# VI **ASSESSMENT** OF GHANA'S **REGULATORY FRAMEWORK FOR** MICROFINANCE

46. Ghana accords high-level recognition of the importance and relevance of microfinance - through the establishment of the Office of Microfinance Policy Coordination in the Ministry of Finance. The regulatory framework is so structured as to provide room for NGO MFIs to establish viable links with formal financial sector and to become properly licensed financial institutions at several entry and progression levels (S&L companies, and Rural Banks). A primary question to address is, what are appropriate levels of institutional capitalization for licensed MFIs.

47. Reforms in the legal system and judicial processes need to be made in order to catch up and keep in step with growth of the microfinance industry. There are significant obstacles and problems related to recognizing and protecting security interest in pledged collateral, and access for MFIs to capital markets through financial securities (capital market instruments).

48. Serious attention needs to be given to the technical capacity of BOG (and other government agencies) for adequate supervision of licensed MFIs (monitoring and technical guidance). Moreover, there is an urgent need to squarely address and clarify the ambivalent policy and regulatory framework on Rural Banks. The ownership structure of Rural Banks resembles that of cooperative financial institutions; the level of owners' commitment to support the financial institution is severely limited given the insignificant value required for each share held (Ghana ¢50), and therefore there are resulting serious problems in internal governance. Ghana's makers of financial policy need to address the following issues: (i) is privatization with greater monetary commitments from fewer shareholders the answer? (ii) how should insolvent, capital-deficient or unsound Rural Banks be dealt with, particularly their depositors? (iii) what should be the proper role of the new apex institution for Rural Banks?

49. A major achievement of the stakeholders in Ghana's microfinance community is the degree of coordination between BOGINBFI vis-a-vis CUA in vetting (through a certificate of good standing) of credit unions seeking to comply with registration and licensing requirements and in disseminating and enforcing standards and guidelines for effective governance and voluntary (internal regulation).

50. Overall, Ghana's financial institutions continue to service a narrow range of clients and few have direct linkages with each other - leaving large portions of the bankable public, particularly microenterprises and small businesses, with limited or no access to convenient credit and secure savings options. For instance, Ghana Commercial Bank, with 96 of its 134 branches in rural areas, has nothing other than a check-clearing relationship with neighboring rural banks. Without the needed linkages, sustainable rural finance operations will continue to be constrained by inadequate client information, low business volumes, poor governance, and inadequate supervision.

# VII **BACKGROUND** ON **MICROFINANCE** IN **THE PHILIPPINES**

## **_Macroeconomic and Policy Environment_**

51. The Philippines has a population of about 73.4 million, which has been growing at about 2.3% per year, compared to population growth of 1.2% annually for countries in the East Asia and Pacific region. Recent statistics (1999-2000) indicate that 44% of the population live in rural areas and 56% in urban areas. Gross Domestic Product (GDP) stood at US$82.2 billion (with GNP of US$1,200), with an annual growth rate of 4.5%. Inflation has not been a problem in recent years as annual change in the CPI has averaged 5.0%, while the level of interest rates has remained stable at a level between 6.5% and 8% p.a. Agriculture now accounts for only 17.5% of GDP, while Industry accounts for 31% and the Services sector 52%. The financial structure has modest depth: the degree of monetization of the economy (as measured by the M2/GDP ratio) stands at 47.5%, with the 15