Mr. Chairman, distinguished ladies and gentlemen, I deem it a great honour to be called upon to deliver a speech on this important occasion in the life of Unicredit, a young Savings & Loans Company which is a member of Ghana Savings and Loans Association (GHASALC). I bring you warm greetings from the fraternity of savings and loans companies at this moment when you are launching this institution.
The topic I have been asked to speak on is ‘The Role of Savings and Loans Companies in Ghana’ and I seek to consider this topic by first looking at the national economy, the financial system, savings and loans companies and Ghana Savings and Loans Association, and Unicredit as an institution.
THE NATIONAL ECONOMY
Mr. Chairman, we are all aware of the great challenges facing virtually all economies in the world, that of Ghana not exempt. The economic crisis, originating from food and fuel price shocks in 2007/2008 and the global recession heightened by the badly-bruised financial industry of the United States, which spilled over to other strong economies, has had a damaging effect on developing countries including Ghana. “With economic activity retreating everywhere, the demand for exports from developing countries has dropped rapidly, commodity prices fell sharply, and foreign direct investments and remittances flows declined” (IMF –Daily Graphic of 17-10-09). However, according to Dr. Paul Acquah, “Initial signs on the global front point to recovery, particularly in the US, Europe and the leading emerging market economies.” He continues, “On the domestic front we have begun to see some signs of stabilization in the third quarter of the year, an indication that the effects of both monetary and fiscal policies are beginning to take hold. The latest surveys show a more positive assessment of the general macro-economic outlook; and a rebound in both business and consumer confidence, with some downward revision of inflation expectations” (BFT -29-09-2009).
If this positive trend continues then economic activity shall be buoyed up and deposits mobilization and lending shall increase. The main threat to this development is the volatile crude oil prices, which could easily torpedo any gains made so far.
THE FINANCIAL SYSTEM
The advent of money as a medium of exchange to replace the clumsy barter system resulted in the need for a financial system which would link surplus units with deficit units. According to Nana Otuo Acheampong, “The Financial System consists of three primary groups: the savers (the surplus units), borrowers (the deficit units), and the brokers (financial intermediaries)” (Ghana Review International, 2005). The brokers, financial institutions, intermediate between savers and borrowers by collecting cash deposits from the former and lending them out to the latter.
Financial institutions are key players in the financial system and play a pivotal role in the management of any economy. According to Saunders, they “provide the positive function of bearing and managing risk on behalf of their customers through the pooling of risks and the sale of their services as risk specialists” (Financial Institutions Management). The major financial institutions are banks, insurance companies, discount houses, the Stock Exchange, and the minor ones are microfinance institutions like: savings and loans companies, credit unions, financial NGOs and Susu groups. Commercial Banks are the key drivers of the growth of any economy as they provide needed funds for industry and commerce. However, until recent times, commercial bank operations had been friendly mainly to enterprises in the formal sector, and even now their dealings with the informal sector are way below the huge volume of business generated by that sector.
SAVINGS AND LOANS COMPANIES
Savings and loans companies are incorporated under the Financial Institutions (Non-Banking Law), PNDC L 328, 1993. They are limited liability companies licensed and regulated by Bank of Ghana and mandated to mobilize deposits and give loans to micro and small enterprises. They are non-banking financial institutions and part of the microfinance institutions in the country. The number of savings and loans companies licensed to do business by Bank of Ghana is about 16 now. The key differences between savings and loans companies and banks are that savings and loans companies have a smaller minimum paid-up capital; they are precluded from foreign exchange transactions and direct clearing of cheques. As part of the microfinance institutions, which are recognized world-wide as one of the effective tools by which poverty can be reduced; savings and loans companies play an important role in poverty reduction in Ghana. Okoampah-Ayeh defines microfinance as “the term used for describing financial services and products targeted to the unbanked, the poor as well as to the micro enterprises” (BFT of 2-7-08). Johnson and Rogaly write that microfinance seeks to provide financial services dealing with small deposits and loans (Oxfam and ACTIONAID 1997).
Micro and small enterprises have often had difficulty in accessing credit from the commercial banks to finance their businesses. Makonen Getu writes, “Because formal banking and other fi nancial institutions are structured to serve small and large businesses in the formal sector, those who operate in the informal sector are excluded and marginalized” (Faith in Development). Informal sector operators have often depended on funds from non-bank sources. The sizes of such funds have mainly been small so enterprises hardly ever migrated from micro to small. Therefore the coming on board of microfinance institutions, like savings and loans companies, has quickened the growth of most of these enterprises that deal with them as they progressively increase credit to performing borrowers to expand their businesses.
Microfinance institutions have created innovative ways of doing business with clients, which are friendly to the informal sector, where most of these clients belong. Customer-friendly products like Susu deposits and loans, credit against savings account, door-to-door banking, collateral-free lending, daily or weekly collection of loan repayment installments, etc., have been made popular by savings and loans companies and other microfinance institutions. Dalley-Harris captures this situation thus,
When banks lent to the rich, these microbanking pioneers lent to the poor. When banks lent to men, they lent to women. When banks made large loans, they made small ones. When banks required collateral, their loans were collateral free. When banks required endless paperwork, their loans were illiterate-friendly. When clients had to come to the bank, the microlenders went to the clients (Daily Graphic 10-12-04).
Indeed, the successes chalked by microfinance institutions in demonstrating that the poor, small-scale enterprise can prudently apply credit to their business and be faithful in repayment, have challenged commercial banks to begin taking the informal sector seriously. A number of commercial banks have therefore begun to create microfinance departments to facilitate business with the informal sector.
The upsurge in microfinance practice has led to the availability of credit, enhancement of the culture of savings and the improvement in management practices through business advisory services of a number of micro and small enterprises. How I wish government would actively mobilize, encourage and support microfinance institutions and join hands with them to prosecute the agenda of poverty reduction in the country.
Constraints and Challenges
S &Ls have challenges that must be properly addressed such as:
• Keeping of customers that seem to outgrow the credit ceiling set • Keeping good customers away from banks, especially those that clear their cheques • Increasing minimum capital requirements • Offering appropriate, adaptive and responsive products to clients • Institutional and staff development • Regulation under Banking Act • Loss of experienced staff to banks in particular • High credit risk exposure leading to a substantial level of impaired loans • Appropriate ICT • Access to funding
UNICREDIT
This institution, as currently owned and known, is only about 2 years old but had been operational under another name for 2 years earlier. With the objective of providing attractive financial services to micro, small and medium enterprises, she has worked very hard to achieve results that are commendable. With an increase in total assets of 2,525% and client outreach of 958% between 2005 and September 2009, there is every indication that this institution is going to go places.
My advice is for you to be incarnational in your approach to work by getting close to customers and establishing loving and respectful relationships with them. Again, I recommend to you what I once read from one edition of the Harvard Business Review about Toyota Motor Company’s time-tested philosophy for success, which is: Continued quality improvement and respect for people (internal and external customers). Another jewel company has these as their philosophy: continued quality improvement, innovation, customer collaboration, empowering employees, avoiding complacency, craftsmanship and re-investing in the company.
GHANA ASSOCIATION OF SAVINGS AND LOANS COMPANIES
After several abortive attempts of some savings and loans companies to form an association, starting from 2004, the Ghana Association of Savings and Loans Companies ultimately came into existence in 2008. Currently, its membership is 16, of which Unicredit is one.
The objectives of this Association are:
• To become the mouthpiece of savings and loans companies • To improve the visibility of S&Ls on the financial sector stage • To sensitize the general public about the specifications of S&Ls and promote a better knowledge of microfinance • To gain influence and authority on issues that can affect the operations of S&Ls in Ghana • To serve as a recognized consultation body for BoG and the authorities in general on issues affecting the financial market • To enhance best practices It is the wish of the Association that Unicredit, together with all other S & Ls, work hard to get the Association firmly grounded and well respected in financial circles.
CONCLUSION
Mr. Chairman, I wish to conclude this speech by commending Unicredit for keeping their head above water for these past few but challenging years of existence. They should be reminded that they are engaged in a mission to help reduce the scourge of poverty on several people in the motherland. I also wish to appeal to the government that as it seeks to reduce poverty, it should engage frontline institutions in this mission in fruitful and collaborative efforts to make the desired impact in this challenging task. My prayer for the institution is that they know that any effort to give an opportunity to the poor to grow is something dear to the heart of God, for the Bible records that anyone who lends to the poor lends to God and shall receive a reward from him (Pro 19: 17). You are therefore in partnership with God in the business of poverty reduction so his grace and favour shall keep you growing from strength to strength.
On behalf of GHASALC and on my own behalf, I once again say CONGRATULATIONS!
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2009-10-29 15:15:29
SPEECH AT THE LAUNCH OF UNICREDIT AT ALISA HOTEL ON 22nd OCTOBER, 2009
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