Slide 1 - African Rural and Agri

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Slide 1 - African Rural and Agri Powered By Docstoc
          Richard Mettle Ado

      Head, Research & Marketing
       ARB Apex Bank - Ghana

             OCTOBER 2010
• The mission of this delegation is to introduce to you
  the rural banking system which is currently operating
  very well after 34 years of its introduction in Ghana.

• Other parts of the world, notably the Netherlands and
  the Philippines have had tremendous benefits out of
  their rural banking system.

• The search for a system to tackle the financial
  problems of the rural dweller in Ghana started as far
  back as the 1960s under the Nkrumah regime.
During that period, the need for a veritable rural
financial system in Ghana to tackle the needs of
small scale farmers, fishermen, craftsmen,
market women, traders and all other micro-
enterprises was felt. The need for such a system
was accentuated by the fact that the bigger
commercial banks could not accommodate the
financial intermediation problems of the rural
poor as they did not show any interest in dealing
with these small scale operators.
Attempts in the past to encourage
commercial banks to spread their rural
network and provide credit to the
agricultural sector failed to achieve the
desired impact. These banks were rather
interested in the finance of international
trade, urban commerce and industry. There
was therefore a yawning gap in the
provision of institutional finance to the rural
agricultural sector.
The inability or failure of the commercial banks to
lend on an appreciable scale to the rural sector
was attributed to the lack of suitable security on
the part of the rural dweller.
Secondly, the centralised structure of the banking
set up was such that vital decisions were taken at
their head offices, making decentralisation less
effective. The disadvantage of such a system was
that it could not compete with local money
lenders in terms of local knowledge, flexibility
and speed of response for financial support from
Thirdly, the branch network of many commercial
banks cover mainly the commercial areas where
business is thought or seen to be vibrant and did
not reach down to the rural communities.

Rural dwellers were therefore denied access to
organised financial institutions in addition to
being prevented from availing themselves of the
opportunity of safe guarding their money and
other valuable property that a bank provides.
The realisation that the existing framework
for institutional credit did not favour rural
development led to the search for a credit
institution devoid of the disabilities of the
existing banking institutions but possessing
the advantages of the non-institutional
credit organisations. This institution is what
we call in Ghana the RURAL BANK.

• A rural bank is owned by the people in the
  rural community within which it operates.
• It is permitted to operate within forty
  kilometres radius from its head office.
• (This has now been relaxed for banks which
  have met the minimum capitalization and
  have the necessary internal control
  mechanisms for effective supervision)
• It operates according to the dictates of the
banking law and has primary and secondary
reserve requirements.
• Its shareholders are mainly from its catchment
It has a board constituted among the
shareholders and operates on the principles of
the Companies Code, 1963 Act 179 and the
Banking Law 2004, Act 673. The ARB Apex bank
regulations passed by the parliament of Ghana
also regulates the rural banks.
• Each rural bank is also registered as a
limited liability company and requires a
banking licence and a certificate to
commence business before it is permitted to
• It has a minimum paid-up capital set by
the Central Bank.
• There are existing guidelines for
establishing a rural banking relating to the
•Eligibility / Qualification criteria

•Ownership and capitalisation, including
limitation to share ownership

•Regulations of the proposed company

•Feasibility report – business plan and
financial projections for the first 5 years
•Permissible activities
•Operational requirements
•Viability (based on 5 year projection of
income statement and balance sheet)
•Staffing requirements
•Processing fee and licensing fee
•Initial training
•Equipment requirements and specifications
• Rural banks were established with the following
  key objectives:-
• To mobilise savings in the communities from
  where they operate
• To grant credit to customers who deserve them
• To stimulate economic activities in their
  catchment areas
• Contribute to the socio-economic development
  of their catchment areas
• Make profit for their shareholders
                  IN GHANA
• The rural banking network controls about 9%
  of total domestic deposits of the banking
  sector in Ghana. They mobilise savings from
  their catchment areas and lend them out to
  deserving customers in the same area. They
  help existing enterprises in the rural
  communities to improve upon their
  performance and promote new economic
  activities thus assisting to enhance standards
  of living.
They contribute to the socio-economic
development of their catchment areas by
using part of their profits to support brilliant
but needy students, offer significant support
for street lighting, construction of bore
holes for potable water, construction of
school buildings and health care facilities
among many others.
Indeed the contribution of RCBs towards
corporate social responsibility in total far exceeds
the contributions of all the other banks put
together year-on-year. It is in this light that the
clamour for the establishment of more rural
banks keeps raging from one community to the
other. It is therefore not surprising that the rural
banking system constitutes the largest banking
network in Ghana with over five hundred and
ninety-five (595) offices dotted across the face of
The growth of the rural banking system is depicted as follows:

Source: Research Department, Bank of Ghana

                                               DEPOSITS OF     DEPOSITS OF      % OF RURAL
                 SHAREHOLDERS FUNDS                                                                 NO. OF
      YEAR                                   BANKING SECTOR    RURAL BANKS     BANKS’ DEP. TO
                       (GH¢)                                                                    REPORTING RCBS
                                                  (GH¢)           (GH¢)       BANKING SECTOR

    1997                        330,000          232,900,000      7,500,000         3.2              101

    1998                      1,700,000          281,630,000     11,080,000         3.9              111

    1999                      2,100,000          334,330,000     13,638,000         4.1              96

    2000                      3,200,000          459,340,000     20,714,000         4.5              95

    2001                      9,100,000          713,520,000     31,567,000         4.4              96

• As part of the mandatory requirements by the
  Central Bank, all banks were required to
  maintain primary and secondary reserves. The
  secondary reserves were normally used as
  investments in government paper, mainly
  treasury bills.
The table below shows the total lending to the
government by the big commercial banks and
the rural banks from 1997 to 2001:-
Source: Research Department, Bank of Ghana

                     LENDING TO CENTRAL          LENDING TO CENTRAL
                                                                       % OF RURAL BANKS’
                      BANK BY BANKING              BANK BY RURAL                           NO. OF REPORTING
      YEAR                                                                LENDING TO
                           SECTOR                      BANKS                                     RCBS
                                                                        BANKING SECTOR
                            (GH¢)                      (GH¢)

  1997                                       -             3,580,000           -                 101

  1998                            141,800,000              6,080,000          4.3                111

  1999                            227,100,000              6,444,000          2.8                96

  2000                            282,600,000            12,193,000           4.3                95

  2001                            401,000,000            20,895,000           5.1                96

• Up to this point in time there are several institutions
  which have helped the rural banking system to thrive in
  Ghana. Key among them are:-

   –   The Bank of Ghana
   –   The Association of Rural Banks
   –   The ARB Apex
   –   The World Bank
   –   International Fund for Agricultural Development (IFAD)
   –   Danish International Development Agency (DANIDA)
   –   African Development Bank
            The Bank of Ghana

• The Bank of Ghana pioneered the
  establishment of rural banks and had the first
  one established in 1976. Since then, a number
  of rural banks have been established.

• Bank of Ghana established a Rural Finance
  Inspection Department which was later
  subsumed under the Banking Supervision
The Central Bank also provided banking
services to the rural banks by clearing their
cheques, supplying them with specie as well
as inspection services.
In 1991, the government initiated a Rural
Finance Project (RFP) which involved the
restructuring of rural banks and provision of
on-lending funds to those rural banks found
to have met certain set criteria.
The Central bank provided the necessary support
and initiative towards the establishment of the
Apex structure for the rural banking system. It
continues to regulate the rural banks by assisting
to develop regulations that guide the relationship
between the Apex Bank and the rural banks.
Throughout the life of the rural banking system,
the Bank of Ghana has nurtured its growth and
development, developing the necessary sanctions
and penalties that go with default.
In 1999, rural banks which were distressed
beyond redemption arising out of management
and operational problems, had their licences
withdrawn by the Bank of Ghana as these rural
banks could no longer meet withdrawal demands.
With the establishment of the ARB Apex Bank,
virtually all the services that the central bank
used to provide have been ceded to this new
‘mini central bank’, though with some measure of
The rural banking system was pillaged by
the orthodox banks when the central bank
decided in 1994 that it would no longer
clear cheques for and on behalf of the rural
banks and had to rely on the big
commercial banks to clear their cheques,
which in effect meant asking your
competitor to render certain services for
your progress. Your guess is as good as
    The Association of Rural Banks

• The rural banking system which came into
  being in 1976 sought to render invaluable
  financial services in the rural communities
  which had been neglected by the commercial
  banks. In order to promote the aims and
  objectives of the rural banking system, the
  Association of Rural Banks (ARB) was
  established in 1981 with the following aims
  and objectives:-
a. To provide and exchange information on
rural banking services in Ghana and to serve
as a forum for the discussion of common
problems of rural and community banks and
their possible solution.

b. To find ways and means by which the ARB
can contribute to the development of
agriculture, commerce, industry and the
general well being of rural areas in Ghana.
c. To ensure that rural and
community banks are seen as
instruments      of       national
development in the rural areas.
The ARB since its establishment has done a
lot for the rural banking system in Ghana.
Among these are:-

•Conducting training for rural banks’
directors, managers, accountants and
project officers, clerks and cashiers from
1981 to 2002, when finally the ARB Apex
bank was established to take over the
training function.
•Advocating for the granting of a 10 year
tax holiday for rural banks.

•Advocating for a reduction in corporate tax
from 35% of profits to 8%.

•Advocating and clamouring for the
establishment of the ARB Apex Bank which
is the mini central bank for the rural banks
in Ghana.
•Sensitising rural and community banks
throughout the country about the need to
establish rural banks in areas where financial
services are absent.

•Educating staff and directors of rural banks on
the HIV/AIDS pandemic in collaboration with the
Ghana Aids Commission. This is being done with
the view to protecting staff, management and
shareholders of RCBs so that they do not lose
them through this ailment.
             The ARB Apex

The Association of Rural Banks which came
into being in response to emerging needs of
rural banks clamoured for the establishment
of the ARB Apex Bank as a further
evolutionary response to the felt needs of
rural banks. After the establishment of the
first rural bank in 1976, other rural banks were
established as follows:-

1976 - 1980                     20                     20

1981 – 1985                     86                     106

1991 – 1996                     16                     122

1996 – 1997                      3                     125

1997 – 1998                      5                     130

1999 – 2000                      2                     132

1999 - 2000                     -23                    109

2001 – 2003                     +6                     115

2004 – 2005                      7                     122

2006 - 2007                      3                     125

2008 - DATE                      5                     130
However, due to manpower, management
and operational problems, as well as the
harsh rural environment, these conditions
did not easily offer the impetus for the rural
banks to thrive in a number of cases. For
example, between 1999 and 2000, the Bank
of Ghana withdrew the banking licences of
23 rural banks.
The various operational bottlenecks, key among
which was the decision in 1994 by the Bank of
Ghana that it would no longer perform cheque
clearing functions for rural banks, compelled rural
banks to call for the establishment of the ARB
Apex Bank since the commercial banks which
they relied on to clear their cheques, specie
supplies and treasury functions became
unreliable, the reason being that they were
competitors of the rural banks.
The commercial banks frustrated the
rural banks by delaying their clearing of
cheques,      giving     them       lower
denomination of currency supplied,
mutilated notes and in some cases
enormous quantity of coins were
supplied to the rural banks to be used
in paying their customers.
Delays in placing funds for investment purposes
led to losses in income for the rural banks. The
cumulative effect was that confidence in the rural
banking system was eroded.

As a result of several consultations that the
Association of Rural Banks and the Central Bank
had with the World Bank aimed at establishing an
apex body for the rural banks in Ghana, a team
was commissioned in 1996 to explore the legal
viability and banking dimensions of such an apex
In     1998,   a    consulting   firm   was
commissioned to examine the feasibility of
establishing an Apex Bank. The conclusion
obviously is the ARB Apex Bank we have
The functions of the bank, which is to
perform banking and non-banking support
services in order to improve the operational
efficiency and remove the operational
bottlenecks which had hindered the growth
of the rural banks included:
oClearing of cheques for the rural
oProvision of specie
oDevelopment of products
oFunds management
oSourcing of funds for on-lending by
 the rural banks
Since its establishment, the bank has
supported the rural banks through the
performance of these functions.

Apart from supporting the rural banks, it
has also introduced a star product called
the Apexlink which is patronised by
customers to transfer money domestically
to every nook and cranny where services of
the rural banks are available.
Foreign money transfer products like the Western
Union, Vigo and Money gram are also in
operation at all rural banks and the offices of the
ARB Apex Bank across the country.

With the establishment of the Apex Bank, the
operational bottlenecks relating to cheque
clearing, specie supply etc have completely
evaporated and the rural banks are growing from
strength to strength as depicted in the two tables

      PERFORMANCE         4TH QUARTER - 2008     1ST QUARTER - 2009
      INDICATOR            (DECEMBER , 2008)        (MARCH, 2009)
                                GH¢’M                  GH¢’M               VARIANCE (%)

      Total Assets                     466.99                 503.20          7.8

      Total Advances                   225.34                 226.86          0.7

      Total Investments                  99.60                115.05          15.5
      (Short Term)

      Total Deposits                   346.48                 375.13          8.3

      Profit Before Tax                  15.76                   5.74        (63.6)

      Paid-Up Capital                    17.33                  17.86         3.1

      Networth                           62.38                  68.01         9.0

PERFORMANCE                 1ST QUARTER       1ST QUARTER        1ST QUARTER
INDICATOR                  (MARCH, 2007)     (MARCH, 2008)      (MARCH, 2009)
                                GH¢’M             GH¢’M              GH¢’M              (%) INCREASE/
                                                                                       MARCH ’08-MARCH

Total Assets                        322.34             407.13              503.20            23.6

Total Advances                      129.66             180.65              226.86            25.6

Total Investments (Short             92.39             100.52              115.05            14.5

Total Deposits                      245.32             303.61              375.13            23.6

Profit Before Tax                     3.37               3.40                   5.74         68.8

Paid-Up Capital                       9.66              11.98               17.86            49.1

Networth                             41.67              52.65               68.01            29.2
                                 (1ST QUARTERS OF 2007, 2008 & 2009)

                                                                                        Total Assets

                 500.00                                                                 Total Advances


                                                                                        Total Deposits

                                                                                        Prof it Bef ore
                 300.00                                                                 Tax

                                                                                        Paid-Up Capital

                                                                                        Net Worth


                              (MARCH, 2007)       (MARCH, 2008)       (MARCH, 2009)

                            1ST QUARTER, 2007   1ST QUARTER, 2008   1ST QUARTER, 2009

•World Bank

•The Rural Finance Project (1991 – 1994)
The World Bank’s support for the rural banking sector became
very significant from the early 1990’s when the Rural Finance
Project (RFP) was launched.
This project saw the implementation of
restructuring audits of all the rural banks
with the view to ascertaining their
operational efficiency and putting in
measures      to   address     all   identified
inefficiencies and operational bottlenecks.
As a result of the RFP, Messrs Sycip, Gorres
Volayo and Co. (SGV & Co.) of the
Philippines working in collaboration with
Arthur Andersen Consultants were engaged
by the project to assist the Association of
Rural Banks to conduct a Training Needs
Assessment (TNA) and also develop training
modules to address the felt training gaps of
the rural banking network.
At the end of the RFP in 1994 the under
listed training modules had been developed
by the Andersen Consultants:-
•Credit Investigation
•Loan Monitoring and Supervision
•Loan Recovery Procedures & Strategies
•Annual Planning & Budgeting
•Management Information Systems

•Bank of Ghana Reporting Requirements

•Accounting for Non-Accountants

•Interpretation of Financial Statements

•Organisation Principles and Processes

•Management Decision Making
•Policy Formulation and Implementation
and Other Board Functions

•Resource Mobilisation

•Funds Management

•Internal Control Systems

•Cost Reduction Programme

•Legal Aspects of Banking
•Selected Topics in Rural Bank
•Overview of Rural Bank Accounting
•Book Keeping
•Customer Relations
Apart from developing these modules, rural
banks’ personnel ranging from directors,
managers, accountants, project officers
through to clerks and cashiers were trained
continuously in the relevant modules during
the lifetime of the World Bank financed
project. A core group of resource persons
made up of directors and managers were
also trained and used in the training
In addition, the project provided logistics
and equipment to support the Association
of Rural Banks which at the time was
responsible for training, capacity building
and advocacy.
  The Rural Financial Services Project
             (2000 – 2007)
he World Bank also spearheaded the
formulation of the Rural Financial Services
Project (RFSP) which brought into being the
ARB Apex Bank Ltd. The RFSP had for (4)
main components, namely:-
•Capacity building of the Informal Financial
•Capacity building of Rural and Community
•Institutional building of the ARB Apex Bank
•Institutional Support to the Banking
Supervision Department of the Bank of
Ghana and the Ministry of Finance
The RFSP which started from 2000 ended in
2007 and a lot was achieved through its
implementation of the various action steps
initiated to meet the objectives of the
The total amount involved in the RFSP was
US$22.96 out of which the International
Development Association (IDA) of the World
Bank contributed US$5.13m. Details of
contributions by institutions are indicated as
•IFAD             -   10.12
•IDA              -    5.13
•AfDB             -    5.01
•GOG              -    0.75
•BENEFICIARIES    -    1.95

TOTAL                 22.96
•International Fund for Agricultural Development

The International Fund for Agricultural
Development (IFAD) which supported the
RFSP provided a whopping U$11.3 million
as its contribution to the entire project. Its
support was used in supporting the various
components of the project and especially to
the microfinance sector.
The fund, in an earlier project called the
Rural Enterprises Project, (REP) provided
on-lending loans to rural banks to enable
them to assist those classified as the
poorest-of-the-poor in the catchment area
of the REP which started in 1995 and has
since had its mandate renewed to cover the
entire nation.
In terms of the RFSP, IFAD had been the
major contributor and had, even before the
RFSP became effective helped the newly
established ARB Apex Bank to initiate a
Monitoring Unit responsible for reporting
and rating of the rural banks through
performance rating and benchmarking.
Danish Development Agency (DANIDA)

• Before the establishment of the ARB Apex
  Bank, DANIDA provided substantial assistance
  to the Association of Rural Banks by assisting
  the rural banking sector through:-

• Conduct of training needs assessment
• Development of additional training modules
•Development of criteria for rating of rural banks
•Introducing the concept of Inspection to the
rural banks and developing guidelines for rural
banks’ inspection
•Assignment of consultants to the ARB to co-
ordinate DANIDA activities for the rural banking
•Assignment of radio communication equipment
to the rural banking sector to enhance intra and
inter rural banks’ communications
•Assisting the rural banking sector to
develop    a   test   key   for   financial
communication and payment systems
•Providing the Association of Rural Banks
with the logistics for training and also
supporting its operations with a fleet of
•Supporting rural banking sector to run an
Apprenticeship Banking Course (ABC) for
the benefit of staff of the rural banks

•Conduct of periodic training for directors,
managers and staff of rural banks on the
code of conduct with the view to improving
moral and ethical behaviour among rural
banks’ personnel
        African Development Bank

• The African Development Bank also contributed to the
  Rural Financial Services Project. Its contribution of
  US$5.01m was used in supporting the computerisation
  and training of the rural banks.
• The amount was used in the acquisition of uniform
  applications software as well hardware and networking
  some of the rural banks. In addition, certain equipment
  like power generators and motor bikes for credit
  monitoring was also done through this facility.
Above all, the conduct of a training needs
assessment and development and conduct
of training for the rural banking sector was
done through the support offered by the
African Development Bank from 2002-2007.
• As part of their mandate and being the
  financial players in the rural communities
  where agriculture is the dominant activity, the
  role of the rural banks cannot be
  overemphasized. Whilst the formal banking
  sector contributes only 4% of their total
  deposits to the agricultural sector, the rural
  banks contribute 10% of their deposits to
  support the sector.
In addition to this, and as a further
recognition of their location and wide
network,     governmental      and     donor
interventions for the agricultural sector are
channeled through the rural banks.
Among the key partners to the rural banks in
relation to the agricultural sector have been the
International Fund for Agricultural Development
(IFAD) which through three of its key projects
greatly supported the rural banks to increase
agricultural production. The projects were the
Smallholder Credit Input Marketing Project
(SCIMP), the Rural Enterprises Project (REP) and
the Land Conservation and Rehabilitation Project
Other projects which are being handled by
the rural banks through the ARB Apex Bank
are indicated below;

                       SOURCE OF                           AMT.
NO. PROJECT            FUNDS                AMT. RC'D.     DISB'SD.        PURPOSE

                                             (GH¢)          GH¢)
1   JAPANESE           JAPANESE GOVT          989,300.00 567,525.00        TO SUPPORT WOMEN

2   FABS               CIDA/GOG             4,288,435.55   4,170,570.54    POST HARVEST AGRIC

3   C.I.F              BANK/GOG             2,251,678.00   2,149,350.00    HIGH FOREST

                                                                      INCOME GENERATING
4   S.I.F              GOV.OF GHANA           989,125.00 1,696,550.00 ACTIVITIES

                                                                           OIL PALM AND
5   MASLOC-PSI         GOV. OF GHANA        1,045,000.00   647,896.34      CASSAVA PRODUCTION

6   MASLOC-PWD         GOV.OF GHANA           100,000.00 92,510.00         ECONOMIC ACTIVITIES

7   MASLOC-STEP        GOV.OF GHANA           200,000.00 115,980.00        YOUTH EMPLOYMENT
8    CROP PROD.             GOV. OF GHANA   2,145,300.00         569,600.00      WOMEN IN AGRIC

9    SNR. MIN.              GOV. OF GHANA   1,512,800.00        1,512,800.00     AGRIC

10   MASLOC-SFTA            GOV.OF GHANA    1,509,200.00        1,509,200.00     TRADING

11   MOWAC                  GOV. OF GHANA   1,245,600.00        1,245,600.00     FISHING

12   MASLOC-FISHERIES       GOV. OF GHANA   1,132,200.00         863,800.00      FISHING
13   GOVT.                  GOV. OF GHANA    340,000.00          320,000.00      GINGER PRODUCTION
                                                                                 PROVISION OF SOLAR PVC
14   SOLAR (GEDAP)          WORLD BANK         2,100,000.00 -                    SYSTEMS

15   PROJECT (CBRDP)        WORLD BANK        11,060,000.00       4,397,604.59   SUPPORT RURAL ENTP.

                                                                                 GRANT FOR ROOTS
16   RTIMP                  IFAD            2,660,000.00          72,000.00      AND TUBER CROPS
• In view of the immense benefit which Ghana has
  gained from the rural banking system and in view
  of the fact that the development of the rural
  financial sector of Ghana is meaningless unless it
  assists other African countries to emancipate its
  rural population from the challenges of rural
  financial intermediation, the ARB Apex Bank
  would readily and willingly assist any African
  country to establish a rural banking system
  through the following activities. The ARB Apex
  Bank upon the receipt of your invitation shall:
•Assist the country to develop a business
plan for the establishment of the rural
banks and the ARB Apex Bank.
•Provide handholding support and guidance
towards the pilot establishment of a number
of rural banks as agreed and assist with the
development of and manpower requirement
and capacity building of its personnel
•Provide hand-holding support for the
smooth operations in relation to the legal
and institutional framework for the apex
body and the rural banks.
•Assist the banks to develop strategic plans
and develop backward and forward linkages
with international institutions as well as
microfinance institutions.
•Provide/develop for adoption and/or
guidance policies on human resources,
banking       operations,     inspections,
computerization, training, research and
In effect the ARB Apex Bank shall assist you
to install a complete rural banking system
and offer the necessary technical support
until the system is firmly routed in your
               8. CONCLUSION
• The presence of rural banks in Ghana has helped
  in no small measure in creating a dependable
  channel for savings and credit among rural

• Access to credit through the rural banking sector
  in Ghana has really enhanced development
  through the generation of jobs and all kinds of
  economic activity including those relating to
  agriculture, fishing, transportation, cottage
  industries, trading and commerce, education and
  health care among many others.
The rural banks have acted as economic
stimulants in the rural communities and
have hastened the pace of development of
Ghana. All the attributes of the banking
industry are now being enjoyed by people
in the rural communities of Ghana and it is
imperative that its establishment should be
encouraged, supported and promoted in the
sub-region and beyond.
Thank you.

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