Rural banks deserve support from all stakeholders

On the front page of the immediate past edition of the Goldstreet Business newspaper we published a story summarizing the state of financial health of the various rural and community banks in Ghana as categorized by its supervisory institution, the RCB Apex Bank. Unfortunately, some observers have misinterpreted our analysis, taking it to mean that only a few rural banks are safe havens for deposits.

We consequently wish to emphasis that our analysis said nothing of the sort. Rather it stated that 21 RCBs were completely safe in that they required no regulatory intervention of any sort; and that the bulk of the others – 95 out of 143 RCBs in all – were healthy enough to require only minimal regulatory intervention to address correctible issues.

Anyone familiar with the financial intermediation industry would be aware that such regulatory intervention to correct identified issues is a regular, ongoing process which every responsible regulatory institution every where in the world engages in continuously with regards to every genre of financial intermediary, from universal bank to micro-finance institution. Indeed that is why they have financial services supervision departments in the first place. That our report stated that 21 RCBs do not even require that, implies that those institutions are in excellent position, but not that any of their counterparts that falls short of excellent is therefore unsafe. It is instructive that our report actually identified the four that are experiencing outright distress.

To be sure RCBs have been actually essential to the Ghanaian economy since the genre was introduced some three decades ago. They operate where few, if any at all, universal banks establish branches and so in many parts of rural Ghana are the only places where formal financial intermediation takes place. In recent years, the advent of the micro-finance industry has created an option but it is instructive that about half of the registered MFIs are in the Greater Accra Region and more than two thirds are spread between Greater Accra, Ashanti Western Regions.  Indeed, RCBs have by far the widest geographical spread around Ghana among all the various genres of financial intermediary.

Importantly, even where universal banks operate in the rural hinterlands, they lack the deep knowledge of the local economy needed to take full advantage of business opportunities and avoid the inevitable pitfalls standing in the way. Even where local branch staff have such knowledge they lack the authority to put it to use due to lending limits imposed on branches by the head office, whereas the RCBs, with head offices and top management executives much closer to the action, can take decisions that do not have to pass through layers of bureaucratic due diligence.

The ongoing roll-out of the one district one factory initiative, and similar, albeit smaller programmes such as one community one dam, and one warehouse make RCBs even more important than ever.

All these make RCBs deserving of the full support of all stakeholders in the development and growth of the rural economy, inclusive of the banks themselves, local business enterprises, local host communities, the Bank of Ghana, the ARB Apex Bank and both the central and local governments.

We therefore call on the BoG to expedite the requisite regulatory interventions it has promised to introduce and enforce from the second quarter of this year, to improve the financial solidity and corporate governance quality of the RCBs. The central bank, despite the accompanying controversies, has done this successfully with the universal banks and is now needed to replicate this with the RCBs.

We look forward to their being even more pivotal in boosting rural enterprise than they have been in the past.