# V BACKGROUND ON MICROFINANCE **IN** GHANA

## _Macroeconomic and Policy Environment_

26. Ghana has a population of about 18 million, which has been growing at about 3% per year. Recent statistics (1999-2000) indicate that 63% of the population live in rural areas and 37% in urban areas. Gross domestic product (GDP) stood at US$7.558 billion, with an annual growth rate of 4.5%. However, inflation has continued to be a problem: the end-of-period inflation rate was 13.8% in 1999, and estimated at 23.0% in 2000. Ghana's per capita GNP of US$390 is much lower than the average per capita income level of US$520 for Sub-Saharan Africa. Ghana's financial structure is fairly shallow: the degree of monetization of the economy, as measured by the M2/GDP ratio, stands at 19%. Because the level of international reserves stands at only 1.5 months of imports, Ghana's economy is markedly vulnerable to external shocks.

27. Ghana has focused on poverty reduction as the core of its development strategy. This approach galvanized in 1995 when the first version of _Ghana - Vision 2020_ was launched and institutional arrangements began to be put in place to promote and analyze poverty reduction. The Government had prepared (as of July 2000) a _Development Strategy for Poverty Reduction,_ an Interim Poverty Reduction Strategy Paper (Interim PRSP) to take up with the World bank and the IMF.

28. The overall policy framework for microfinance is informed by the poverty reduction strategy, which seeks to balance growth and macroeconomic stability with human development and empowerment in such a way as to positively impact the reduction of the country's poverty levels in the medium term. The strategy identifies the main sources of poverty, and aims to explicitly measure all sectoral strategies and programs in terms of the extent to which they contribute to reducing poverty. The overall strategy emphasizes the reduction of inflation and the need to sharply reduce the fiscal deficit, as a key step to reduce the extent of the public sector's crowding out of the private sector in the financial markets, and to help lower interest rates.

## _Poverty in the Ghanaian Context_

29. From a level of 51% of the population in 1991-1992, poverty in Ghana has decreased to about 43% of the population living below Ghana ¢900,000 in 1998. Still, the average consumption level of the poor in Ghana is about 30% below the upper poverty line of Ghana ¢900,000. The reductions in poverty levels have tended to be concentrated in the Accra area and in the Rural Forest localities. Poverty is higher in rural areas (51.6 %) than in urban areas (22.8%): more than one-half of the population living in the Rural Savannah regions continue to be extremely poor. Poverty is highest among the self-employed households cultivating agricultural crops and has decreased only slightly, compared to the self-employed households engaged in export-crop agriculture and the wage employees in the public and private sectors.

## _Structure of the Microfinance Sector_

30. Ghana has a tiered range of formal, semi-formal and informal institutions providing microfinance services to the urban and rural poor and underserved sectors of the economy. Financial intermediation and credit activities are under the regulatory jurisdiction of the Bank of Ghana (BOG). The regulatory framework under the Banking Law (1989) and the Non-Bank Financial Institutions (NBFI) Law (1993) accommodate a tiered structure of licensed financial intermediaries and of financial regulation. A snapshot summary of the range of institutions providing microfinance services (mostly microcredit and savings facilities) and the legal and regulatory environment under which they operate is shown in Table 3 below.

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