Rural Banking

Abstract

This case study describes the history
 and business model of the Rural and Community Bank (RCB)
 network in Ghana, analyzes its performance, identifies key
 issues, and makes recommendations on the way forward. The
 study analyzes the service delivery and financial
 performance of the RCBs. Before the establishment of RCBs in
 the late 1970s and the subsequent expansion of other service
 providers into rural areas, access to institutional credit
 for farm and nonfarm activities was scarce. The main sources
 of credit were moneylenders and traders that charged very
 high interest rates. In many rural communities, secure,
 safe, and convenient savings and payment facilities hardly
 existed. The first RCB was established in a farming
 community in the central region of Ghana in 1976. Rural
 communities showed tremendous interested in the community
 ownership and management features of RCBs, and by 1984 the
 number of RCBs reached 106. The introduction of a check
 payment system for cocoa farmers also spurred the
 establishment of local banks in many communities. The
 financial performance of many RCBs started to decline,
 however, for several reasons, including a drought that
 affected the country in 1983, weak governing ability,
 conflicts within boards of directors, and ineffective
 management in many RCBs. By the end of 2008, 127 RCBs were
 in operation with a total 584 service outlets. RCBs are
 regulated by Ghana's central bank, the Bank of Ghana,
 and thereby form part of the country's regulated
 financial sector. RCBs are the largest providers of formal
 financial services in rural areas and represent about half
 of the total banking outlets in Ghana.