TAILIEUCHUNG - Rural and Micro Finance Regulation in Ghana: Implications for Development and Performance of the Industry

The resulting view, that financial markets can be subject to inherent instability, induces governments to intervene to provide depositor protection in some form or other. Explicit deposit insurance is one approach, while an explicit or implicit deposit guarantee is another. In either case, general prudential supervision also occurs to limit the risk incurred by insurers or guarantors. To control the incentives of bank owners who rely too heavily on government funded deposit insurance, governments typically enforce some control over bank owners. These can involve limits on the range of activities; linking deposit insurance premiums to risk; and aligning capital adequacy. | Rural and Micro Finance Regulation in Ghana Implications for Development and Performance of the Industry Africa Region Working Paper Series No. 49 June 2003 Abstract Legislation and regulations governing rural and micro finance institutions RMFIs in Ghana have evolved with the market both opening up possibilities for new types of institutions and tightening up to restrain excessive entry and weak performance in the face of inadequate supervision capacity. The result - though not entirely by conscious design - is several tiers of different types of RMFIs with a strong savings orientation and a much greater role of licensed institutions relative to NGOs than is found in many countries. Small unit Rural and Community Banks RCBs are accommodated in the Banking Act savings and loan companies in the Non-Bank Financial Institutions NBFIs Law and credit unions under a new law being prepared to recognize their dual nature as cooperatives and financial institutions. The informal sector is dominated by a variety of savings-based methodologies both individual and group. Supervision of a large number of RMFIs is costly relative to their potential impact on the financial system about 7 of assets and the Bank of Ghana has adopted a number of strategies to cope with its limited supervision capacity raising reserve requirement for RCBs to as high as 62 drastically raising the minimum capital requirement for NBFIs and permitting self-regulation of credit unions by their apex body. It is currently establishing an Apex Bank to serve the RCBs link them more effectively to the commercial banking system and take the lead in building their capacity and eventually in undertaking front-line supervision. Although the US 2 million minimum capital requirement makes the S Ls less accessible for NGO transformation it has led to introduction of foreign capital. While the RCBs have had limited outreach some have effectively partnered with NGOs to introduce microfinance methodologies such as .

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