A PAPER PRESENTED BY MR. ERIC OSEI – BONSU MANAGING DIRECTOR OF THE ARB APEX BANK ON THE OCCASION OF THE WEST AFRICA ENGLISH SPEAKING SUB – REGIONAL WORKSHOP HELD IN ACCRA FROM 18TH – 20TH AUGUST 2010 AT ALISA HOTEL, ACCRA. Mr. Chairman, Distinguished guests, Members of the Press, Distinguished guests, Ladies and Gentlemen. I am indeed gratified by the opportunity given me to present a paper on “Bridging Financial gaps for rural SMEs through the rural and community banks in Ghana”. This topic fits very well into the general theme of the workshop “Rural Finance intermediation for growth and wealth creation in Africa” as it seeks to identify the various roles and institutions that could be used and are being used to address growth and wealth creation within Africa. I wish, on behalf of the ARB Apex Bank and the entire rural banking system of Ghana to welcome you all to Accra, and for that matter lead you into the discussion which will provide you with solutions for your consideration and possible adoption to advance the twin issues of growth and wealth creation forward. Let me excite you by saying that the rural banking system is just like the Black Stars of Ghana which recently won the hearts of many people all over the world! The rural banking system is the answer or panacea for growth and wealth creation as you will soon realize the huge void that it has come to fill in the financial sector of this country especially with the establishment of the ARB Apex Bank as the mini – central bank of the rural banks. Let me indicate to you before I delve into the topic that because of the exceptional benefits that we have derived since rural banks were commissioned in 1976, we intend to visit you all and discuss and share in the joy of establishing rural banks along the same lines that we have in Ghana. For the purposes of this presentation, we shall look at 1) How and when rural banking started in Ghana. 2) The challenges and gaps which existed before the establishment of the ARB Apex Bank. 3) The current functions of the ARB Apex Bank. 4) How the Apex Bank is funding SMEs through the RCBs. i. Through its own resources. ii. In collaboration with government and donors. iii. The Way forward – how Apex will fill other gaps. iv. Conclusion. HOW AND WHEN RURAL BANKING STARTED IN GHANA Rural banking started in Ghana in 1976 when the first one was established at Nyakrom in the Central region of Ghana. Since then, several rural banks have sprung up in response to the felt needs of the people in several rural communities throughout the country. The rapid growth and establishment of rural banks brought certain operational, manpower and management and financial problems in its wake. Among these problems were losses from operations, deteriorating capital bases, tight cash flows and low rates of loan recovery among many others. The Association of Rural Banks (A. R. B.) which was established in 1981 to protect and defend the interests of rural banks, together with Bank of Ghana embarked on training programmes to correct some of these problems. THE CHALLENGES AND GAPS WHICH EXISTED BEFORE THE Rural Finance Project. (RFP) The Rural Finance Project (RFP) introduced in 1991 contained measures aimed at enabling rural banks overcome these problems by conducting restructuring audits and designing and implementing training programmes targeted at the felt needs of the rural banks. However in 1994, after the RFP had ended, the Bank of Ghana decided that it would no longer paternalize the rural banks and therefore withdrew the technical banking services that it provided. Thus cheque clearing, specie or cash supply and treasury management services which it was then providing for the rural banks were withdrawn. In conjunction with the Bank of Ghana and the World Bank, the Association of Rural Banks (ARB) commissioned Messrs, Sycip, Gorres, Velayo and co. (SGV & Co) in 1996 to study the situation of the rural banks and recommend solutions drawing on the experiences of the rural banking system of the Netherlands and the Philippines. The SGV & Co’s completion report on the Apex study recommended that an Apex Bank be set up for the rural banks to provide technical, managerial and financial support for the rural banks. To consolidate and improve upon the recommendations in the SGV & CO report and present it in a form that could be implemented, the ARB, in conjunction with Bank of Ghana and the Government of Ghana, commissioned Messrs J. S. Addo consultants Ltd. in April 1998 to prepare a feasibility report and business plan for the rural banks in Ghana. The J. S. Addo consultants report was accepted by the Transition Apex Steering Committee which was established purposely to take the necessary action steps towards the establishment of the ARB Apex Bank Ltd WHAT THE ARB APEX HAS BEEN ABLE TO DO FOR THE RURAL BANKS AND WHAT IT IS STILL DOING In keeping with its role and functions the ARB Apex Bank, has since inception in July 2002, performed the following functions for the rural banks. •Cheque clearing. •Specie Supply and Management. •Treasury Management. •Support for Deficient rural banks. •Training •Research and Product Development. •Computerization of Rural Banks. As a result of the establishment of the ARB Apex Bank, rural banks are now represented at the National Bankers’ Clearing House and their cheques are no longer delayed and are cleared the same number of days that it takes for any commercial bank to clear its cheques. Cash or specie supply is handled in a way that enables rural banks to access cash without difficulties whilst directors, Managers, Project offices, Accountants, Clerks and Cashiers are trained on regular basis to strengthen and enhance performance, knowledge, skills and competencies of these personnel. The inspection function has helped to identify lapses and served as an early warning system, drawing on the reports of the Efficiency Monitoring Unit, the unit which performs off – site and on – site monitoring of the rural banks whose reports are produced quarterly to inform rural banks about their performance. As a result of the establishment of the ARB Apex Bank, rural banks funds can be placed in investment on – the – spur of the moment through calls to the Banking Operations Department. This is made much easier as each bank has an account with the Apex Bank and accessing it for placements in treasury bills and other investment papers is done effortlessly. The establishment of the ARB Apex Bank has helped in no small measure in enhancing the image of the rural banks as public confidence in these unit banks have soared greatly. With regards to the computerization of rural banks, efforts have been made to provide the banks with local Area Network (LAN) and Wide Area Network (WAN) linking the Apex Bank to their various banks and agencies and making communication easy and feasible. In terms of product development, the star product has been the “Apex link” which has come to fill a void in the national payment system by providing the field for funds to be transferred to every nook and crevice in the country. In summary, the various facilities available to the rural banks for bridging financial gaps for rural small and medium scale enterprises can be classified as follows: A) VARIOUS ACCOUNTS - Clearing Accounts - Loan Accounts -Overdraft Accounts (Credit Lines) B) PRODUCTS i. Domestic Remittance Products - Apex link Domestic Funds Transfer -Home Cash “Efie Ne Fie.” ii. FOREIGN REMITTANCES -Western Union. -Vigo. -Money gram. C) OTHER ACTIVITIES -Computerization of operations of RCBs -On – site monitoring/inspection, off –site monitoring and rating of Rural Banks. - Training, both local and foreign for ARB Apex Bank staff and the Rural Banks. - Operational support manifested in several areas like interviews and recruitments, attendance to AGMs, specie supply, courier services conferences and meetings . HOW THE APEX BANK FUNDS SMEs THROUGH THE RURAL BANKS The ARB Apex Bank, through the rural banks fund a number of SMEs within the catchment area of the rural banks. It does so through a number of ways. 1. LOANS FOR ON – LENDING TO SMEs AND MICROFINANCE CLIENTS FROM OWN FUNDS This type of facility is given by the Apex Bank to support rural banks’ clients engaged in SMEs and microfinance and covers up to 36 months. Interest Rate is based on the Annual Percentage Rate (APR). The computation of the APR depends on the duration of the loan and the number of months of moratorium on principal amount. Generally, the longer the repayment period, the lower the APR. 2. APEX BANK SUPPPORT IN COLLABORATION WITH GOVERNMENT AND DONORS Various sources of funding for SMEs through the Apex Bank are indicated below. NO. PROJECT SOURCE OF FUNDS 1 MOWAC JAPANESE JAPANESE GOVT 2 FABS 3 C.I.F 4 S.I.F 5 MASLOC-PSI 6 MASLOC-PWD 7 MASLOC-STEP CIDA/GOG WORLB BANK/GOG GOV.OF GHANA GOV. OF GHANA GOV.OF GHANA GOV.OF GHANA AMT. RC'D. AMT. DISB'SD. PURPOSE (GH¢) GH¢) 989,300.00 567,525.00 TO SUPPORT WOMEN 4,288,435.55 4,170,570.54 POST HARVEST AGRIC 2,251,678.00 2,149,350.00 989,125.00 1,696,550.00 1,045,000.00 647,896.34 HIGH FOREST INCOME GENERATING ACTIVITIES OIL PALM AND CASSAVA PRODUCTION 100,000.00 92,510.00 ECONOMIC ACTIVITIES 200,000.00 115,980.00 YOUTH EMPLOYMENT 8 9 MASLOCMOWAC CROP PROD. MASLOC-SP. FARM. - SNR. MIN. GOV. OF GHANA 2,145,300.00 569,600.00 WOMEN IN AGRIC GOV. OF GHANA 1,512,800.00 1,512,800.00 AGRIC 1,509,200.00 1,509,200.00 TRADING 1,245,600.00 1,245,600.00 FISHING 1,132,200.00 863,800.00 FISHING 11 GOV.OF MASLOC-SFTA GHANA MASLOC-SP FISH/TRDGOV. OF MOWAC GHANA 12 MASLOCFISHERIES GOV. OF GHANA 13 MASLOC-MIN. OF LOCAL GOVT. GOV. OF GHANA 10 340,000.00 320,000.00 GINGER PRODUCTION 14 SOLAR (GEDAP) WORLD BANK 15 COMMUNITY BASE RURAL DEVELOPMENT PROJECT (CBRDP) 16 RTIMP WORLD BANK IFAD PROVISION OF SOLAR PVC SYSTEMS 2,100,000.00 - 11,060,000.00 2,660,000.00 4,397,604.59 SUPPORT RURAL ENTP. 72,000.00 GRANT FOR ROOTS AND TUBER CROPS THE WAY FORWARD – HOW OTHER GAPS WILL BE FILLED The way forward for the ARB Apex Bank is to carry out various lines of services and commercial business to fill important gaps in the funding of SMEs. These include 1. TRADE FINANCE Most agricultural products which are exported are grown in the rural communities which is the domain of the rural banks. But sadly enough, it is only the big commercial banks which are approached for the finance of export business especially with the establishment of letters of credit. This is one area or gap that the Apex Bank intends to fill to address the huge void in the funding of SMEs, especially those in agricultural exports. 2. WEATHER/CROP INSURANCE The Bank is working towards the introduction of crop insurance for agricultural based enterprises in order to protect them from losses arising out of weather related concerns. 3. VALUE CHAIN FINANCING The bank has started a collaboration with ACDI/VOCA an American NGO towards the promotion of funding for the value chains in the agricultural sector. 4. COMPUTERIZATION OF OPERATIONS The ARB Apex Bank and the entire rural banking system are undergoing massive transformation by the introduction of the state – of – the art facilities riding on the wheels of ICT to modernize the operations of the unit banks and enhance service delivery and to facilitate the benefits which would accrue to their entire clientele. 5. PARTICIPATION IN THE TRANSFORMATION OF THE NATIONAL PAYMENTS SYSTEM The Rural Banking Network is also participating in the total transformation of the National Payments systems through the Apex Bank ensuring that all that is required to enable them be part of the Cheque Codeline Clearing and the Automated Clearing House is done. To this effect, the Millennium Challenge Account, through its office in Ghana, is supporting not only the computerization effort but assisting with the implementation of the new system. This would, when completed, enable rural bank clients get better and faster services and quickly meet the demands of SMEs in providing not just access to credit but ensuring that all related gaps are filled. CONCLUSION: The Rural Banking System has come a long way since the first one was established in 1976. The pace of transformation has been facilitated by the eminent role the ARB Apex Bank has played in the very short period of its existence. Not only has it been able to achieve the objectives for which it was set – up, it has been able to gradually but steadily contribute to the development of the rural communities by ensuring that very important gaps, especially those related to finance, are filled by the rural banks. It is imperative therefore, to pay more attention to the development and growth of the rural banking sector by ensuring that its festal wheel, the ARB Apex Bank is provided with the cannons to achieve the desired impact of filling crucial financing required by the Small and Medium Enterprises in our rural communities. Thank you for your attention and may the good Lord bless us all.