TechnoServe in Ghana

57132 Findings reports on ongoing operational, economic and sector work carried out by the World Bank and its member governments in the Africa Region. It is published periodically by the Knowledge Networks, Information and Technology Center on behalf of the Region. TechnoServe in Ghana Although 123 banks have been established in Ghana since 1976, only 9 percent of rural households have access to banking services in their communities according to the Ghana Statistical Service 1993 survey. Formal banks are estimated to devote less than 20 percent of their total loan portfolios to agriculture, and of those 20 percent the majority goes almost entirely to large commercial farmers. This is because banks consider their present operations sufficiently profitable and are generally not interested in providing rural financial services which involve higher transaction costs and risks. The going lending rate is 25-35% per annum. The total combined volume of commercial bank loans and advances to agriculture (including forestry and fisheries) is about 16 percent of estimated production credit demand. Loans from commercial banks, rural banks and credit unions to the agricultural sector were estimated, as of March 1993, to account for 19 percent of total credit demand. While the demand for agricultural credit clearly exceeds the supply, a recent study on Rural Financial Institutions (RFIs) indicated that RFIs as a group lack the resources, operational capacity and human resources to effectively intermediate in the agricultural sector under the present circumstances (Ministry of Food and Agriculture, Ghana, 1995). Over the last three years, the team for Action Research on Sustainable Microfinance Institutions in Africa has assisted local rural and micro-finance institutions to improve their delivery of financial services to the poor in rural and urban areas. Supported by Swiss Trust Funds, the program covers six countries in Sub-Saharan Africa -- Cameroon, Ethiopia, Ghana, Kenya, Mozambique and Zambia. The program's emphasis is on capacity building at the national level through distilling and disseminating "best practices" and strengthening local networks of rural and microfinance providers. The Microfinance Champion: TechnoServe TechnoServe (TNS) is an international non-governmental organization founded in 1968 and has programs in 14 countries in Africa, Latin America and Central Europe. The Ghana program was established in 1971. TechnoServe's mission is to establish sustainable community-based enterprises that increase productivity, income and employment. It opposes food relief, subsidized inputs and grants and promotes self-help and technical assistance to rural communities. This approach involves the provision of financial and business management training in order to help these communities make sound business decisions and create and operate their own enterprises. Although TNS believed that the key to financing these small community-based enterprises was savings, eventually it became convinced that credit was also necessary. TNS therefore evolved its own financial mediation strategy by developing innovative mechanisms for micro-enterprise financing. In Ghana, collaboration with institutions has been limited to the Department of Cooperatives which assists with the legal registration of groups and the Ministry of Agriculture (now the Ministry of Food and Agriculture) which offers extension and other agricultural services. Management and Institutional Organization TechnoServe identifies groups interested in managing rural enterprises and provides training in group formation, leadership skills and basic business management. This approach was designed to build community members' sense of commitment to and ownership of the enterprises. As of January 1995, TNS was providing assistance to approximately 60 community-based enterprises. The direct and indirect beneficiaries of these enterprises account for, on average, 25 percent of the total population of the communities in which they operate. Basically, TNS helps to assure bankers that the enterprises they lend to are well-designed and managed, economically viable and closely supervised, and therefore creditworthy. Initially, TNS provides limited assistance to "new" community-based groups that would have evolved out of members' mutual needs. These should also have demonstrated commitment to enterprise success, make cash or in-kind contributions and show clear evidence of sincere, disciplined and strong leadership. In addition to beneficiary training, TNS organizes workshops for institutions, including NGOs, government agencies and banks, in Management Information Systems (MIS), credit analysis and other relevant subjects. Impact on the Ground From 1990-94, enterprises assisted by TNS mobilized a total of 39.34 million cedis ( 1 US$ = 2,260 cedis in 1998 ) in savings. These savings represent one-time, share capital payments by these members. ITEM MAGNITUDE (cedis*) Savings 39 million $17,256.64 Disbursements 283.98 million $125,654.87 Range of Loan Sizes 0.9-5 million $398-$2,212 Maximum Loan Size 5.0 million $2,212 Average Loan Term 10 months -- Maximum Loan Term 60 months -- Nominal Interest rate 20-25% -- Range of Recovery Rate 98.5%-100% -- * 2260 cedis=US dollar (1998). The average loan sizes per beneficiary by loan category were: (i) 88,000 cedis for cereal inventory; (ii) 125,000 cedis for agricultural input loans (now discontinued); (iii) and 4,700,000 cedis for palm oil processing groups. On average, each group member's individual liability for equipment loans is approximately 157,000 cedis based on an average membership of 30 per group. A cost effectiveness analysis estimated that for every $1 of costs TNS incurred in assisting each enterprise, the enterprises realized between $5.4 and $15.5 in benefits. The beneficiaries of the inventory credit program averaged net incremental benefits from storing produce of between 58 percent and 90 percent (compared to non-participants). Post-harvest losses have been reduced to an average of 5 percent compared with an estimated national average of 30 percent. A net surplus of 13.3 million cedis was generated by 12 group enterprises as of June 1994. Inventory loans of 46.6 million cedis were granted during the same period. Credit for Non-Traditional Export Crops Apart from the credit and loan guarantees, TNS provides the following non-financial services: post-harvest processing, inventory storage and marketing of cereals; processing, storage and marketing of palm oil; storage and marketing of non-traditional crops (e.g. shea nuts, kola nuts, cashews, pineapples, etc.); sale of merchandise by some of the group enterprises; training in the preparation of business plans and accounting statements; and financial and business management training and assistance. Prospects Currently, TechnoServe is concerned with lowering the cost of its assistance. It anticipates that its costs per beneficiary will be lowered over time by providing its services through food processing and marketing associations that represent the interests of many cooperatives rather than providing assistance directly to individual enterprise groups themselves. More target associations are being formed in Ghana. In addition to this emerging intermediary strategy, TNS will seek to strengthen the capacity of rural banks lending to agricultural enterprises. The objectives are to: (i) reduce risks; (ii) lower transaction costs; and (iii) improve loan recovery. This summary was compiled from the document TechnoServe/Ghana, a study of a microfinance institution produced under the Action Research Program on Sustainable Microfinance Institutions in Africa.. For the full document or further information please contact Shimwaayi Muntemba, Rm. J3-101, World Bank, 1818 H Street NW, Washington, D.C. 20433; tel. no. (202) 4587370; e-mail address Smuntemba@worldbank.org or Alex Amuah, tel. no.: (202) 4587548; e-mail address Aamuah@worldbank.org