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Wrong perceptions about rural banks and realities

By: Joseph Akossey
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The state of rural banks in Ghana has sparked many controversies
The state of rural banks in Ghana has sparked many controversies

Rural banks in Ghana have experienced growth over the years. The industry started in 1976 when the first rural bank was established at Nyakrom in the Central Region. Rural banks were established to provide financial intermediation for the rural population.

However, currently some are operating in the cities with a view to bridging the gap between the banked and unbanked segment.

According to the Efficiency Monitoring Unit of the ARB Apex Bank Report for the first quarter of 2018, there were 142 rural banks operating across in Ghana. The branch network of RCBs currently stand at over 700.

The rural bank sector has total staff of about 20,000 and this has contributed to job creation particularly in rural areas. Notwithstanding the fact that the rural sector has made significant improvement over the years, some individuals and institutions still have certain negative perceptions about the brand.

The article will consider some of these wrong perceptions and more important, highlight the realities.

Some of the wrong perceptions
Rural banks service are meant for only the rural folks

The above mentioned perception usually stemmed from the rural tagged and the fact that the rural concept was initially meant to promote financial intermediation in rural areas.

It is worth mentioning that RCBs have products and services that can satisfy the needs and wants of individuals, households, businesses and other organisations other than rural folks.

RCBs offer a variety of deposit products such as savings, current and fixed deposit accounts and many others like the universal banks. Currently, RCBs customer base is over five million and this is made up of rural and urban dwellers, people of middle class status, SMEs operators, public sector workers and many more.

Offer low remuneration and poor conditions of service
Some individuals are of the view that RCBs do not offer their staff attractive remuneration and better condition of service like other   financial institutions. This tend to discourage some brilliant graduates from working with RCBs.

The reality is that scores of RCBs today offer their staff attractive remuneration and good condition of service. Let me point out the fact that salary levels vary across RCBs due to differences in human resource policy, financial strength, location and a host of other factors.

Some RCBs have been able to attract staff from the universal banks and savings loans companies because of better remuneration and condition of service.

Some RCBs offer their staff with incentive packages such as a car and housing loans, annual bonus among others.

RCBs do not have good quality staff
In the past, most RCBs were not able to attract qualified and experience staff because they were not profitable enough to offer attractive remuneration. According to Mr Emmanuel Aseidu Mante, a former Deputy Governor of the Bank of Ghana, RCBs did not attract good qualified staff in the initial stages of the scheme because they were cited in rural areas and many qualified and experience people were reluctant to work in rural areas.

Currently, the situation has changed and the RCBs can boast hiring qualified and experience staff like the universal banks. Some RCBs have chartered accountants and bankers, as well as other professionals. 

A notable example is Mr Alexander Asmah, the CEO of the Amenfiman Rural Bank. It has been observed that MBA qualification is common in the rural banking sector.

The minimum qualification today for getting employment in some RCBs is HND qualification. It is worth mentioning that the regular training offer by ARB Apex Bank and the Association of Rural Banks has also helped to improve the quality of staff of RCBs.

Do not have the capacity to give huge loans
It is worth mentioning that RCBs cannot give huge loans like the universal banks due to their limited capital and balance sheet size. However, some RCBs have the capacity to give huge loans contrary to the perception people have.

The amount of loan granted to an individual or institution by a rural bank depends on several factors such as the capacity of the borrower to make repayment, loan policy, the quantum of deposit, risk tolerance/appetite level, single obligor limit among others.

RCBs have higher individual exposures in terms of deposit and loan. Some RCBs have the capacity to grant loan amounting to GH¢1.5m to an individual or institution. A case in point is the Ahantaman Rural Bank in the Western Region.

RCBs do not have the technology to give convenient banking services

Some individuals and institutions are of the view that the RCBs do not offer technology driven products and services which ensure speed and convenience for bank customers. It is heartwarming to say that some RCBs have started to leverage technology to meet the banking needs of customers.

Some RCBs have rolled out ATM platforms and mobile APPs. The ARB Apex Bank has installed 35 ATMs for some RCBs across the country and there are plans to roll out 50 more by September.

The ARB Apex Bank has also developed the U-Connect for RCBs. On the U-Connect platforms, subscribers will be able to transfer funds to customers accounts across rural banks, as well as to the accounts of other commercial banks. It also has some unique features and benefits. 

RCBs are sole-proprietorship business (One man business)
The reality is that RCBs are not one man businesses. They have shareholders who are the key stakeholders. RCBs are registered as public limited liability companies. They are also licensed and being supervised and regulated by the Bank of Ghana and the ARB Apex Bank. RCBs, unlike one man business, have the necessary structures such as board of directors, key management staff, key committees such as audit, loans and risk and Compliance.The RCBs organise Annual General Meetings (AGM) every year to account their stewardship to shareholders. They also publish their audited financial statement in accordance with the Banks and Specialised Deposit Taking Institutions ACT 2016 (Act 930). Some RCBs have institutional investment and a notable example is the Nwabiagya Rural Bank. The current ownership structure of RCBs is illustrated below;

Institution    50 per cent
Individuals    30 per cent
Family    40 per cent

This implies that no single person can own 100 per cent shares.

The ownship structure also implies that the death of a key shareholder in a rural bank does not affect its status as a going concern entity.

Low service quality delivery
Some people have the notion that the service quality of RCBs is low and comparison with the universal banks and other Specialised Deposit Taking Institution. It is worth mentioning that increasingly RCBs are improving when it comes to service quality delivery.
Customers are increasingly becoming sophisticated demanding and also enjoy low switching cost thereby compelling some RCBs to improve. Moreover, RCBs are facing competition from the universal banks, savings and loans companies among others. This fierce competition is also forcing a lot of RCBs to make improvement with respect to customer service. However, there is still room for improvement.

It is not attractive to invest in RCBs
Some RCBs are profitable and thus investors are likely to get better returns on investment.

I can say with confidence that some RBCs offer better returns on investment than some listed companies on the stock exchange market.

Conclusion
The impressions and perception about RCBs discussed in this article are of the past as a result of a complete paradigm shift in the rural bank industry. — GB

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