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Changes in Macroeconomic Policies (2001-2010) and their Implications for Microfinance Services Delivery in Ghana

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Changes in Macroeconomic Policies (2001-2010) and  their Implications for Microfinance Services Delivery  in Ghana Powered By Docstoc
					  Changes in Macroeconomic Policies (2001-2010) and
 their Implications for Microfinance Services Delivery
                                          in Ghana



          Tham-Agyekum, E. K., Loggoh, B., Awuvey, P., Tagoe, A., & Hansen, O. B.
               Department of Agricultural Extension, University of Ghana-Legon
                                 Email: donsprakels@yahoo.com
                                       Tel: +233266699776




ABSTRACT
Microfinance has been found to be the most appropriate way to provide financial services to a
majority of Ghanaians. The study purposed to find out how the macroeconomic policies of the
country can impact on microfinance service delivery in the country. Secondary data was the
major source of data used for the study. It was found that macro-economic policies have been
varied by government over the years although they look similar. With a more stable economy,
more microfinance Institutions are likely to spring up. Since 2001 to 2008, the GDP rate has
been increasing. This situation gives donors and micro finance practitioners an indication of the
opportunities available to micro entrepreneurs. Interest rates in the country over the years have
been decreasing and almost stabilised though it has risen from 2007 to 2009. Low interest rates
make businesses less willing to make investments; however, they are likely to increase their
client population when this happens because the tendency is for the formal sector to take
advantage of such a position. With high inflation rates, the cost of borrowing will also rise. It is
recommended that MFIs should narrow the gap between nominal saving rate and nominal
lending rate to induce clients to save and invest.


KEYWORDS: Macroeconomic, policies, microfinance, service delivery, Ghana



           Department of Agricultural Extension, University of Ghana-Legon (2010)         Page 1
1.1 INTRODUCTION
More than three-fourth of the population of Ghana live under two dollars a day. Therefore, micro
finance is probably the most appropriate way to provide financial services to a majority of
Ghana’s population. It’s therefore not surprising that the government perceives microfinance to
be central to achieving the greater goal of poverty alleviation. Through microfinance the
government aims to provide poor entrepreneurs, especially those in the informal sector, with
greater access to customized financial services (Al-Bagdahi, 2002; Jha et al., 2006).


Microfinance is an attractive development strategy for a wide spectrum of actors, combining
values of market-driven service provision, entrepreneurship, self-help, and aid to the poor (Otero
& Rhyne, 2001). According to CGAP (2009), it has enjoyed an unprecedented growth in
emerging markets from 2004 to 2008. Microfinance as a sector has the potential to reduce
poverty by bringing a significant improvement in the lives of the active poor who are largely
women. Barnes (2001) found a positive impact of microfinance on the clients in Zimbabwe,
India and Peru. Therefore, the potential of microfinance to reach large numbers of the poor is
now well understood (Zeller & Meyer, 2002).


Comprehensive impact studies have demonstrated that: microfinance helps very poor households
meet basic needs such as to buy food, access healthcare, educate their children, put aside savings
and lay the foundation for a better future and protect against risks; the use of financial services
by low-income households is associated with improvements in household economic welfare and
enterprise stability or growth; by supporting women's economic participation, microfinance help
to empower women, thus promoting gender-equity and improving household well-being
(Opportunity International, 2010).


1.1.1 Evolution of Microfinance in Ghana
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. Susu, which is one of
the current microfinance methodologies, is thought to have originated in Nigeria and spread to


          Department of Agricultural Extension, University of Ghana-Legon (2010)         Page 2
Ghana in the early 1990s. Microfinance has gone through four (4) distinct phases worldwide of
which Ghana is no exception. These stages are described below:
   1. Phase One: The provision of subsidized credit by Governments starting in the 1950’s
        when it was assumed that the lack of money was the ultimate hindrance to the elimination
        of poverty.
   2. Phase Two: Involved the provision of micro credit mainly through NGOs to the poor in
        the 1960’s and 1970’s. During this period sustainability and financial self – sufficiency
        were still not considered important.
   3. Phase Three: In the 1990’s the formalization of Microfinance Institutions (MFIs) began.
   4. Phase Four: Since the mid 1990’s the commercialization of MFIs has gained importance
        with the mainstreaming of microfinance and its institutions into the financial sector (Steel
        & Andah, 2006).


1.1.2 Institutions Providing Micro Finance Services
Ghana’s financial system can be broadly divided into three categories- formal, semi-formal and
informal. The formal institutions are incorporated under the Companies Code 1963 and licensed
by the Bank of Ghana (BOG) under the Banking Law, 1989, or the Financial Institutions (Non-
Banking) Law, 1993. Commercial banks and rural banks are incorporated under Banking Law,
while the Savings and Loans companies and Credit Unions are incorporated under the Non
Banking Financial Institution (NBFI) law. The Credit Unions, however, are not regulated by the
BOG, but by the Credit Union Association (CUA) which acts as a self regulatory apex body.
Although all formal institutions have some involvement in microfinance, only the rural banks
and S&Ls can claim substantial involvement. The Semi formal sector comprises Credit Unions
and NGOs. The Credit Unions cater to the financial needs of its members, who are generally
from the salaried class. NGOs, on the other hand, focus primarily on the disadvantaged sections.
The informal sector comprises Susu collectors, traders, money lenders, ROSCAS, etc. They,
along with the NGOs, are providing microfinance services to the poorer sections (Steel & Andah,
2003). Below is a table showing client outreach by different financial institutions from 2004 to
2007.




           Department of Agricultural Extension, University of Ghana-Legon (2010)         Page 3
Table 1: Client Outreach by Different Financial Institutions, 2004–07 (in thousands)
Institutions                    2004              2005               2006              2007
RCBs                             119               120                122              125
Savings and loans                 10               12                 11                14
Credit unions                    261               273                279              322
Financial NGOs                    29               29                 20                40
Susu collectors                  911              1,016              1,000             1,259
Source: (GHAMFIN, 2007)


1.1.3 The Need for Microfinance in Ghana
The main goal of Ghana’s Growth and Poverty Reduction Strategy (GPRS II) is to ensure
“sustainable equitable growth, accelerated poverty reduction and the protection of the vulnerable
and excluded within a decentralized, democratic environment”. The intention is to eliminate
widespread poverty and growing income inequality, especially among the productive poor who
constitute the majority of the working population. According to the 2000 Population and
Housing Census, 80% of the working population is found in the private informal sector. This
group is characterized by lack of access to credit, which constrains the development and growth
of that sector of the economy. The observation was stressed in the International Monetary Fund
Country report on Ghana of May 2003 that “weaknesses in the financial sector that restrict
financing opportunities for productive private investment are a particular impediment to business
expansion in Ghana.”


Microfinance perceived as a financially sustainable instrument meant to reach significant number
of poor people of which most are not able to access financial services because of the lack of
strong retailing financial intermediaries. Access to financial services is imperative for the
development of the informal sector and also helps to mop up excess liquidity through savings
that can be made available as investment capital for national. Microfinance as a sector has the
potential to reduce poverty by bringing a significant improvement in the lives of the active poor
who are largely women.




          Department of Agricultural Extension, University of Ghana-Legon (2010)       Page 4
1.1.4 Evidences for a Reduction in Poverty
Household income of families with access to credit is significantly higher than for comparable
households without access to credit. In Indonesia a 12.9 percent annual average rise in income
from borrowers was observed while only 3 per cent rise was reported from non-borrowers
(control group). Remenyi notes that, in Bangladesh, a 29.3 percent annual average rise in income
was recorded and 22 percent annual average rise in income from no-borrowers. Sri-Lanka
indicated a 15.6 rise in income from borrowers and 9 percent rise from non-borrowers. In the
case of India, 46 percent annual average rise in income was reported among borrowers with 24
percent increase reported from non-borrowers. The effects were higher for those just below the
poverty line while income improvement was lowest among the very poor (Remenyi & Quinones,
2000).


“…we find that women’s credit has a large and statistically significant impact on two of three
measures of the health of both boy and girl children. Credit provided (to) men has no statistically
significant impact…A 10% increase in (latent) credit provided to females increases the arm
circumference of their daughters by 6.3%, twice the increase that would be expected from a
similar proportionate increase in credit provided to men. Female credit also has a significant,
positive but somewhat smaller effect on the arm circumference of sons. Female credit is
estimated to have large, positive and statistically significant effects on the height-forage of both
boys and girls (Pitt et al., 2003). ”


In a Zimbabwe study, there are major differences in income distribution. For example, nearly
half of the new client and non-client households had a monthly income of less than Z$2,000,
compared with about one-fifth of the repeat client households. In contrast, half of the repeat
clients had an estimated monthly household income of Z$4,000 or more. Members of repeat
borrower households have on average one year of education more than those of non-client
households. The average number of income sources was 2.5 for clients households compared
with 2.1 for non-clients. Similar numbers in the Uganda study were 3.23 compared with 2.53
(Barnes & Keogh, 1999).




           Department of Agricultural Extension, University of Ghana-Legon (2010)         Page 5
In Ghana, MkNelly & Dunford (1998), found the following impacts. Microcredit programme
participants reported a reduced vulnerability to the “hungry season” relative to the baseline
period compared to two other groups (a control group and a nonparticipant group). The
nutritional status of infants in borrower families (weight for age and height for age indices) was
improved relative to the other groups. There was no difference in the maternal health status
(body mass index) among study groups.


1.2 DEFINITION OF MICROFINANCE
Many authors have defined microfinance in various ways. According to CGAP (2009),
"Microfinance is the supply of loans, savings, and other basic financial services to the poor."
Microfinance is also defined by Opportunity International (2010) as the provision of financial
services such as loans, savings, insurance, and training to people living in poverty. Microfinance
is the provision of a broad range of financial services such as deposits, loans, payment services,
money transfers, and insurance to poor and low-income households and, their microenterprises
(MIX, 2010). Other definitions of microfinance are as follows:


Microfinance is the provision of financial services to low-income clients, including consumers
and the self-employed, who traditionally lack access to banking and related services
www.en.wikipedia.org/wiki/Microfinance. It is finance that is provided to unemployed or low-
income people or group www.en.wiktionary.org/wiki/microfinance. It’s the provision of small
loans (microcredit) to poor people to help them engage in productive activities or grow very
small businesses. The term may also include a broader range of services, including credit,
savings, and insurance www.pbs.org/wgbh/rxforsurvival/glossary.html. A type of lending
involving small, non-collateralized loans to low-income, typically self-employed, workers who
do      not       have      access       to     traditional     financial      lending      services
www.gbophb.org/sri_funds/glossary.asp. It is a recent development approach which provides
very small loans directly to poor individuals or families in poor states so that they can start small
businesses           or         expand           their         already-existing           businesses
www.routledge.com/textbooks/9780415485395/glossary.asp.




             Department of Agricultural Extension, University of Ghana-Legon (2010)        Page 6
Microfinance is a simple but powerful tool that enables the poor to pull themselves out of
poverty. Most commonly, it involves making small loans to the working poor in developing
countries. Finally, Ledgerwood (1998) defines microfinance as the provision of financial
services to low-income clients, including the self-employed.


From the definitions above, it can be deduced that microfinance in general aims at the provision
of financial services such as loans, savings, remittances, and insurance, training services which
are aimed at the poor or low-income clients which mostly include women.


Microfinance has evolved as an economic development approach intended to benefit low-income
women and men (Ledgerwood, 1998) and as noted by Sekyi-Dawson (2002) micro-finance is not
only just banking, it is a development tool. So its activities may involve: small loans main as
working capital, informal appraisal of borrowers and investments, the use of collateral substitutes
in the form of group guarantees or compulsory savings, access to repeat and larger loans based
on repayment performance, streamlined loan disbursement and monitoring and secure savings
products. Some MFI’s also provide enterprise development services such as skills training and
marketing and social services such as literacy training and health care (Ledgerwood, 1998).
Microfinance organizations make it a priority to serve the particular needs of women, since a
staggering 70 percent of all those living in extreme poverty are female. Women are often
excluded from education, the workplace, owning property and equal participation in politics.
They produce one half of the world’s food, but own just one percent of its farmland.


Microfinance has emerged as an effective poverty alleviation tool because it is based on the
fundamental principle that human beings are motivated to do whatever it takes to make
themselves as well off as possible.




          Department of Agricultural Extension, University of Ghana-Legon (2010)         Page 7
1.3 CONTEXTUAL FACTORS THAT AFFECT MICROFINANCE
  1. Financial sector policies and legal environment
         a. Interest rate policies
         b. Government mandated credit allocations
         c. Financial contract enforcement or legal enforcement of contractual obligations
             and the ability to seize pledged assets
  2. Financial sector regulation and supervision: The body of principles, rules, standards and
     compliance procedures that apply to financial institutions.
         a. BoG
                 i. Licensing (GHC 150,000)
                ii. Prudential (Capital adequacy ratio of 10%) and
                iii. Tax (Corporate income tax rate of 8%)
         b. ARB Apex
  3. Economic and social policy
         a. Economic stability of the country
         b. Poverty levels within the country
         c. Macroeconomic policies




        Department of Agricultural Extension, University of Ghana-Legon (2010)      Page 8
1.4 EVOLUTION OF THE CONTEXTUAL FACTORS (2001-2010)
Table 2: Financial Sector Policies and Legal Environment
Year                        Policy Objectives                                               Instruments
2001   1. To reduce the rates of inflation and depreciation of 1. The 91-day Treasury bill discount rate increased until it hit a peak
       the cedi following the turbulence in 2000.              of 42.06 per cent at the end of June 2001.
                                                               2. The Bank introduced an interest rate of 28.94%
2002   1. There was no major change.                           1. The Bank of Ghana introduced the prime rate of 24.5% in March
                                                               2002.
                                                               2. Credit to private sector increased from 16.2% to 33.2%.
2003   1. Promote efficient savings mobilization;              1. The Bank of Ghana introduced a prime rate of 21.5% which later
       2. Make Ghana the preferred source of finance for       moved to 15.5%.
       domestic companies;                                     2. Interest rate reduced to 11.7%
       3. Establish Ghana as the Financial gateway to the      3. Government of Ghana launched the Financial Sector Strategic
       ECOWAS region;                                          Plan II (FINSSP II) to serve as the blue print for Ghana’s financial
       4. Enhance the competitiveness of Ghana’s financial     sector development.
       institutions within the Regional and Global setting.
2004   1. To minimize government’s domestic borrowing          1. There was the reverse repurchase agreement and the prime rate of
       requirement in order to reduce interest rates as well   18.5%.
       as halt the crowding out of the private sector from     2. The open market operations was started in 2004
       the credit market.
       2. To ensure adequate provision of bank credit to the
       real sector of the economy during the year.



                              Department of Agricultural Extension, University of Ghana-Legon (2010)        Page 9
2005   1. Same as the previous year                            1. There was widening of the interest rate corridor for money market
                                                               operations from 1.0 percent to 3.0 percent with a prime rate of
                                                               15.5%.
                                                               2. Setting of the reverse REPO rate at 2.0 percentage points below
                                                               the prime rate.
                                                               3. Reduction of the secondary reserve requirement from 35.0 percent
                                                               to 15.0 percent.
2006   1. Open market operations were intensified to mop       1. Money market interest rates eased downwards with the 91-day
       up excess liquidity while the minimum primary           Treasury bill rate dropping from 11.77 per cent at end December
       reserve requirements deposit money banks was            2005 to 10.19 per cent at end December 2006.
       maintained at 9.0 % throughout the year.                2. Average base rates of banks also declined steadily from 24 percent
       2. Analysis on the stock of credit revealed the private at the beginning of the year to 19 percent.
       sector continues its dominance of access to credit of   3. Open market operations were intensified
       81.9%.
2007   1. Similar to the previous year                         1. The policy rate went up by 1.0% of 2006 to 13.5% during the last
                                                               quarter of the year.
                                                               2. The Bank’s main policy tool, the Prime Rate, was consequently
                                                               adjusted up three times in the year by 350(bps) cumulatively to
                                                               17.5%.
                                                               2. Total outstanding credit to the private sector increased by 59.7%
                                                               compared with 42.8% in 2006 whiles that to the public sector went
                                                               up significantly by 87.3%.



                            Department of Agricultural Extension, University of Ghana-Legon (2010)           Page 10
2008   1. To complement existing statistics on banks’         1. The Bank’s main policy tool, the Prime rate, was consequently
       interest rates and credit.                             adjusted upwards three times in the year by 350 (bps) cumulatively
                                                              to 17.0 percent.
                                                              2. The distribution of the credit flow remained broad-based but
                                                              skewed in favour of three main sectors namely, Services (24.1%),
                                                              Commerce & Finance (26.4%) and Manufacturing (12.0%).




                             Department of Agricultural Extension, University of Ghana-Legon (2010)     Page 11
Table 3: Financial Sector Regulation and Supervision
Year                             Policy Objectives                                                    Instruments
2001   1. BoG intensified and adopted improved supervision and              1. The proposed Association of Rural Banks (ARB)
       regulation techniques geared towards ensuring safety, soundness      Apex Bank, which was to be established under the Rural
       and stability in the Non-Bank Financial Sector.                      Finance Services Project (RFSP) to assume oversight
       2. It also liased with the Ministry of Finance and the World Bank    responsibility for the Rural Banks was granted a
       for effective implementation of the Non-Bank Financial               Banking License in June 2001.
       Institutions Project.                                                2. The Ghana RTGS System was set up to combine
                                                                            electronic and telecommunications technology to link
                                                                            the Head Offices of banks to the Bank of Ghana and
                                                                            facilitate electronic payments among the banks on gross
                                                                            basis and in real time.
2002   1. The Bank of Ghana Act (Act 612) was signed into law in            1. ARB Apex Bank established to serve as mini central
       January 2002. The new Act enshrines price stability as a primary     bank for rural banks.
       policy goal for the Bank and gives operational independence to       2. The central bank intensified its anti-money laundering
       the Bank of Ghana regulation and supervision of banking and non stance by spearheading the promulgation of an Anti-
       banking financial institutions.                                      Money Laundering bill for passage by Parliament.
                                                                            4. The introduction of stored value cards, electronic,
                                                                            telephone and internet based banking products by some
                                                                            banks.
2003   1. Passage of a new banking act 2004 (Act 673) for requisite         1. Total assets of rural and community banks increased
       legal, regulatory and institutional framework to enhance more        by 26.2%.



                               Department of Agricultural Extension, University of Ghana-Legon (2010)       Page 12
       prudent and transparent Governance.                                  2. Three universal banking licenses were issued and 30
       2. Passage of the Financial Administration Act 654. It is to         approvals granted to rural banks to open mobilization
       regulate the financial management of the public sector; prescribe    centers and agencies.
       the responsibilities of persons entrusted with financial             3. The training and computerization of rural banks was
       management in the government; ensure the effective and efficient     initiated under the rural financial services project.
       management of state revenue, expenditure, assets, etc.
       3. Internal Audit Agency Act, 2003 Act 658
       4. The Payment Systems Act, 2003 Act 662. It is to provide for
       the establishment, operation and supervision of electronic and
       other payment, clearing and settlement systems; to provide for the
       rights and responsibilities of transacting and intermediating
       parties and for other related matters.
2004   1. In 2004, National Micro Finance Administration was 1. There was no major change
       established (Act 673). The Act incorporates current international
       standards and ensures more effective supervision and regulation
       of the banking industry.
       2. In 2004 Long-term savings scheme Act, 679. It is to provide
       the general framework for the operation and regulation of the
       Scheme, and to provide for related matters.
       3. Venture Capital Trust Fund Act 680. It is to provide for the
       establishment of a Fund to be known as the Venture Capital Trust
       Fund to provide financial resources for the development and



                            Department of Agricultural Extension, University of Ghana-Legon (2010)         Page 13
       promotion of venture capital financing for Small and Medium
       Enterprises (SMEs) in specified sectors of the Ghanaian
       economy; the management of the Fund and to provide for related
       matters.
2005   1. The banking industry at the end of 2005 comprised 21 banks         1. Abolishing of the requirement on the banks to hold 15
       (including the ARB Apex Bank) as well as 121 Rural and                percent of deposits in the form of medium term
       Community Banks. The new Banking Law, Act 673, which                  securities.
       became operational in 2005 with its higher Capital Adequacy           2. Lower the Bank of Ghana Prime Rate in two
       Ratio requirements, new sanctions regime, as well as higher           measured steps during the year and it remained at 15.5%
       governance standards had the objective of ensuring that banks         in December 2005 and reserve requirements were
       remained generally compliant with regulatory and prudential           relaxed.
       requirements.                                                         • Abolishing of the requirement on the banks to hold
                                                                             15% of deposits in the form of medium term securities.
2006   1. The Bank introduced a new licensing policy, which allows           1. The Exchange Control Act, 1961(Act 71), and all its
       only well established foreign banks into the domestic banking         amendment decrees, was repealed with the
       system. The policy is geared towards supporting the development       promulgation of the Foreign Exchange Act, 2006, Act
       of a well capitalised and robust financial system.                    723.
       2. The passage of the Credit Reporting Bill would allow an            2. The ARB Apex Bank Limited Regulations, 2006 (L.I.
       informed assessment and pricing of risks in the delivery of credit.   1852) was also passed to regulate the operations of the
       3. Foreign Exchange Act 723: The Act is to provide for the            ARB Apex Bank.
       exchange of foreign currency, for international payment               3. Under the Rural Financial Services Project, capacity
       transactions and foreign exchange transfers; to regulate foreign      building of RCBs continued in terms of



                            Department of Agricultural Extension, University of Ghana-Legon (2010)         Page 14
       exchange business and to provide for related matters.                   computerisation, logistics support and training of ARB
                                                                               Apex Bank and RCB staff.
2007   1. The banking amendment Act 2007(Act 738) to introduce three           1. Work on the National Switch (e-zwich) and the
       types of banking license to establish the statutory basis for off-      Smartcard (e-zwich smartcard) payment system started
       shore banking. To allow for Credit Reference Bureaux which              during the year and are expected to become operational
       will reduce information asymmetry in the rapidly expanding              by April 2008.
       credit market and finally to safeguard the integrity of the financial
       system.
       2. ARB Apex Bank continued to pursue its objective of providing
       banking and non-banking support to the rural and community
       banks (RCBs)
2008   1. ARB Apex Bank continued to pursue its objective of                   1. The year witnessed the review and passage of the
       providing banking and non-banking support to the rural and              following legislations that affect the banking and
       community banks (RCBs).                                                 financial industry.
       2. To establish a national switch which would link all bank             Home Mortgage Finance Act, 2008 (Act 770)›
       switches in the country.                                                Borrowers and Lenders Act, 2008 (Act 773)›
       3. GhIPSS, which was registered in 2007 as a wholly owned               Non-Bank Financial Institutions Act, 2008 (Act 774)
       subsidiary of the Bank commenced operations in 2008. Its                2. Introduction of the common electronic platform (e-
       mandate covered the following:                                          zwich) and a biometric smartcard for promoting
          •   Implement and manage the national switch and smartcard           branchless banking and financial inclusion.
              payment system                                                   3. Bank raised the minimum capital of banks from
          •   Increase the efficiency of cheque clearing through the           GH¢7million to GH¢60 million after due consultation



                            Department of Agricultural Extension, University of Ghana-Legon (2010)           Page 15
              introduction of a CCC with cheque truncation system      with the banking industry.
          •   Establish and manage an Automated Clearing
              House(ACH) system›
          •   Provide technical support to the Real Time Gross ›
              Settlement (RTGS) system operated by the Bank of
              Ghana
2009   1. Protect the banking systems and economies.




                          Department of Agricultural Extension, University of Ghana-Legon (2010)    Page 16
Table 4: Economic and Social Policy
Year                     Policy Objectives                                                   Instruments
2001   1. To achieve a real GDP growth of 4.0%                   1. Inflation which peaked at 41.9 percent in March, tumbled to 21.3
       2. Strict expenditure control                             percent by end December.
       3. Increase in revenue mobilisation                       2. The GDP rate achieved was at 4.2%.
       4. Contain domestic borrowing                             3. In March 2001, Ghana opted for debt relief under the enhanced
                                                                 Heavily Indebted Poor Country (HIPC) Initiative
                                                                 4. The National Poverty Reduction Strategy was implemented.
2002   1. Reducing inflation to end-of-year rate of 15.0         The GDP rate achieved was at 4.5%.
       percent                                                   1. The adoption of a zero net domestic financing target which
       2. To maintain stability in the general level of prices   represents considerable tightening moderation in private and public
       3. To promote efficient operations of the banking and sector wage settlements
       credit systems and economic growth.                       2. Inflation reduced to 15.2%.
                                                                 Government adopted HIPC policy and as a result total debt relief
                                                                 was $276.75m.
2003   1. Poverty reduction for the period 2003 to 2005 but      1. Inflation reduced to 12.4%.
       with a requirement by IMF to remove petroleum             2. The GDP rate achieved was at 5.2%.
       price subsidies as conditionality.                        3. Cross-subsidization of products of importance in the consumption
                                                                 baskets of the poor - such as kerosene.
                                                                 4. Indirect subsidies were provided in the cost to producers of gas-oil
                                                                 for mass transportation and premix fuel in the small-scale fisheries
                                                                 sector.



                            Department of Agricultural Extension, University of Ghana-Legon (2010)          Page 17
2004   1. Achieving price and exchange rate stability           1. The GDP rate achieved was at GDP 5.6.
       2. Maintaining the disinflationary process and also 2. Headline inflation declined from 23.6 per cent in December 2003
       consolidating the exchange rate stability achieved so to 11.8 per cent by December 2004.
       far.
2005   1. Focussed on achieving single digit inflation in a     1. The GDP rate achieved was at 5.9%.
       context of unprecedented rise in international crude     2. Inflation increased to 14.8% at the end of December 2005
       oil prices, and the full deregulation of the petroleum   3. Headline inflation (combined), which peaked in March after the
       prices on the domestic market.                           petroleum adjustment in February 2005, eased considerably by the
       2. To reinvigorate revenue collections and               end of the year dropping from 16.7% in March 2005 to 14.8 in
       consolidate public expenditure aimed at reducing the     December 2005.
       domestic debt in relation to GDP.
2006   1. The objective remained focused on reducing            1. The GDP rate achieved was at 6.4%.
       inflation to low and stable levels.                      2. The Bank introduced a Macroeconometric Model (EMOD) to
       2. In 2006, empowering the youth and other               complement other analytical tools and instruments for assessing the
       vulnerable groups in the society to engage in            response of the economy to policies and exogenous shocks
       productive activities in the economy specifically,       Implementation of the deregulation policy in the petroleum sector
       Youth in agriculture, health assistance, CETAs, etc.     and the capitation grant policy for public first-cycle schools.
2007   1. To reduce inflation to the lower single-digit range   1. The GDP rate achieved was at 6.3%.
       in the medium-term.                                      2. The adoption of a full-inflation targeting framework which would
       2. The overarching objective of monetary policy was      make use of core CPI inflation (excluding energy and utility prices)
       to maintain price stability and inflation at18.1%.       as the principal variable for tracking underlying inflation in the
                                                                economy.



                             Department of Agricultural Extension, University of Ghana-Legon (2010)         Page 18
                                                                 3. Headline inflation ended the year at 12.7 percent, due in great part
                                                                 to food price increases and the pass-through effects of soaring crude
                                                                 oil prices, and a significant upward adjustment in utility prices.
2008   1. To steer inflation expectations within the inflation   1. Financial instruments supported by subprime mortgages turned
       target of a single digit in the medium-term.              sour with rippling effects across global financial markets.
       2. High international food and energy prices              2. GDP rising to a record 7.3 percent but under conditions of
       dominated the inflation environment although prices       considerable over-heating.
       of Ghana’s export commodities remained reasonably         3. Year-on-year inflation falling from 18.1 percent in 2008
       firm.                                                     4. Stabilization Fund to serve as a measure to insulate the economy
       3. Improving regulatory structures for doing business     from external shocks.
2009   1. To maintain momentum in revenue generation             1. Real GDP growth for 2009 turned in at 4.7%, down from 7.3%
       while improving the efficiency of government              recorded in 2008.
       expenditure.                                              2. The year ended on a positive note with year-on-year inflation
       2. To reduce the overall budget deficit excluding         falling from 18.1 percent in 2008 to 15.9 percent in
       divestiture from 14.5 percent registered in 2008 to       2009.
       9.4 percent in 2009                                       3. The reduction in tariff on petroleum products and the non-
       3. To develop progressive, vibrant and viable             restoration of import duty on some major food items.
       agricultural economy                                      4. Government’s provision of an amount of GHS 17.2m for
       4. To provide improved social services to uphold the      implementation of free school uniforms and exercise books for
       living conditions and dignity of the average              pupils in basic schools.
       Ghanaian (Growth and poverty reduction strategy:          5. A rise in capitation grants provided to basic schools by 50%from
       Sought to ensure that production and employment           GHC3.00 to GHC4.50per pupil.



                             Department of Agricultural Extension, University of Ghana-Legon (2010)          Page 19
       within the economy expand alongside each other and        6. Government hinged on food security and emergency preparedness,
       the benefits derived from growth are distributed          the youth in agriculture programme, sustainable land and
       through better job prospects, with improve incomes        environmental management and agricultural mechanization.
       leading poverty reduction).
2010   1. Growth and Strategy framework: It focuses on a         1. The GDP rate achieved expected is 6.4%.
       progressive programme of development through job          2. Positioning the country for a sustained growth through
       creation intended to improve the quality of life of the   the modernization of agriculture, provision of key
       citizenry.                                                infrastructure development, oil and gas projects,
       2. Development of small, medium and micro-                private sector development, ICT; and
       enterprises that would ensure that                        3. Delivery of social programmes targeted at poverty reduction eg.
       Ghanaian entrepreneurs perform to the best of their       The National Plantation Development Programme that to increase
       abilities.                                                the forest cover, promote employment and contribute to the fight
       3. Government will provide free education to all          against rural poverty.
       disabled children of school going age.




                            Department of Agricultural Extension, University of Ghana-Legon (2010)          Page 20
Table 5: Macroeconomic policies
Year                     Policy Objectives                                                 Instruments
2001   1. Building gross international reserves to 1.5 month   1. The provisional outturn of government budget showed an overall
       import cover                                            budget deficit of 2,750.4 billion (7.2% of GDP).
       2. Achieving a domestic primary fiscal surplus of at    2. The central government’s shift from borrowing from the central
       least 4.0 percent of GDP                                bank to the non-bank sector.
       3. Limiting domestic financing of government to the     3. Government in September 2001 introduced a 3-year inflation
       equivalent of 1.8 percent of GDP.                       indexed bond – The Ghana Government Index Linked Bond
                                                               (GGILB) - in an effort to restructure its domestic debt.
                                                               4. Government also took over part (¢979.0 billion) of TOR’s
                                                               indebtedness to the banking system by converting this amount into 3-
                                                               5 year bonds in order to relieve the banking system of holding large
                                                               non-performing assets on their balance sheets.
                                                               5. The government reduced the 20 percent special tax on some of the
                                                               32 selected “non-essential” imported goods to 10 percent and
                                                               removed the tax completely on the rest.
2002   1. To improve finances of the utility companies and     1. The government adjusted prices for utilities
       ensure steady progress in the phased approach           2. A large taxpayer unit (LTU) comprising 350 tax-paying entities
       towards full cost recovery.                             was launched.
       2. To reduce leakage in revenue and minimize            3. In support of the LTU and a system of taxpayers’ identification
       physical contact between traders and customs            numbers (TIN) was set up to ensure its implementation
       officers so as to ensure greater efficiency in



                            Department of Agricultural Extension, University of Ghana-Legon (2010)        Page 21
       achieving a target clearance period of one or two
       days.
2003   1. To slowdown the rate of depreciation of the Cedi      1. Supervision of the banks and foreign exchange bureaux and
       and make the economy more stable to boost                enforcing compliance with regulations.
       productivity
       2. To promote the development of an orderly
       efficient and effective foreign exchange market
       3. Reducing the domestic debt stock
       4. Building reserves to cushion the economy against
       short-term external shocks and also meet sub-
       regional economic convergence criteria.
2004   1. To promote and encourage exports and inward           1. There was no major change
       direct investment in the export sector.
       2. Improving the efficiency and safety of payment
       system and of promoting noncash modes of payment.
2005   1. Building the foundation for a sound financial         1. A legal and institutional framework as well as a payment and
       services sector that can support accelerated growth.     settlement infrastructure that will make the financial system robust
       2. Reducing risks and increasing efficiency in the       and competitive in the global trading and capital markets.
       payment and settlement systems and bringing them
       in line with current international trends.
2006   1. Reducing the debt-to-GDP ratio to ease the            1. New licensing policy was introduced. Well established foreign
       pressure on the interest rate and crowd in the private   banks were allowed into the domestic banking system The share of



                            Department of Agricultural Extension, University of Ghana-Legon (2010)         Page 22
       sector.                                                     direct taxes in total revenue also rose slightly from 6.70 percent in
       2. To reverse widening budget deficit and reducing          2004 to 6.82 percent in 2005, but collections of indirect taxes and
       the domestic debt.                                          international trade taxes fell marginally.
2007   1. Redenomination of the currency to make banking           1. Printing of new GH cedi (notes and coins)
       transaction very easy and promoting easy carrying of        2. A tight monetary policy stance was maintained
       money
       2. Reversing the widening budget deficit and
       reducing the domestic debt.
2008   1. The objective was to provide the MPC with early          1. High domestic fuel price increases during the first half of 2008
       warning signals of the effect of the global financial       2. A reduction in taxes on petroleum products.
       crisis on the domestic financial sector.                    3. Communication sales tax and special tax audits were introduced to
       2. It was also designed to complement existing              boost revenue mobilisation.
       statistics on banks’ interest rates and credit.
       3. To reverse the 2007 fiscal slippages.
       4. The overarching objective of monetary policy was
       to maintain price stability.
       5. It sought to reverse the deteriorating fiscal position
       with a view to improve fiscal discipline whiles at the
       same time pursuing policies and programmes that
       could counteract some of the adverse effects of the
       global financial crisis.
2009   1. The aim is to maintain flexible exchange rate in         1. Introduction of E-zwich



                             Department of Agricultural Extension, University of Ghana-Legon (2010)             Page 23
       order to enhance competitiveness in the Ghanaian        2. Upward revision of road and bridge tolls
       economy.                                                3. Imposition of talk tax and internet service tax
       2. Operating a cashless economy. That is business       4. Introduction of automated toll booth
       transaction are done with minimal involvement of        5. The reduction in tariff on petroleum products and the non-
       cash.                                                   restoration of import duty on some major food items.
       3. Increasing government revenue substantially and      6. The reduction of the huge domestic arrears in order to remain
       controlling public expenditure                          consistent with the prudent expenditure management
       4. Monetary policy in 2009 aimed at unwinding the
       high monetary growth while keeping an eye on
       financial sector stability and economic growth.
       5. The objective was to withdraw some liquidity
       from the economy, re-anchor the dislodged
       inflationary expectations and complement the
       tightening of the fiscal stance.
       6. To maintain momentum in revenue generation
       while improving the efficiency of government
       expenditure.
       7. Protect the banking systems and economies.
2010   1. Increasing government revenue substantially and      1. Upward revision of passport, water and electricity tariffs
       controlling wasteful public expenditure.                2. Sustenance of the macroeconomic stability and fiscal
       2. To reduce inflation rate to less than 10% over the   discipline achieved in 2009
       medium term.                                            3. New taxes and levies were introduced to establish the right prices



                             Department of Agricultural Extension, University of Ghana-Legon (2010)       Page 24
3. The key areas that Government is focusing on in   for natural and environmental capital.
the medium term to grow the economy at the rate of
8-10% per annum are: the oil and gas industry,
agriculture modernization, private sector
development, provision of key infrastructure and
information and communication technology.




                    Department of Agricultural Extension, University of Ghana-Legon (2010)    Page 25
5. International Trade and Payment Policies
The current account deficit (including official transfers) of the balance of payments - the twin of
the budget deficit - widened in step with its twin from 7 percent of gross domestic product
(GDP) in 2005 to 9 percent in the following year and further to 10.9 percent in 2007.


In election-year 2008, it is expected to widen further and reach a peak (at least in the Fourth
Republic) of about 13.2 percent of GDP (IMF estimate). Given that the current account deficit is
a measure of the country’s liability - by way of foreign loans and equity - to the rest of the world,
the persistent widening of the deficit raises obvious concerns of sustainability.


The current account balance comprises the trade balance and the services, income, and transfers
(official and private) balance. Over the four-year period of 2004-2007, the deficit on the trade
balance has widened continuously from 17.6 percent of GDP to reach 26 percent of GDP, with
the non-oil trade deficit widening from 10.2 percent of GDP in 2004 to 13.1 percent of GDP in
2007. The experience over the past years reveals once again the vulnerability and fragility of a
primary commodity-dependent economy which moreover, is losing export market shares in
international markets. This worrisome situation appears to be the result of a combination of an
overvalued currency (which may be squeezing profit margins of exporters and import-competing
enterprises) and an inadequate incentive scheme that together make products made in Ghana
uncompetitive at home and abroad.


Table 6: Trade Balance (% of GDP)
Indicator                              2001    2002     2003    2004    2005   2006    2007    2008
Trade Balance                          -20.6   -11.1    -10.3 -17.6 -23.8 -24.2 -26.0 -25.8


On the side of export earnings, the key elements are gold, cocoa (beans and products) and the
group of non-traditional export (NTE) commodities. Gold export earnings led the way and as a
result its share in overall export earnings in 2007 represented 43 percent of the total. Indeed,
since 2004, the share of gold export receipts in overall export earnings exceeded those of all
other export commodities, thus making gold the dominant export commodity. Gold exports
increased by almost 36 percent in value terms in 2007. This was both on account of record-high


            Department of Agricultural Extension, University of Ghana-Legon (2010)         Page 26
prices on world markets and increased export volumes. While export volumes increased by 19
percent above the average for the preceding year, world market prices rallied by more than 15
percent above the average registered in 2006. An issue of some concern is that while the gold
sector has witnessed considerable boom in recent times, its contribution to the country’s
international reserves and budgetary revenue has been minimal.


In comparison, export earnings from the shipment of cocoa beans and products fell by 7.1
percent in 2007 relative to 2006. The decline in earnings was largely due to a sharp fall in the
volume of cocoa beans shipments even in the face of continuous price rallies on world markets.
Thus, the average price increased by about 23 percent while the volume shipped declined by 14.8
percent in 2007. Foreign exchange earnings from the group of export items dubbed non-
traditional exports (NTEs) - defined here to exclude cocoa and wood products - have performed
rather poorly.


Over the past four years, the contribution of NTEs to overall export earnings has been falling,
with an apparent dwindling in shares of the horticultural category of agricultural goods. The
evidence suggests that over the past four years, export volumes of pineapples - which used to be
the highest earner in the horticultural category of agricultural NTEs - slumped by 66 percent on
account of an unexpected shift in demand from the smooth cayenne variety preferred by
Ghanaian farmers to the so-called MD2 variety mostly produced in South America.


Table 7: Exports f.o.b. (% of GDP)
Indicator                            2001    2002    2003    2004   2005   2006    2007   2008
Exports                              34.8    32.5    32.7    30.9   26.2   29.8    28.1   35.0




            Department of Agricultural Extension, University of Ghana-Legon (2010)    Page 27
1.5 EFFECT OF THE CONTEXTUAL FACTORS ON MICROFINANCE SERVICE
DELIVERY IN GHANA
Having studied how the contextual factors that affect microfinance delivery in the country have
evolved, it is appropriate now to make an assessment of how these factors are likely to affect
microfinance delivery in the country.


a. GDP Growth Rate/Per Capita GDP and Poverty Levels




Fig. 1: Year-by-year GDP growth rate


Gross Domestic Product (GDP) in absolute terms is a measure of economic well-being. Where
there is a sustained growth in the GDP, the economy will be said to be doing well. For example,
since 2001 to 2008, the GDP rate has been increasing. This is an indication that the economy is
not volatile. Low GDP rate as experienced in 2001 means that total production of goods and
services are low. This does not encourage investors to invest their resources in business activities
which might include microfinance. It is risky to do business under such conditions. The country
recorded its highest GDP of 7.3 in 2008; it fell in 2009 to 4.7 and has since risen back to 6.4.
This situation gives donors and micro finance practitioners an indication of the opportunities
available to micro entrepreneurs. It can therefore affect the forecasted growth and funding
requirements of the MFI. Until 2009, the GDP has risen gradually. It implies that there is

          Department of Agricultural Extension, University of Ghana-Legon (2010)          Page 28
confidence in the economy’s performance and this has a positive effect on financial
intermediations. But falling GDP in 2009 means lower incomes and less demand for products
and services, which could result in the failure of microenterprises.


A lower per capita GDP is a measure of poverty levels in the country. In 2006, the GLSS
estimates poverty levels of 28.5%, whereas the World Bank report 2010 reveals that the current
poverty level of the country is about 31.2%. The degree of poverty in a country helps in
estimating the size and needs of the potential market for micro financial services and may also
help to clarify or establish an MFI’s objective. Less poverty levels implies less risky viable micro
finance services because business will need MFIs services and this will boost the MFIs sector.
The poverty reduction strategy of the government, if successful, may result in the lifting up of
the very poor from abject poverty to be able to participate in any economic activity especially
microfinance because such programmes that make poverty reduction an explicit goal and make it
a part of their organizational culture are far more effective at reaching poor households.


b. Interest Rates




Fig. 2: Year-to-Year Interest Rates




          Department of Agricultural Extension, University of Ghana-Legon (2010)             Page 29
Interest rates are referred to as cost of capital especially the lending rates. They affect the pricing
of products and services of Microfinance Institutions. Interest rates over the period of 2001 to
2009 have ranged from 19% to 26%. Interest rates in the country over the years have been
decreasing and almost stabilised though it has risen from 2007 to 2009. Low interest rates make
businesses less willing to make investments; however, they are likely to increase their client
population when this happens because the tendency is for the formal sector to take advantage of
such a position. MFI’s will often withdraw from the market, grow more slowly, become less
transparent about total loan costs, and/or reduce their work in rural and other costly markets.
Sekyi-Dawson (2002) noted that with the gradual decline in interest rates and probably a stability
is a positive development for microfinance. This is manifested in the design of financial
intermediation packages by some of the formal banks (ADB, Metropolitan and Allied Bank, SSB
and others) to the informal sectors of the economy.


c. Inflation
The measure of price increases within a set of goods and services over a period of time is known
as inflation. Sowa (1994) referred to inflation as an albatross for which no antidote has been
found. It is a cancer that we must fight. Inflation affects the designing and pricing of loans and
savings products. In almost two decades ago, Ghana has been battling with achieving a single
digit inflation. Low inflation rates as is currently the situation are highly beneficial to suppliers
and producers and act as an incentive to produce. It has the potential of driving interest rates
lower and is likely to bring more entrepreneurs into the business of microfinance. Default rates
are likely to decrease in this event of decreasing inflation rates and this will also help to improve
the sustainability of MFIs. Again, low inflation can result in MFI sustainability since more and
more people can borrow and repay loans from micro finance institutions.


d. Economic and Social Policy
Although many MFIs, especially the rural banks and Saving & Loan Companies (S&Ls), are
presently in need of mobilizing funds to grow and are attracted to the lower interest rates on
loans from the international market, they are reluctant to expose themselves to the currency risks.
The Cedi is also gradually becoming very stable. This decreases the currency risk for the
microfinance institutions if the transaction is to be conducted in hard currencies such as US


           Department of Agricultural Extension, University of Ghana-Legon (2010)            Page 30
dollar or Euro and alternatively for foreign investors if transaction is in Cedis. Generally
speaking, MFIs in Ghana have a limited reach, operate in a restricted geographical zone, are
financially weak and most are yet to attain operational sustainability, although several have the
potential to be self-sufficient. The attractive features of the Ghanaian microfinance sectors
include relative political stability, public security, presence of a cadre of educated professionals
and stable policy environment.


In April 2007, the Ghana Statistical Service published a book on the pattern and trends of
poverty in Ghana from 1991 – 2006, which utilized data from the fifth round of the Ghana
Living Standards Survey (GLSS 5). From the data provided, it is evident that poverty has
reduced significantly and Ghanaians are obviously better off today than they were seven years
ago. The indicators show a downward trend in poverty from 39.5 percent in 1998/1999 to 28.5
percent in 2005/2006. We have halved extreme poverty relative to the 1991/92 levels ahead of
the target date for the Poverty Goal under the MDGs. This achievement did not just happen; it
was made possible through the deliberate implementation of coherent and comprehensive
policies and reflects the effect of increased government expenditure on poverty-reduction
activities. Poverty-related expenditures increased from GH¢233.9 million in 2002 to GH¢1,237.4
million in 2006, representing 21.67 percent and 34.86 percent respectively of total government
expenditure.


e. Financial Sector Regulation and Supervision
Under the Banking Act, the BoG has overall regulatory and supervisory authority in all matters
related to banking institutions in Ghana. Rural and community banks are incorporated as limited
liability companies14 and licensed by the BoG within the framework of the Banking Act. The
BoG supervises rural banks through its Banking Supervision Department (BSD) (GoG, 2002).


Since there are a number of legal entities that are currently regulating and supervising MFIs in
Ghana, it makes them trustworthy avenues of where to invest money and furthermore, donors
prefer to allocate funds to the regulated and supervised institutions where at least fraud and
illegal use of money are prohibited and monitored. It also helps such that the security of the
people’s deposits and the soundness of the financial market are safeguarded.


          Department of Agricultural Extension, University of Ghana-Legon (2010)          Page 31
f. Credit to the Private Sector
Over the period (2001-2010), credit to the private sector has not been that consistent. In 2001,
credit to private sector increased to 33.2% from 16.2%. In 2005, an analysis on the stock of
credit revealed the private sector continues its dominance of access to credit of 81.9%. In 2006,
total outstanding credit to the private sector increased by 59.7% compared with 42.8% whiles the
distribution of the credit flow remained broad-based but skewed in favour of three main sectors
namely, Services (24.1%), Commerce & Finance (26.4%) and Manufacturing (12.0%). Credit to
the private sector has rather being on a high side since it is viewed as the engine of growth. The
implication for this is that governments borrowing from the banks increased, hence the private
sector is crowded out in terms of finance. Enough funds will be made available to MFI and their
needs will be met.


1.6 CONCLUSIONS AND RECOMMENDATIONS
It will be observed that macro-economic policies have been varied by government over the years
although they look similar. In 2003, monetary policy was tightened so as to slowdown the rate of
depreciation of the Cedi and make the economy more stable to boost productivity. With a more
stable economy, more MFIs are likely to spring up. In 2004, the objective was to promote and
encourage exports and an inward direct investment in the export sector. In 2008, monetary
policies were relaxed due to due to the election. Hence, inflation in the last quarter hovered
around 20%. This implies high cost of borrowing and hence less MFIs services. In 2009, the
monetary and fiscal policies were tightened (contracted). The prime rate was about 15%. The
implication is that the commercial banks have insufficient money to lend to other banks and their
customers. Government deficit financing were curtailed. In 2010, the government focussed on
macroeconomic stability and fiscal consolidation within the context of our medium-term plans
for accelerated and sustain growth. The prime rate reduced to 13.5%. The implication
commercial banks have relative high money to lend to MFIs and which in turn lend to its
customers.
It is recommended that MFIs should narrow the gap between nominal saving rate and nominal
lending rate to induce clients to save and invest. In fact, not only does it promote client
participation in the scheme, but help MFIs to expand their scale of operation. The BOG would
need to rebuild its credibility by openly focusing its policy on more than just hitting annual


          Department of Agricultural Extension, University of Ghana-Legon (2010)        Page 32
targets, recognizing that its actions could involve short-run trade-offs and being mindful of
undesired effects on output and employment. A sufficient track record of delivering on its targets
would be needed. To achieve this would almost certainly call for a more gradualist approach than
at present.




              Department of Agricultural Extension, University of Ghana-Legon (2010)    Page 33
1.7 REFERENCES
Al-Bagdadi, H. (2002). Micro Finance Associations: The Case of Ghana Micro Finance
       Institutions   Network   (GHAMFIN),      Deutsche    Gesellschaft   für     Technische
       Zusammenarbeit (GTZ) GmbH.
Barnes, C. & Keogh, E. (1999). An Assessment of the Impact of Zambuko’s Microenterprise
       Program in Zimbabwe: Baseline findings. Working Paper, Management Systems
       International (MSI), www.mip.org, retrieved on 12 October, 2010
BoG. (2001). “Bank of Ghana Annual Report 2002.” Information, Documentation and
       Publication Services (IDPS) Department, The Bank of Ghana
BoG. (2002). “Bank of Ghana Annual Report 2002.” Information, Documentation and
       Publication Services (IDPS) Department, Bank of Ghana
BoG. (2004). “Bank of Ghana Annual Report 2002.” Information, Documentation and
       Publication Services (IDPS) Department, Bank of Ghana
BoG. (2005). “Bank of Ghana Annual Report 2004.” Information, Documentation and
       Publication Services (IDPS) Department, Bank of Ghana
BoG. (2006). “Bank of Ghana Annual Report 2005.” Information, Documentation and
       Publication Services (IDPS) Department, Bank of Ghana
BoG. (2007). “Bank of Ghana Annual Report 2006.” Information, Documentation and
       Publication Services (IDPS) Department, Bank of Ghana
BoG. (2008). “Bank of Ghana Annual Report 2007.” Information, Documentation and
       Publication Services (IDPS) Department, Bank of Ghana
BoG. (2009). “Bank of Ghana Annual Report 2008.” Information, Documentation and
       Publication Services (IDPS) Department, Bank of Ghana
Barnes, C. (2001). Microfinance Programme Clients and Impact: An assessment of Zambuko
       Trust, Zimbabwe, Management Systems International
CEPA. (2010). The Current State Of The Macro Economy Of Ghana 2000-2009, Centre For
       Policy Analysis
CGAP. (2009). “CGAP Funder Survey 2009.” Washington, D.C.: CGAP.
       http://www.cgap.org/gm/document1.9.40544/Funder%20Surveys%20Snapshots%202009
       %20Global.pdf, retrieved on 12 October, 2010
GHAMFIN. (2007). Performance Monitoring and Benchmarking 2007, Ghana Microfinance


          Department of Agricultural Extension, University of Ghana-Legon (2010)     Page 34
       Institutions Network, Accra
GoG. (2002). Banking Act 2002, Government of Ghana, Accra.
ISSER. (2005). “State of Ghana’s Economy”. Institute of Statistical, Economic and Social
       Research, University of Ghana, Legon.
Jha, A., Negi, N., Warriar, R. (2006). Ghana: Microfinance Investment Environment Profile
Ledgerwood, J. (1998). Microfinance handbook, An Institutional and Financial Perspective, The
       World Bank, Washington D. C
MkNelly, B. & Dunford, C. (1998). Impact of Credit with Education on Mothers and Their
       Young Children’s Nutrition: Lower Pra Rural Bank Credit with Education Program in
       Ghana. Freedom from Hunger Research Paper No. 4, Freedom from Hunger, Davis, CA.
MIX. (2010). What is Microfinance? Microfinance Information Exchange, Inc.
MoFEP. (2007). Budget Statement and Economic Policy of the Government of Ghana for the
       2008 Fiscal Year, Minister of Finance and Economic Planning, Republic of Ghana
MoFEP. (2008). Budget Statement and Economic Policy of the Government of Ghana for the
       2009 Fiscal Year, Minister of Finance and Economic Planning, Republic of Ghana
MoFEP. (2009). Budget Statement and Economic Policy of the Government of Ghana for the
       2010 Fiscal Year, Minister of Finance and Economic Planning, Republic of Ghana
Opportunity International. (2010). What is Microfinance? Opportunity International
              Microfinance Conference
Otero, M., & Rhyne, E. (2001). The new world of microenterprise finance: building healthy
       financial institutions. West Hartford: Kumarian Press.
Pitt, M. M., Shahidur, R. Khandker, O. Haider C. & Millimet, D. (2003). Credit Programs for the
       Poor and the Health Status of Children in Rural Bangladesh, International Economic
       Review
Remenyi, J. & Quinones, B. (2000). Microfinance and Poverty Alleviation: Case studies from
       Asia and the Pacific. New York. 79. p. 131-134, 253-263.
Rhyne, E. (2002). The Experience of Microfinance Institutions with Regulation and Supervision,
       Action, 10 September 2002 (5th International Forum on Microenterprise, Inter-American
       Development Bank, Rio de Janeiro).
Sekyi-Dawson, O. (2002). Changes in Macroeconomic policies (1991-2001) and their




          Department of Agricultural Extension, University of Ghana-Legon (2010)      Page 35
       implications on micro-finance services delivery in Ghana, Department of Agricultural
       Extension, University of Ghana.
Steel, W. F., & Andah, D. O. (2003). Rural and Micro Finance Regulation in Ghana:
       Implications for Development and Performance of the Industry; Africa Region Working
       Paper Series No. 49; World Bank.
U.S. Department of State. (2002). 2001 Country Reports on Economic Policy and Trade
       Practices (Ghana), Bureau of Economic and Business Affairs
Zeller, M. & Meyer, R. (2002). Improving the performance of microfinance: financial
       sustainability, outreach and impact. In M. Zeller & R. Meyer (Eds.), The Triangle of
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Websites Used

www.pbs.org/wgbh/rxforsurvival/glossary.html.

www.en.wiktionary.org/wiki/microfinance

www.en.wikipedia.org/wiki/Microfinance.

www.gbophb.org/sri_funds/glossary.asp

www.routledge.com/textbooks/9780415485395/glossary.asp.




          Department of Agricultural Extension, University of Ghana-Legon (2010)      Page 36
1.8 APPENDIX

CEPA (Centre for Economic Policy Analysis) Estimates
                        2000 2001     2002    2003    2004   2005     2006   2007     2008
National Accounts and Prices
Real GDP Growth 3.7           4.2     4.5     5.2     5.6    5.9      6.4    6.3      6.5
(%)
Real GDP per capita 1.2       1.6     1.9     2.6     3.0    3.2      3.7    3.6      3.8
(annual % change)
GDP Deflator            27.2  34.6    22.8    28.6    14.4   15.0     12.8   14.4     16.2
Consumer          Price 25.2  32.9    14.8    26.7    12.6   15.1     10.2   10.7     16.5
Index         (annual
average)
Consumer          Price 40.5  21.3    15.2    23.6    11.8   14.8     10.9   12.8     18.0
Index             (end-
December)
Government Operations (% GDP)
Overall          Broad -9.7   -9.0    -6.8    -4.5    -3.6   -3.0     -7.8   -9.0     -13.0
Balance         (OBB)
modified
Domestic Financing 8.5        2.3     4.8     0.6     0.1    -1.7     4.9    4.8      6.0
(net)
Total Revenue and 19.8        25.0    21.1    25.5    30.1   29.1     27.4   28.6     30.4
Grants
Domestic Revenues 17.7        18.1    18.0    20.8    23.8   23.8     21.9   22.5     25.1
1/
Tax Revenue             16.3  17.2    17.5    20.2    21.7   20.6     19.9   22.3     24.5
Grants                  2.1   6.9     3.1     4.7     6.4    5.2      5.4    6.0      5.4
Total Expenditure       29.5  34.0    27.9    30.0    33.3   32.1     35.2   37.6     43.4
Domestic                22.6  24.7    24.5    25.6    27.7   26.0     30.1   30.7     37.9
Expenditure
(recurrent         plus
capital) 2/
Capital Expenditure     10.9  14.1    7.9     9.0     12.9   13.4     13.3   14.7     18.4
o/w Foreign Financed 6.9      9.3     3.4     4.4     6.0    6.1      5.1    6.9      5.5
Domestically            4.0   4.8     4.5     4.6     6.9    7.3      8.2    7.8      12.9
Financed
Public Sector Debt 193.8 158.3        138.5   118.8 93.4     77.1     41.9   49.8     51.4
(% of GDP)
Domestic Debt           24.1  26.8    26.2    19.8    20.7   17.9     24.8   26.1     27.6
External Debt           169.7 131.5   112.3   99.0    72.7   59.2     17.1   23.7     24.8
Money and Credit (annual % change)
Net Domestic Credit 50.8      11.9    27.1    12.7    43.6   22.0     28.7   32.5     47.0
Net      Claims      on 49.6  0.0     42.8    -11.5   66.8   7.0      12.2   -21.8    -8.2
Government


         Department of Agricultural Extension, University of Ghana-Legon (2010)     Page 37
Credit to rest of the 51.6   25.9    17.1     40.4    26.9    50.6    42.7    60.0     55.4
economy
Credit from DMBs to 20.6     19.9    31.5     34.7    21.4    47.8    42.8    59.7     57.6
Private Sector
Broad Money (M2 +) 46.5      41.2    50.5     38.1    26.0    14.3    38.8    36.3     40.7
Broad Money (M2)       33.7  47.9    50.7     40.9    26.6    13.7    39.4    43.5     34.5
Reserve Money          52.6  31.3    42.6     33.4    18.8    11.2    32.3    30.6     20.7
Velocity (ratio of 4.6       4.6     4.1      4.0     3.5     3.6     3.3     3.0      2.3
GDP/annual average
M2+)
Velocity (ratio of 6.2       6.2     5.5      5.2     4.5     4.6     4.3     3.8      2.8
GDP/annual average
M2)
Reserve        Money 2.3     2.5     2.7      2.8     2.9     3.0     3.2     3.3      4.0
Multiplier (M2+/RM)
serve          Money 1.7     1.9     2.0      2.2     2.3     2.4     2.5     2.7      3.0
Multiplier (M2/RM)
Currency/M2+ Ratio 0.4       0.3     0.3      0.3     0.3     0.3     0.2     0.2      0.2
Currency/M2 Ratio      0.5   0.4     0.4      0.4     0.3     0.3     0.3     0.3      0.3
Currency/Deposit       0.6   0.4     0.4      0.4     0.4     0.4     0.3     0.3      0.2
Ratio       (including
FCD)
Currency/Deposit       1.0   0.7     0.7      0.6     0.5     0.5     0.4     0.4      0.4
Ratio       (excluding
FCD)
External Sector (% GDP; unless otherwise stat
Gross International 264      340     632      1,427   1,732 1,895     2,325 2,738 1,900
Reserves         (US$
million)
(months of imports of 0.9    1.2     1.9      3.2     3.6     3.7     2.8     2.6      1.9
goods & services)
Exports f.o.b. (% of 37.9    34.8    32.5     32.7    30.9    26.2    29.8    28.1     35.0
GDP)
Imports f.o.b. (% of 54.2    55.4    43.6     43.0    48.5    50.0    53.9    54.0     60.8
GDP)
Trade Balance (% of -16.3 -20.6 -11.1 -10.3           -17.6   -23.8   -24.2   -26.0    -25.8
GDP)
Current       Account -8.4   -5.3    0.5      1.7     -0.9    -7      -9      -10.9    -13.2
Balance (incl. off.
transfers)
Terms      of    Trade -16.6 4.8     9.4      14.8    -15.1   -6.9    4.8     11.1     5.6
(annual % change)
Foreign Exchange Market
Ghana cedi per US 0.689 0.726 0.835 0.885             0.905 0.913     0.924 0.971 1.204
dollar (end-period)
Nominal depreciation 96.8% 5.3% 15.1% 6.0%            2.2%    0.9%    1.1%    5.1%     24.1%

         Department of Agricultural Extension, University of Ghana-Legon (2010)      Page 38
(-=appreciation)
Real Depreciation (- 35.5% -              -         0.5% 0.4% -       -      2.9% 10.9%
=appreciation)                   12.8% 14.0%                    18.6% 1.2%
Sources: IMF County Report No. 04/209, July 2004 for 2000-2003 data
IMF County Report No. 05/286, August 2005 (Ghana Statistical Appendix)
IMF Country Report No. 08/344 October 2008, pp.19-24 for 2004-2007 data
Notes: 2008 data are CEPA Staff estimates; Nominal depreciation of 24% based on December
2008 data from BOG website
1/ Domestic Revenue is simply Total Revenue and Grants less Grants 2/ Domestic Expenditure
is Total Expenditure less foreign-financed capital expenditures




         Department of Agricultural Extension, University of Ghana-Legon (2010)   Page 39

				
DOCUMENT INFO
Description: Microfinance has been found to be the most appropriate way to provide financial services to a majority of Ghanaians. The study purposed to find out how the macroeconomic policies of the country can impact on microfinance service delivery in the country.