Time to focus on the crux of the informal economy
Savings groups, otherwise known as Village Savings and Loans Associations (VSLAs) are gradually gaining grounds within the informal financial economy.
Such groups are usually a group of 10-25 people who save together and the group members are able to take small loans from those savings in a cyclical manner.
For persons who live in the remotest parts of the country, where is no form of traditional banking, this is the only way they secure their lives and that of their dependents.
In Ghana, there are a total of 487,002 members from 18,591 different groups with an annualised savings of up to US$35,654,585; an outstanding loans value worth US$8,591,658 with a 16.21 percent returns on savings.
According to the Chief Executive Officer of the microfinance consultancy firm, Ishmael Kwesi Otchere, it is about time the central bank recognised the relevance of such micro actors in the non-bank financial services sector.
“In various countries across the world, these savings groups are not given the needed recognition but these are groups that are mobilise their own savings and lend to its members; this is an aspect of microfinance that is catching up all over the world particularly the developing countries,” he emphasised.
According to him, the mode of operation of savings groups is an aspect of microfinance that is catching up all over the world, especially in the developing countries.
The B&FT throws its weight behind this noble call which we envisage to better the lots of the several thousands of people who patronise such groups.
Of course what will all the hue and cry about financial inclusion lead to if the very persons whose lives depend on the system are sidelined.
We share in the suggestion that the central bank recognises the existence of savings group who are at the base of the non-bank financial services sector and include such category of informal financial actors into their formal financial systems.
Microfinance is basically about extending access to financial services to persons who are not directly covered by the formal banking system and for that reason it is only prudent that savings groups that are meeting the financial needs of the crux of the informal economy are given the needed push and help.
Insurance industry consolidation good call
The proposal by the National Insurance Commission (NIC), the insurance industry regulator, to increase the minimum capital requirement of insurance companies operating in the country ought to be supported by stakeholders, though modalities for implementation need to be discussed thoroughly.
The current minimum requirement for the about 50 insurance companies serving a population of 27 million is GH¢15million.
The total capitalization of the entire industry is not up to the capital base of one multinational insurance company in Europe. This shows the weakness inherit in the country’s insurance industry that ought to be addressed.
Justice Yaw Ofori, Commissioner of Insurance, recently noted that: “I think even if we [increase] by a hundred percent it will be good because the more capital you have the stronger you are, and that means international companies will be ready to do business with you. That is how it should be. You can’t be a very effective international insurance company when you are small,”
He added: “When you go abroad, one insurance company is worth more than the whole insurance industry in Ghana, so in as much as it is a problem for players to recapitalize, we have to encourage them.”
With a growing economy, the insurance industry must also position itself to play its role in the scheme of things.
While insurance, banking, and securities markets are closely related, insurance fulfills somewhat different economic functions than other financial services. This, indeed, requires particular conditions to flourish and to make a full economic contribution.
According to the literature available, insurance serves a number of valuable economic functions that are largely distinct from other types of financial intermediaries. In order to highlight specifically the unique attributes of insurance, it is worth focusing on those services that are not provided by other financial services providers, excluding for instance the contractual savings features of whole or universal life products.
The indemnification and risk pooling properties of insurance facilitate commercial transactions and the provision of credit by mitigating losses as well as the measurement and management of non- diversifiable risk more generally.
Typically insurance contracts involve small periodic payments in return for protection against uncertain, but potentially severe losses.
Among other things, this income smoothing effect helps to avoid excessive and costly bankruptcies and facilitates lending to businesses. Most fundamentally, the availability of insurance enables risk averse individuals and entrepreneurs to undertake higher risk, higher return activities than they would do in the absence of insurance, promoting higher productivity and growth.
Given the important role the industry is to the growth of the Ghanaian economy, this paper calls on all stakeholders to meet and agree on a percentage increment in the current minimum capital and timelines for implementing same.