…. The Amenfiman and Nyakrom Rural Bank perspective
By Joseph AKOSSEY & Seth KRAMPAH
Banks and Specialized Deposit Taking Institutions (SDIs) primarily provide financial intermediation, which involves deposit mobilization and credit extension. In other words, they take deposit from surplus fund holders and give it back to deficit fund holders of the economy to ensure equilibrium.
When banks undertake financial intermediation through lending to the real sectors of the economy, it stimulates economic growth and that ultimately results in job creation among others.
Critical analysis of 2023 published financial statements of both universal banks and rural banks indicated impressive growth in deposit mobilization.
The universal banks recorded a total deposit of GH₵ 214.5 billion in 2023 representing annual growth of 34.6%.
Similarly, the rural banking industry deposit surged by 31.1% from GH₵ 7.4 billion in December 2022 to GH₵ 9.7 billion as of December 2023. Data indicates that banks are experiencing tremendous growth in their deposit flow in 2024.
For example, as of June 2024, deposit holding of the universal banks amounted to GH₵ 245 billion.
The RCB sector also recorded GH₵10.5 billion deposit as of March 2024.
Notwithstanding remarkable deposit growth, banks are not extending much loans especially to businesses to give them the needed financial oxygen to grow and thrive.
For example, the loan to deposit ratio of the universal banks was 35.9% and 34.2% in December 2023 and June 2024 respectively while the RCBs sector recorded LDR of 34% and 33.3% in December 2023 and March 2023 respectively.
However, there are some banks with LDR far below the industry average.
It has been noted that most banks have strong appetite for investment in government instruments than extending loans and advances. This could be attributed to the perception that such investment is less risky and has relatively higher rate of returns in recent times.
Furthermore, some banks argued that the current macroeconomic environment is not conducive for lending
Evidently, most banks are not promoting financial cycle.
This article will consider how Amenfiman and Nyakrom Rural Bank are leveraging their deposit growth to extend credit to the real sectors of the economy.
Amenfiman Rural Bank PLC which is currently the largest and leading rural bank in Ghana is providing cutting edge financial intermediation through provision of credit support to empower micro, small, medium size businesses (MSMEs).
We must emphasize that prioritizing targeted financial solutions to support MSMEs is highly commendable initiative because the sector is the backbone of Ghana’s economy accounting for 92% of existing businesses, 85% of manufacturing jobs and contributing about 70% of the country’s GDP.
Amenfiman Rural Bank deposit as of June 2024 amounted to GH₵ 1.07 billion while gross loans and advances was GH₵ 392.79 million. The bank’s loan to deposit ratio is close to 40% which is higher than the industry average stated in the preceding paragraph. The loan portfolio of almost GH₵ 400 million positioned the bank as the largest lender in the rural banking sub-sector.
Critical credit portfolio analysis shows that the MSMEs sector remains the highest beneficiary of the Bank’s credit. This has contributed positively to MSMEs growth and expansion and working capital supplement. It is of no exaggeration to say that the bank is doing extremely well because most banks perceive giving out loans to the MSME sector is risky. No wonder, the Bank continues to grow its market share and engender customer’s confidence.
Another area worth mentioning in this article is the official launch of AMERB MSMEs Donkomi promotion. This is a flexible, competitive and collateral free loan product targeted at MSMEs with a specific emphasis on business led by women and youth and is meant to help them scale up their business.
The Bank has allocated GH₵500 million to lend to the sector and the maximum amount to a beneficiary is Gh₵400,000.00. The bank has also appointed well trained and dedicated sales executive who will visit borrowing business customers to collect repayment on daily basis to create convenience.
As marketers and banking analysts, we firmly believe that this innovative of collateral free loan will go a long way to offer a great relief to borrowers who are creditworthy and have capacity to repay their loans but unfortunately do not have collateral demanded by banks for security.
We can confidently say that Amenfiman Rural Bank has a robust credit underwriting and risk management framework that will help to mitigate credit risk. For instance, the Bank’s NPL for last year was 5.4%.
Dr. Alexander Asmah pointed out that “the engine to grow the economy is individual businesses”.
Accordingly, his bank will prioritize lending to support MSMEs to propel growth as against investing much in government treasury bills.”
He further said that “lending to support indigenous MSMEs is of paramount importance since profit generated from their business will not be repatriated to have a negative effect on our currency”.
It is imperative to say that Amenfiman Rural Bank’s initiative to support the MSMEs with GH₵ 500 million is unparalleled and has never occurred in the history of rural banking in Ghana.
Indeed, this bold initiative by the bank will complement the government’s recent launch of SME Growth and Opportunity Programme meant to assist the sector with GH₵ 8.2 billion.
We have realized that the bank’s support for the MSMEs is in line with its mission statement which emphasizes the provision to MSMEs with easy, convenient and cost-effective access to financial services. We must say that the Bank’s mission statement is not just a paper work. The board and management are seriously adhering to it.
Let us take the opportunity to congratulate the Board, Management under the dynamic and visionary leadership of Dr. Alex Asmah and the entire Staff of Amenfiman Rural Bank PLC for the landmark achievement of a little over 1 billion deposits as well as the introduction of the innovative MSMEs Donkomi promotion.
Another rural bank leveraging deposit growth for effective financial intermediation is Nyakrom Rural Bank which is currently the largest and leading rural bank in the Central Region.
Over the past three years, the board and management under the visionary leadership of Mr. Kaedabi Donkor have been prioritizing lending to support the private sector especially indigenous MSMEs in the bank catchment areas with a view to bridging the financing gap which is a major constraint.
Nyakrom Rural Bank PLC ended 2023 financial year with a total deposit of GH₵ 91.33 million and loan portfolio of GH₵ 53.04 million resulting in loan to deposit ratio of 58.07% which is one of the highest in the industry.
No wonder the bank has become the largest lending rural bank in the Central Region and has engendered existing and prospective customer confidence.
Similarly, it has recorded a total deposit of GH₵ 111.36 million in July 2024 and loan portfolio of GH₵ 66.95 million in the same period.
The data shows that the bank is doing real financial intermediation through lending to bolster up individuals and especially businesses.
We therefore would like to stress that despite the high deposit ratio, the bank is highly liquid because most of its loans having a shorter repayment period (weekly) and through robust credit management it is able to recover other loans.
Our own credit distribution analysis revealed that the bulk of the loans were channeled to MSMEs especially women owned businesses in the bank’s catchment areas such as Agona Swedru, Kasoa, Agona Nyakrom, Agona Odoben, Assin Fosu, Agona Nsaba and others.
This has had a profound and positive impact on beneficiaries in terms of business growth and expansion resulting in improved income generation and job creation. According to the CEO Mr. Kaedabi granting loans to individuals especially business might bolster economic growth leading to robust economy and more stable environment for the bank’s operations.
He also asserted that, “his bank is the first born of all rural banks in Ghana and the concept of the rural banking revolves around making institutional credit and other banking services easily available to the majority of Ghanaians especially those living in rural areas. Hence, the Board and Management will sustain their commitment to support businesses to grow and thrive”.
Besides lending, the bank offers financial literacy education such as effective business management, financial management, record keeping among others to build capacity of business customers.
It is also significant to point out in this article that management of the bank through research and development has developed tailor made products to meet the unique needs of the various business customers and that has impacted positively on their business.
Further, the bank has a robust group lending scheme mainly targeted at women through adoption of credit with education model. This collateral free lending scheme has no doubt empowered a lot of women socially and economically.
We can therefore say unequivocally that Nyakrom Rural Bank is supporting the government’s interventions to support MSMEs such as SME Growth and Opportunity Programme.
Therefore, the Board and Management under the leadership of Mr. Kaedabi Donkor deserve commendation and the needed support from the government and key stakeholders.
Conclusion
The rural banking sector has a crucial role to play to lend to support the real sectors in their catchment area to drive rural economic growth and development and this should not be overlooked. We would also like to urge RCBs to adopt diversified investment strategy to ensure sustainable growth and financial stability.
Government and international partners such as the IFC and Mastercard Foundation should support RCBs that are seriously supporting MSMEs in their operational territories through on-lending funds.
