 13

Functions of Bank of Ghana

• promote and maintain relations with international banking and financial institutions subject to the Constitution or any other relevant enactment.

• It is the implement institution of any international monetary agreements to which Ghana is party to;

• do all other things that are incidental or conducive to the efficient performance of its functions under this Act and any otherenactment.

Slide 14

Deposit Money Banks

Topic Three

Slide 15

Deposit Money Banks

• Deposit Money Banks (DMBs) is also known as commercial banks.

• A financial institution is regard as a DMB in Ghana by law and such must be accorded that title when the Bank of Ghana grant it the license to operate as such.

• Commercial banks in Ghana, like other countries, are central to the payments system

Slide 16

Deposit Money Banks

• what is probably most visible about the

financial system is the predominance of

the commercial banks.

• These banks, also termed deposit money

banks (DMBs) are a vital component of the

financial system, as acceptor of deposits and

grantor of short- and long-term credit.

Slide 17

ELEMENTS OF THE FINANCIAL

SYSTEM

Topic Four

Slide 18

Elements of the financial system

• Savings (and loans) banks,

• Insurance companies,

• Investment banks specialising in long-term credit,

• Pension funds, and

• Stock exchange.Slide 19

Elements of the financial system

• More generally, the following financial

institutions operate in Ghana’s financial

sector:

• Banks (universal banks)

• Rural & Community Banks

• Non-Bank Financial Institutions

• Forex Bureaux

Slide 20

Elements of the financial system

• Provisional Register of Microfinance

Institutions

• Register of Licensed Microfinance Institutions

• Newly Licenced Inward Money Transfer

• Companies (currently about 5 in number)

• Mobile Money Agencies (new feature)

Slide 21

Elements of the financial system

• Deposit Money Banks (universal banks): there are

currently about 29 commercial banks licensed to

operate in Ghana as at 2015.

• Rural and Community Banks (137 in total)

• Non-Bank Financial Institutions

Slide 22

Elements of the financial system

Summary of Regional Distribution of Rural Banks in Ghana – January 2013

Region Numbers

1 Ashanti 25

2 Central 21

3 Eastern 22

4 Brong Ahafo 20

5 Western 14

6 Volta 12

7 Greater Accra 7

8 Upper East 5

9 Upper West 4

10 Northern 7

Total 137

Slide 23

Elements of the financial system

Summary Distribution of NBFI

Nature of Business Number

1. Finance House 24

2. Savings and Loans 27

3. Credit Reference Bureau 3

4. Leasing 2

5. Finance and Leasing 3

6. Mortgage Finance 1

7 Remittance Companies 3

TOTAL 63

Slide 24

Elements of the financial system

• There are over 330 active licensed forex bureaux

operating in Ghana.

• Also there are 468 microfinance institutions

registered by the Bank of Ghana as at November

2015. They are broadly categorised into the

following:

• Microfinance companies (468)

• Money lenders (67)

• Financial NGOs (11)Slide 25

References

Bawumia (2010): Monetary policy and financial sector reform

in Africa: Ghana's experience.

Kwakye, J. K. (2012). Key issues in the choice of an

appropriate monetary policy framework for Ghana.

(www.ieagh.org/wp-content/uploads/2014/07/mono-32.pdf)

Kwakye J. K. (2013): Five years of inflation-targeting in

Ghana: what has changed and what needs to change further

to enhance the process? (www.ieagh.org/wp-

content/uploads/2014/06/la-v20-n1.pdf)

Slide 26