Introduction
Ghana has a well-defined formal financial sector as set out by its central bank that is the Bank of Ghana (BOG). Since the financial sector reforms, the sector has recorded impressive development in terms of numbers and nature of financial institutions.  The main actors in the financial sector of Ghana are the Capital Markets, Banks, Rural and Community Banks, Non-Bank financial, Insurance Companies, Pension and Provident Funds and the Microfinance Institutions.
Irrespective of the vibrant financial sector, Ghana still has a large unbanked and under population. The objective of this article is to take a look at the various reasons hindering the ability of the banking sector in contributing to financial inclusion in Ghana.
Ghana and Financial Inclusion
Financial inclusion or inclusive financing is the delivery of financial services at affordable cost to sections of disadvantaged and low-income segments of society. Financial inclusion aims at providing financial access to non-banked and under-bank population with affordable and appropriate products. The important thing about financial inclusion is not only about financial access. Access to financial services can not only be addressed by having many established financial institutions within an economy.
Achieving financial inclusion entails ensuring that the prices of the financial products designed are affordable (in terms of the direct and indirect cost associated with acquiring a financial service or product) to the clients especially the low income clients.
For the purpose of this article much focus will be on the universal banks and financial institutions which form part of Ghana’s microfinance sector as directed by the microfinance policy guidelines.
Considering the number of unit banks operating in Ghana, it is expected that the financial sector players will have recorded deeper outreach with its services and products. Deeper outreach such that, more poor and low income clients would participate directly in the formal financial sector. However, that is not the case.
The cumulative single financial institutions operating in Ghana by the end of 2014 is tabulated below.
Nature of organization     Number of regulated institutions
Banks    26
Rural Banks    136
Savings and Loan     26
MFIs (Deposits)     344
MFIs FNGO    5
Money Lenders (companies and Individual)    116
Susu Companies     300
Individual Susu Collectors     1,500
Others (Finance houses, leasing, Mortgage etc.     33
Credit Unions     538(approximate)
Total     1,541
Source: From many sources.
The table above shows the number of different types of financial institutions operating in Ghana.  It is important to indicate that these are without their branches. For example, the rural banks are noted to have over 700 branches or agencies and they can be found in every district capital of Ghana. Currently all the major bank’s with few exceptions, have their presence in all the regional capitals of Ghana.  The savings and loans company have less regional spread. They can, however, be found in very economically active regions with majority having strong presence in Greater Accra, Ashanti and Brong Ahafo Regions.
The underlying objective of looking at the number of units banks and financial service providers is to assume that the more the numbers of financial sector players in an economy, the better their coverage or outreach which should directly result in increase in the total amount of money in circulation through the banking sector and overall growth of the banking population.  The reality is that, in spite of the growth in number of financial service providers, Ghana still have a low banking population and the economy still  have  large amount of money outside the  formal banking sector.
In  2009 Ghana had 1.2 million bank account holders out of a population of 23 million (a ratio of 5%) compared to Nigeria’s 23 million banks accounts holders among a population of 140 (more than 16%). Country comparison ranked according to financial exclusion levels of 12 countries in Africa indicates that Ghana has the fifth lowest level of financial exclusion of 44% (Finscope, 2010.) The Finscope Ghana 2010 survey further reveals that almost 3 in 4 (73.1%) Ghanaian adults claim that none of the income they receive passes through a bank account. It further reported that a total of 44% of Ghanaian adults do not use any form of financial product or mechanism (be it formal or informal) to manage their financial activities. According the findings there are still 29.4% of Ghana’s population that depends on informal financial services.
Microfinance institutions have played significant role in extending financial services to poor and low income clients. This is because it has been noted that, MFIs per their nature have the systems and methodologies needed to reach financially excluded clients.  In spite of the role of MFIs in promoting financial inclusion we cannot overlook the role of  traditional banks insupporting the call for financial services to reach majority of the people wherever they can be found in Ghana’s  economy. This is so because banks are major influencers in the Ghanaian financial sector in terms of assets and customer base. The universal banks in Ghana dominate the banking industry. They control 90% of the total banking assets (FINSSP 11, 2012). Their role in providing financial services even for the poor and low clients cannot be discounted.  For example some universal banks over the years have developed specific products and services that targets low income clients. These banks have adopted strategies to enable them to efficiently provide services to financially excluded clients or micro clients. Some of the notable strategies used by the universal banks interested in downscaling are as follows:
•    banks creating internal microfinance departments or units to provide microfinance services
•    establishing  partnership or linkages with other MFIs (Fidelity Bank and Ghana Association of Microfinance Companies 
•    developing different business entities (HFC – Boafo, EB-Accion) to meet their objective of targeting the unbanked clients.

ADDRESSING THE LARGE INFORMAL MARKET
The entire financial sector and key stakeholders should concern themselves to understand why there is still a huge informal financial market and what is hindering the sector in helping to increase the total amount of money circulating through the formal financial sector.
Understanding the dynamics of development financing and the role of banks as well as the nature of informal sector clients can help in addressing the major barriers to outreach. Increasing formal financial access the non-banked population is important since there is a link between the level of poverty and participation of financial services. This is to say that financial services can provide the needed catalyst for poverty reduction.
Some of the challenges hindering the role of banks and other financial service players in achieving outreach are as follows:
No target markets-“all play all”
 Ghana’s financial regulatory requirements are clearly stated. Sector players know and understand what will qualify  an institution as a universal bank, savings and loans, rural and community banks, microfinancecompany (deposit or non-deposits) money lenders, etc. It further defines what these entities are permitted to do or not to do. For instance, savings and loans companies (S&L) and rural and community banks (RCBs) by regulations cannot operate foreign currency accounts but the universal banks are permitted to engage in such operations.
One major challenge with the entire regulatory policy especially with regards to institutions under the microfinance policy guidelines is that, the policy does not define which sector of the markets or type of clients these entities should target or specific areas where these entities can operate. What, therefore, happens in practice is that there is no segregation of customers or targets by the financial institutions. This is evident by the findings captured in the 2014 banking survey which was conducted by Price Water House Coopers (pwc) that some bank executives admitted that already S&Ls and RCBs are competing with them in the same retail and commercial deposit markets. This, therefore, suggests that the banks and other institutions within the entire financial sector are targeting the same clients. For instance as observed by  Finscope, the   Ghana 2010 report indicated that 55% of clients that are banked (34%) also uses other type of financial products or services. It can be deduced from this finding that  clients do engage more than one financial service provider to meet  their financial needs. For example, some clients of universal banks will turn to other financial service providers, credit Unions, MFIs, S & L to acquire  loans or other services because the  smaller financial institutions may have quicker turnaround time for product delivery or may have less rigorous  loan screening methodologies compared with the universal banks. It is therefore common to find clients who have financial relationships with a universal bank also having dealings with a microfinance company.
To further improve outreach and deepen financial access, financial institutions that have been registered as microfinance companies under the microfinance policy guidelines must have a defined market. This target market can be defined by income levels, type or nature and size of their enterprises or targeting using poverty score card. This can assist to enable microfinance companies to target the clients that they have been created to serve and not participate in the same market as the Universal banks.
Lack of product innovation and research
For financial institutions to deepen outreach, it is very important to consider the nature of the financial products that is being served to clients and potential clients, the delivery processes, appropriateness of the product to solve the needs of the clients and more importantly the affordability of the product to the clients in question with further consideration to the sustainability or profitability of the financial institution delivery the product.
There is lack of product differentiation in Ghana’s financial sector. The sector has many banks and other financial service providers; however, there is very limited differentiation in the products and services available. There is limited array of products or services from which clients can choose from to meet their specific needs. We can refer to these products as generic products. Across the types of financial institutions, loans targeting salaried workers as a product are very predominant. This is because of the relatively less risk associated with the development, implementation and management of this kind of product.
The fact is that many of the banks and financial institutions do not spend enough time and money to research and develop appropriate products that can comfortably assist the larger non – banking population to meet their financial complexities. Financial institutions and banks in Ghana sell more off the shelve products to their clients. When one bank takes the pain to develop a product, majority of the others banks either copy or make some few adjustments and goes ahead to implement the products without a critical understanding of the underlying dynamics of the target markets.
Although there are somehow appreciable developments in product delivery through technology, overall there is still not enough proof to demonstrate how technology is helping to deepen outreach with greater emphasis on reducing cost of transaction, convince and access.
 Where are the products and services to provide loans to smallholders, medium and commercial farmers? The quick rebuttal to this is that agricultural loans are risky. Yes they are, but the good point is that even with similar or same risk, financial sector players in Kenya, Rwanda and Uganda still find agriculture  a profitable venture to invest in, so why not the banks in Ghana?
 I definitely agree that the state has a part to play in organizing the agricultural market. However, there is more that can be done if appropriate products are developed to meet specific financial needs of farmers and other aggregators along specific agricultural value chain. The approach of many banks is that they lump agriculture together as one whole component. However, there are many different aspects of agriculture and customized products can be designed to meet the needs of the players along specific value chain.
Banks must also develop workable loan screening methods to help them make quality loan decisions. An efficient screening tool will assist them capture the nature and character of their clients and potential clients. The screening methods of most banks and other financial institutions weigh towards already banking clients and they naturally select out clients in the informal sector of the economy due to perceive risk. Informal sector player clients are aware that banks are not very comfortable dealing with them. They know that the banks are not ready to assist them as local entrepreneurs because they think they are vulnerable to the conditions they set.  The banks are just not being innovative in their credit-delivery role. 
To ensure that the entire banking sector improves outreach and become very instrumental in the development process of the entire economy, it is important to understand that banking has moved beyond just circulating financial resources within the economy from the excess “cash holders” to “deficit clients within the economy. Banks must commit resources and time to develop very appropriate products to suit the needs and nature of the clients that are still outside the main financial sector.
Bank trained and not Development conscious 
Banking in Ghana operates more as ‘high street banking’. They operate in already known territories and are not comfortable and unwilling to develop new markets. This style of banking practiced by the universal banks has influenced all the non – banking financial institutions such that all their systems and processes are developed around that of the universal banks.
Another important thing to consider is how staff within the banking or financial sector are trained. Majority of the refresher courses organized within the financial sector are tailored around the traditional roles of banking. Most of the refresher programmes focuses on risk management, treasuring management, reconciliation, credit management, internal control, etc. This is not to say these programs or courses are not relevant. They are; but the capacity building of the staff should include developmental challenges, entrepreneurship, micro enterprise development and management, finance and development, product development, etc.
The fact is that Ghana is a developing country and, therefore, banks in Ghana cannot fully operate without having to understand the nature and characteristics that is associated with a developing country.
 The staff who have the responsibility of dealing with clients must appreciate the various developmental challenges and how to manage these challenges through the provision of financial services. Banking in a developing economy cannot evolve around debits and credits, salary loans, consumer loans and still expect to have a wider and deeper financial sector. Going forward, the various programmes and refresher courses for banking professionals must be reviewed to meet the current changes in order to have the needed skills to move Ghana’s financial sector towards achieving financial inclusion.
Conclusion
Ghana’s financial sector players can contribute immensely to the economic development agenda of the country. This can well be achieved if banks and financial institutions develop appropriate and innovative products with conscious efforts made to target economically active clients outside the formal financial sector. The challenge of infrastructure within the country can be solved by appropriate innovation that can assist the financial institutions to be efficient in their operations in order to achieve sustainability and the impact of their operations.
Roderick Okoampah Ayeh
Microfinance Consultant
roayeh@gmail.com
026 5 80  10 86