Keynote speech by H.E. Dr. Mahamudu Bawumia, Vice President of The Republic of Ghana

The SOAS Centre for Global Finance was honoured to host a keynote speech by H.E. Dr. Mahamudu Bawumia, Vice President of The Republic of Ghana at the AERC-SOAS Inclusive Financial Services Policy Platform on 8th September, 2021.

Full Speech

Ladies and Gentlemen.

1. Good afternoon to everyone.

2. It is indeed an honour to be asked to deliver the Keynote Address at this AERC-SOAS Inclusive Financial Policy Platform.

3. Let me express profound gratitude to AERC and SOAS, for organising this Policy Platform which is hosting many researchers, captains of industry and experts to share and deepen knowledge gaps in the emerging digital revolution. We as government and policy makers rely on your deep thinking and research output to polish our efforts at good economic and political governance.

4. Let me commend the consortium of UK and international partners for collaborating on this vital four-year programme of research on the role of finance in fostering inclusive financial development and sustainable growth for the benefit of African countries and others.

5. That the financial system plays a critical role in economic development and growth has long been established in the economic literature. Today’s conversation pushes that well known maxim of finance and development further up in a digital ecosystem.

6. We will all agree that the COVID-19 Pandemic did not only uncover some of the socioeconomic vulnerabilities in our societies, but the COVID experience also highlighted some of the endless possibilities in leveraging digital technology to drive an inclusive growth powered by greater access to finance of the unbanked and a more efficient payment system.

7. Indeed, it has been said that “while digital financial inclusion was already a development priority before the COVID-19 pandemic, it has really become indispensable now” if only for the simple reason that it is best medium to deliver targeted short-term relief in terms of putting money in the hands of those who need it.

8. But there is more than that. The greater benefit is that digital financial inclusion would soon become the central element of broad-based sustainable recovery efforts.

9. Building a resilient economy anchored to a stable financial ecosystem has been the focus of the government of President Nana Addo Dankwa Akufo-Addo since January 2017 when we first came into office.

10. Financially excluded general shared the following key characteristics:

    1. No identity documents

    2. No Addresses

    3. While they did not have bank accounts, most had mobile telephones

    4. Ghana’s approach was therefore to take a holistic approach. We wanted to address these bottlenecks

11. The Ghana Card, the Digital Address System, the Mobile Money Interoperability, and the Universal QR Code have been our transformation enablers. These are now spawning widespread applications in our everyday lives with growing digital dividends.

    1. The “GhanaCard” provides a National unique biometric identification for all Ghanaians and resident foreign nationals.

    2. The Digital Property Address System generates unique digital addresses for every property and location in Ghana including slums and villages based on GPS coordinates. It is based on a mobile application which can find any location and provide directions. This is a life-saving innovation for health, fire, and ambulance services. It is a crime fighting instrument for the police and facilitates operations of e-commerce. Currently we have put together for the first time a database of all properties in Ghana (in towns and villages). The unique addresses for all properties (House number, Street name and digital address ) is generated by the Land Use and Spatial Planning Authority . Thankfully, Google has agreed to integrate this application into Google Maps.The availability of digital addresses for all locations means that everyone, even if you live in a shack has an address and this helps financial inclusion.

    3. Perhaps the greatest inclusive innovation for us is the introduction of a Mobile Money Payments Interoperability. This allows direct transfer of funds from Bank accounts to Mobile Money Wallets, from mobile money accounts to Bank accounts, and from mobile or bank accounts to biometric smart card payment system such as Ghana’s e-zwich card. This system deepens financial inclusion, encourages cashless transaction and provides a viable financial intermediation for businesses. A 2019 World Bank report reveals that Ghana has been the fastest growing mobile money market in Africa since 2014 with over 36.9 million registered mobile money accounts. Mobile money transactions in Ghana in 2020 amounted to the the equivalent of $100 billion.

    4. Between 2016 and 2020 the number of adults with access to financial services through a traditional bank account or the mobile money account has increased from 30% to 90%

    5. Banks (Ghana Association of Bankers) are in the process introducing a Bankwide wallet for the unbanked and the banked that will similarly be interoperable between mobile wallets and bank accounts.

12. With a national ID card you can open a bank account just by dialing a USSD code and providing your national ID number

13. From Ocober 1 2021, all SIM cards have to be registered with the the National ID number so it provides a very high degree of KYC transactions and eliminate fraud.

14. Currently we have a challenge that most merchants or service providers especially in the informal sector where cash transactions dominate do not accept electronic payments. Reasons include:

1. High cost of POS devices- large numbers of merchants are unable to acquire and maintain these devices

2. High processing fees (1%-3%)

3. No real time interoperability. Merchants receive payments the next day.

4. Even for merchants that accept electronic payments there is no interoperability across the different banks or telcos. So if there is a merchant acquired by Vodaphone for example, an MTN customer is not able to use their mobile money account to pay that merchant. Also if Ecobank has acquired a merchant, a GCB customer cannot use pay the merchant using the Ecobank infrastructure. There is no interoperability

5. The introduction of a Universal QR Code provides real time interoperability no interoperability across the different banks or telcos. to enable Ghanaians conduct secure, convenient, and low-cost financial transactions from multiple customer funding sources—mobile wallets and bank accounts. Ghana is the first African country to implement a Universal QR code payment system.

1. Any owner of a phone, whether it is a smart phone or a or feature phone can use the Universal QR CODE to make or receive payments.

2. QR CODE payments are also not just for merchants. By the end of October this year every individual with a bank or mobile money account will be able to generate their own personal QR CODE. This will make payments from person to person to be seamless and very fast. So if you want to send money to someone’s bank or momo account all you will need is their QR CODE. The generation of the QR CODE is free.

Financial Inclusion Initiatives

1. Government has launched three strategic digitization policies to accelerate a shift towards a digital payments system and more importantly, deepen financial inclusion.

2. These policies include the

3. National Financial Inclusion and Development Strategy

4. Digital Financial Services Policy, and the Cash-Lite Roadmap.

National Financial Inclusion and Development Strategy

The National Financial Inclusion and Development Strategy (NFIDS) is anchored on five main mutually reinforcing objectives, which comprises of:

1. Promoting Financial Stability

2. Increasing Access, Quality, and Usage of Financial Services

3. Enhancing Financial Infrastructure

4. Ensuring Financial Consumer Protection; and Improving Financial Capacity.

Digital Financial Services Policy

To complement the National Financial Inclusion and Development Strategy (NFIDS), Government launched the Digital Financial Services (DFS) policy with the aim to:

1. Enhance governance of the Digital Financial Servicce ecosystem

2. Create an enabling regulatory framework that supports innovation, competition and financial inclusion

3. Strengthen the regulatory capacity and the ability to supervise the financial sector; and Support the emergence and development of fintech firms and product innovations.

Conclusion

1. Ladies and Gentlemen, In conclusion I must say that Ghana’s digital transformation experience provides a fresh perspective on the continent and demonstrates that technology can help modernize the financial system as well as also support greater financial inclusion.

2. The goal of Government is to consolidate all on-going digital initiatives and initiate strategic plans to provide digital solutions to our development challenges from farm to factory to offices, and especially in the everyday interactions between citizens and business with government, in line with the African Union Digital Transformation Agenda.

3. African governments should seriously review the findings from this research programme to fill knowledge gaps as we embark on this journey to leverage technology to enhance inclusive financial development and sustainable economic growth, and to provide solutions to the many pressing issues on the African continent.

4. It is just as important that the research findings do not just sit on shelves and archived on hard drives. The results must be disseminated widely, providing alternatives with case studies, and in easily accessible medium.

5. On this note, I wish all of you a very fruitful and constructive event.

Thank you for your attention.

Welcome our new Professor of Practice

Professor Dirk Willem te Velde

The Centre for Global Finance (CGF), in the School of Finance and Management, at SOAS University of London is delighted to welcome and host Professor Dirk Willem te Velde, Professor of Practice at SOAS, with effect from 20 July 2021.

Professor te Velde is a Principal Research Fellow and Director for International Economic Development at ODI. He directs the Supporting Investment and Trade in Africa (SITA) and Supporting Economic Transformation (SET) Programmes and is Research Leader in the FCDO – ESRC Growth Research Programme. He has written and edited 20 books/monographs, 30 peer reviewed articles and 40 book chapters, related mainly to investment, trade and economic transformation. His research has featured in the BBC, China Daily, The Economist, the Financial Times, the Guardian, Asian and African newspapers and TV, with hundreds of media hits. In terms of pathways to research impact, he has advised donor agencies (incl. FCDO, SIDA, and Dutch Ministry of Foreign Affairs), both houses of UK parliament (including as a specialist advisor to development finance inquiries) and government ministers ranging from Kenya, Tanzania, Ethiopia to Bangladesh and Nepal, and multilateral bodies (incl. IFIs and UN agencies). He is a member of the UK Government Strategic Trade Advisory Group (advising the Secretary of State and Trade minister) and leads a Bangladesh trade capacity building project. He holds a degree from the University of Groningen and a PhD in economics from Birkbeck, University of London.

Excited by the news, Professor te Velde said, “I am honoured to have been appointed Professor of Practice at the Centre of Global Finance at SOAS University of London.” He added, “I am especially looking forward to sharing the practical insights I have acquired over the past two and half decades by working with governments, business and other stakeholders on the role of FDI, financial markets, development finance institutions, and aid in the economic transformation of African and South Asian countries.”

Professor Victor Murinde, the Director of the Centre for Global Finance, remarked “CGF is fortunate to serve as the academic host for Dirk Willem, given his strong network and high profile among researchers and policy makers”.

Dr Ben Hardy, the Head of the School of Finance and Management, added “The Centre for Global Finance looks to explore key developments in global finance and their impact on financial systems and the world economy. A critical part of this mission is connecting scholars, practitioners and policy makers. Professor te Velde connects these three groups in one person, bringing rich experience to the Centre which will inform both the research and its impact. We are delighted to welcome Professor te Velde and look forward to a long and fruitful relationship.”

UK India Fintrade Impact Webinar

Time: July 28, 2021 11:00 AM in London

About the webinar:

How "Open" is Open Banking? on the 28 July 2021 is the first of our UK-India Fintrade Impact Webinars with speakers from industry (Huw Davies and Vaibhav Garg) and academe (Kevin O'Leary).

In this webinar series, we will explore fintech innovations, regulatory environment, start-ups and UK-India collaborations. Open Banking can disrupt and complement extant retail banking with the Application Programming Interface (API) enabled technology that allows 3rd party developers to build APPs for more personalized financial services. This can involve widespread data sharing between firms. We examine the challenges and opportunities this entails.

Prof Joshua Yindenaba Abor has proposed a raft of measures that will ensure the success of the soon-to-be-established National Development Bank and spur growth of businesses

(Professor Joshua Yindenaba Abor is Professor of Finance and former Dean at the University of Ghana Business School (UGBS), Legon. He is an External Fellow at the Centre for Global Finance and a Co-Investigator of the ESRC-FCDO Research Project (ES/N013344/2) - Delivering Inclusive Financial Development and Growth led by Professor Victor Murinde at the Centre for Global Finance, SOAS University of London.)

Speaking exclusively to Business Finder on the role of development finance in reforming and ensuring a robust financial sector in Africa, particularly Ghana, Prof Abor welcomed the establishment of the new bank but stressed that the retail model, with other innovative enhancements be employed to ensure impact on business development and growth.

Establish retail banks
It was important to establish retail banks that will access capital from both the National Development Bank and other sources to support businesses and underprivileged sectors of the Ghanaian economy. “Development banks have a different orientation altogether which is supportive of growth and so if other entities are allowed to establish retail development banks then that could spur lending and improve credit management, making it more convenient for borrowers to take up funds and repay,” he explained.

Woo patient equity investors
According to Prof Abor, it was expected that for a development bank, the equity component would be strong. It was therefore critical that government encouraged equity investors “who believe in sustainability and are ready to positively impact enterprises and the society at large. “Patient equity investors who believe in the triple P, that is Profits, People and Planet must be encouraged to invest in the bank so it makes the desired impact on business development,” the former Dean of the Business School asserted.

Debt
Prof Abor argued that since the bank was not in to make supernormal profits but ensure greater impact on society and on business development, a good mix of both commercial and concessionary debt was the way to go. “If we go for purely commercial debt, we are saddling the new Bank with debts that may be difficult for to repay and there will be too much pressure on them, to the extent they could start charging commercial rates, with the attendant impact on the borrower,” Prof Abor submitted. According to the former Dean of the Business School, some debt would be important to ensure that managers of the bank perform.

Impact Assessment
Prof Abor underscored the need to constantly assess the impact of the bank on businesses and society. “There should be regular evaluation of the bank’s operations; where they are extending the credit, how is it impacting the recipients of the support?” he submitted.

The Bank, as govt sees it
Government, in its 2020 budget presented in 2019 announced that the National Development Bank will refinance credit to industry and agriculture as a wholesale bank; and also provide guarantee instruments to encourage universal banks to lend to those specific sectors of the economy. The Finance Minister, Mr Ken Ofori Atta said the Bank would be globally rated to enable it leverage foreign private capital for industrial and agriculture development in the country. “It is expected that the National Development Bank will provide cheaper and long-term funding for the growth and expansion of key companies operating in the agriculture and industry sectors. The development bank will also lend through specialized banks to key anchor industries at the Metropolitan, Metropolis and District Assemblies level to support the Governments IDIF initiative,” he said.

The importance of development finance in reviving the financial sector
Prof Abor explained that one aspect of development finance was about reforming the financial sector so that “it is able to facilitate the flow of funds to spur growth, so any inefficiency in the financial market are cured through those reforms.” Another intervention, he pointed out, was to set up alternative financial institutions like development banks that could provide long term capital to support under privileged sectors. He explained that due to the inefficiencies in the financial system (market imperfections) , other entities are unable to access long term capital, so “what you try to do is to introduce reforms to address the imperfections.”

What are development banks?
Prof Abor told Business Finder Development banks have been defined by the World Bank as institutions to include financial institutions that have at least 30 per cent of state owned shares and given explicit legal mandate to reach social and economic goals. The Professor of Finance explained that development banks were seen as important tools for solving market imperfections that will engender profitable ventures or projects that generate positive externalities. “They are financial institutions that usually provide long term subsidised financing for industrial development or supporting social and economic development,” National development banks often spring up out of a national or global crisis; when a country decides to set up a bank to address the lapses in the market, lack of liquidity in the market and support businesses to get back.

Models of development banks
According to Prof Abor, there are two main forms of development banks- the wholesale and retail models. The retail banking model is where the development bank interacts directly with customers or borrowers. This may require the bank to have branches dotted across the country so that borrowers can access development banking services. Prof Abor admitted, the retail model could be costly, since “you are dealing with borrowers all over the country and you have to maintain all the scattered branches but the benefit is that their interest rates are more affordable because the borrowers access the funds directly.”

“The other thing is that the credit risk is borne entirely by the bank since it deals directly with the customer and so has to set up its own credit management system to track the credit and repayment,” he added. In the wholesale model, the development bank channels the funds through other financial institutions. The other financial institutions will access the funds or borrow from the wholesale development banks and then on-lend to the target borrowers.

In terms of cost of operations, it will be lower for the wholesale bank because it deals directly with financial institutions and not target borrowers. “The interest rate can be higher from this arrangement because the other financial institutions are in to make profit; they borrow to on-lend and they add their margins,” Prof Abor intimated. Different countries use different models. The likes of Chile, Brazil, Germany, Canada, and recently, Nigeria, use the wholesale model. Countries like Korea, Uganda use the retail model.

A bad history
The Professor of Finance and author of the book ‘Financial Markets & Institutions,’ and Co-editor of the book ‘Contemporary Issues in Development Finance’ recalled that Ghana had had a bad history when it came to credit management. Government and its development partners set up development finance schemes to support SMEs and other businesses and borrowers failed to pay back the loans. According to Prof Abor, that history of businesses refusing to pay borrowed funds could inform the choice of the wholesale model for the planned national development bank. “People tend to consider funds administered with support from government as free money so they access and don’t pay back,”

Development Banks have a different orientation
When a small business owner or SME is approaching a development bank for support the attitude and orientation is completely different from when a commercial bank officer is dealing with an SME. The traditional bank officer is trained differently, to maximize profit, has his mind on bonuses and that’s the language he understands. The officer who works in a development bank believes in social development, economic development, they believe in achieving the triple Ps- profit, people and planet. They are more concerned about sustainability, not supernormal profit, and so they are trained to provide attention to SMEs.

Source: https://www.thefinderonline.com/business-finder/item/21521-new-dev-bank-will-be-successful-if