Mahama’s vision for a resilient and inclusive financial system (1)
In the lead-up to Ghana’s 2024 general elections, John D. Mahama’s manifesto introduces a comprehensive plan to strengthen the country’s banking sector. This plan is aimed at addressing the shortcomings of the current administration’s banking clean-up exercise, which the NDC describes as politically motivated and detrimental to indigenous Ghanaian banks. Mahama’s proposed reforms promise to restore confidence, enhance inclusivity, and promote long-term stability in the sector. The policies outlined in the manifesto focus on rebuilding trust, supporting economic growth, and ensuring a more resilient banking industry for the future.
A forensic audit to restore accountability
One of the major components of Mahama’s strategy for the banking sector is launching a forensic audit into the NPP’s controversial banking clean-up. The NDC accuses the current administration of political bias in targeting banks owned by individuals perceived to be anti-NPP, resulting in the collapse of several indigenous financial institutions. The clean-up exercise, which reportedly cost the country GH¢25 billion, has had severe socio-economic consequences, particularly affecting households and businesses whose investments remain locked up.
By conducting a forensic audit, the NDC aims to provide transparency, hold stakeholders accountable, and ensure that any malfeasance during the banking sector collapse is addressed. This move will not only promote justice but also help restore confidence in the financial system by reassuring investors, depositors, and the general public that their interests are being protected. The manifesto also promises to ensure the payment of locked-up investments, a critical step toward regaining trust and stabilizing the banking industry.
Differentiated minimum capital requirements for local and foreign banks
To foster a more diversified and vibrant banking sector, Mahama’s administration plans to introduce differentiated minimum capital requirements for local and foreign banks. This policy will address the universal banking concept that has been in place, where all banks, regardless of size or origin, must meet the same minimum capital requirements. By creating differentiated requirements, Mahama seeks to level the playing field for indigenous banks that often struggle to compete with foreign-owned banks with greater financial capacity.
This approach will allow for the development of specialized banks that focus on serving different sectors of the economy, particularly small and medium-sized enterprises (SMEs), which are key drivers of growth. Indigenous banks, with more targeted capital requirements, will be better positioned to serve these businesses, fostering a more diverse and inclusive banking sector. This policy also includes amending the Banks and Specialized Deposit-Taking Institutions (BSDI) Act, 2016 (Act 930), to reflect these changes, promoting a healthy balance between competition and specialization within the industry.
Establishing a national women’s bank
A standout feature of Mahama’s banking sector reforms is the establishment of a National Women’s Bank. This institution will focus on supporting female entrepreneurs and women-owned businesses, providing targeted financial assistance to foster entrepreneurship and innovation among women. In a country where women make up a significant portion of the informal sector and are often underrepresented in formal financial systems, a dedicated bank for women could have a transformative impact on gender equality and economic development.
By offering tailored financial products and services that meet the specific needs of women entrepreneurs, the National Women’s Bank will help bridge the gender gap in access to finance. This initiative will not only promote economic empowerment for women but also contribute to overall economic growth by encouraging more female-led businesses to thrive and expand.
Reforming and strengthening Development Bank Ghana (DBG)
Development Bank Ghana Ltd (DBG) plays a crucial role in providing long-term financing to key sectors of the economy. However, Mahama’s manifesto highlights the need to reform and strengthen DBG to better support economic growth and sustainable development. By aligning DBG’s mandate with the needs of sectors such as agriculture, manufacturing, and infrastructure, the NDC aims to ensure that the bank becomes a more effective tool for financing development projects.
Reforming DBG will also involve enhancing its governance structure, risk management practices, and capital base to ensure it can adequately support large-scale projects and sector-specific growth initiatives. This will contribute to Ghana’s broader economic development goals by ensuring that critical sectors receive the financial backing necessary to drive job creation and improve living standards.
Creating a regulatory framework for digital banks
The rise of digital banking presents both opportunities and challenges for Ghana’s financial system. Recognizing the potential for digital banks to contribute to financial inclusion, Mahama’s administration will establish a regulatory framework that allows digital banks to operate in the country. This framework will ensure that digital banks are subject to appropriate oversight while promoting innovation and competition in the banking sector.
Digital banks have the potential to reach underserved populations, particularly in rural areas where access to traditional brick-and-mortar banks is limited. By facilitating the growth of digital banking, the NDC aims to extend financial services to more Ghanaians, contributing to a more inclusive and accessible banking environment. This regulatory framework will also promote innovation in the fintech space, allowing for the development of new financial products and services that meet the evolving needs of consumers.
Tackling non-performing loans and strengthening risk management
One of the significant challenges facing Ghana’s banking sector is the high level of non-performing loans (NPLs), which pose a risk to the stability of the industry. Mahama’s manifesto addresses this issue by proposing reforms aimed at improving risk management practices across banks, ensuring that they are better equipped to manage credit risk and avoid the build-up of NPLs. By tackling this problem, the NDC seeks to enhance the resilience of the banking sector, protecting it from future crises.
The manifesto also outlines plans for recapitalizing banks that may be struggling, ensuring that they have sufficient capital to continue operating and serving the needs of businesses and consumers. In addition, the NDC will implement stronger cybersecurity measures to protect banks and their customers from the growing threat of cybercrime.
Promoting non-interest banking and strengthening AML/CFT Frameworks
In line with global trends, Mahama’s administration plans to introduce a regulatory framework for non-interest (Islamic) banking. This will diversify the financial products available in Ghana and cater to consumers who prefer financial services that comply with Islamic principles. Non-interest banking could open up new opportunities for both investors and consumers, further deepening the financial sector.
Lastly, the NDC will strengthen the framework for Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT). These reforms are essential for mitigating risks, deterring illicit financial activities, and fostering a secure financial environment. A robust AML/CFT framework will not only enhance Ghana’s global financial standing but also attract international investors who seek secure and transparent markets.
Conclusion
Mahama’s banking sector reforms are designed to create a more inclusive, resilient, and dynamic financial system in Ghana. By addressing the issues of political interference, promoting financial inclusion, and introducing new regulatory frameworks for digital and non-interest banking, the NDC’s plan holds the potential to drive economic growth and restore trust in the banking sector. These policies will ultimately foster a more secure and vibrant financial environment, benefiting businesses, consumers, and the broader economy.
