Nsoatreman Rural Bank - Ghana : case study of a microfinance scheme

21214 STUDIES IN RURAL AND MICRO FINANCE No.6 Nsoatreman Rural Bank I -Ghana Case Study of a Microfinance Scheme Mark Owusu Ansah June 1999 FILE COPY  闐 之 閱鬨 闐州 州他 絨碼 細，必擊 鹹Z的網 i藝i蔔 用滅 舛闔 州《 《鰓 O 的 汰 Studies published in this series are a joint effort between MFI networks in Africa and the Action Research task team of the World Bank. For information on this series contact: Shimwaayi Muntemba, Task Team Leader Tel: 2024587370 Fax: 2024738185 E-mail: Smuntemba@worldbank.org For further information on the institution studied contact: Ghana Microfinance Institutions Network (GHAMFIN) P. 0. B ox AH 13 92, Achimota, Accra Ghana Tel/Fax: 233-21-770322 E-mail: mfinet@ghana.com The views expressed in this document are those of the authors and do not necessarily represent the opinions of the World Bank or any of its affiliated organizations. ii iii FOREWORD The purpose of the World Bank's Action Research Program on Sustainable Rural and Micro Finance Institutions in Africa is to strengthen local rural and micro finance institutions and contribute to mechanisms for supporting sustainable grass-roots institutions which provide financial services to the poor. Action Research emphasizes capacity-building at the national level, by distilling and disseminating "best practices" and strengthening local networks of microfinance providers. The program adopts a participatory approach to capacity-building or strengthening. Leading rural and micro finance institutions, mainly NGOs, oversee the process through a core group, the "champion", one of which is normally the coordinating agency. In Phase 1 of the program, diagnostic studies of practices in two or three selected institutions are conducted and discussed at a national workshop, which typically leads to formation of a national network. During Phase 2, the network may opt for more in-depth studies, as in Phase 1, or it may focus on one issue or delivery mechanism drawn from four or more institutions. These are discussed at a second national workshop. The program also supports a newsletter and periodic meetings of the network to encourage wider participation, dissemination of international best practices, further sharing of experiences, development of guidelines and policy dialogue with the government. At the end of three years, networks are encouraged to become self-supporting. Sub-regional workshops then facilitate networking and information-sharing across national boundaries. This report on Nsoatreman is one in a series of diagnostic studies carried out in six countries. It is one of the many efforts by rural and micro finance institutions throughout Africa to reach poor entrepreneurs normally ignored by the large, commercial institutions. Nsoatreman is a non-bank financial institution (rural bank) which provides financial services to individual entrepreneurs and to groups. It's major target group is smallholder farmers. It acts as an intermediary between the Government and cocoa producers by purchasing government payment cheques from farmers. In this way Nsoatreman both provides the needed financial backdrop and saves farmers their time which would normally be spent in travelling to the city to cash their cheques. The Action Research Program is funded by the Swiss Agency for Development and Co- operation and is managed in the World Bank by a cross-sectoral team comprising Shimwaayi Muntemba (team leader, Environment), James Coates (Resident Representative, Mozambique), William Steel (Private Sector Finance), Carlos Cuevas (Sustainable Banking with the Poor) and Alexander Amuah (Consultant). The team has collaborated with a Bank-wide initiative: "Sustainable Banking with the Poor," and with a team of colleagues at headquarters and resident missions working on microenterprise issues and with NGOs. In conducting this study, TechnoServe received comments and responses from a multi-disciplinary and cross-sectoral team of experts, which has brought strength to this grassroots-focused initiative. Cynthia Cook Sector Manager Environment iv TABLE OF CONTENTS FOREW ORD .............................................................................................................***.**.. **.... Iv ACRONYMS AND SYMBOLS ............................................................................................ viii EXECUTIVE SUM M ARY .................................................................................................... ix 1. BACKGROUND ....................................................................................................... 1 Initial Objectives And Evolution................ .................. ............ 1 Initial Organization And Resources ............................................. 1 Social And Macro-Economic Context......................2..... .............2 Financial Services Sector.................................................. 6 2. STRUCTURE AND ORGANIZATION...............................................7 Organizational Structure and Conduct ................................ ........ 7 Legal and Organizational Structure ....................9...... ...............9 Management and Institutional Organization ................................... 10 Human Resources ..................................................... 11 3. MODES OF OPERATION...................................................................................... 13 Deposit Services ...................................................... 13 Lending Services ...................................................... 13 Other Financial Services................................................. 14 Non-Financial Services.................................................. 14 4. OUTREACH, ACCESS AND IMPACT ............................................................... 16 Economic Outreach and Impact ............................... ............. 16 Gender and Poverty Awareness ..................... ................. 19 Savings Awareness and Opinions of Clients................................... 20 Credit Awareness and Opinions of Clients.................................... 20 Impact on Individual Capacity ............................................... 21 Impact on Institutional and Community Capacity ............................... 22 5. FINANCIAL PERFORMANCE ............................................................................. 23 V Sources and Uses of Funds ..........23 Profitability .........................................................24 Challenges and Future Plans..............................................24 6. INNOVATIONS AND LESSONS LEARNED .........................27 vi ANNEX ANNEX 1: ..................................................................28-29 BOXES Box 1: NRB's Board Of Directors ............................... .........8 Box 2: Decision Making, Communication And Training Policies......................11 Box 3: Best Practices Of NRB For Deposit Mobilization............. ..............14 Box 4: Best Practices For Lending .......................................15 TABLES Table 1: Services Provided ...........2................................2 Table 2: Macro-Economic Data 1984 And 1997..................3.......3 Table 3: Socio-Economic Conditions In Region Of............................3 Table 4: Sources Of Funds From 1994 - 1997 (0 Millions) ...........4.......4 Table 5: Productivity Ratios, 1994-97............. .................. .....12 Table 6: General Outreach.............................................16 Table 7: Number Of Clients Per Sector....................7.... ............17 Table 8: Number Of Loans Per Industry ............................. ......17 Table 9: Number Of Depositors Per Sector.................................18 Table 10: Value Of Deposits And Loans..............................18 Table 11: Financial Performance Of NRB ......................... .........23 Vii ACRONYMS AND SYMBOLS APPLE An NGO based in the Eastern Region, Ghana ARB Association of Rural Banks BoG Bank of Ghana CIDA Canadian International Development Agency ENOWID Enhancing Opportunities for Women in Development (of PAMSCAD - see below) FFH Freedom from Hunger GoG Government of Ghana IDA International Development Association IFAD International Fund for Agricultural Development NCWD National Council for Women and Development NGO Non-Governmental Organization NRB Nsoatreman Rural Bank PAMSCAD Program of Actions to Mitigate the Social Costs of Adjustment RFP Rural Finance Project, funded by IDA SCIMP Smallholders Credit Input and Marketing Project, funded by IFAD WID Women in Development Cedi (the Ghanaian currency) Viii EXECUTIVE SUMMARY This report is part of a World Bank sponsored applied research initiative which examines best practices in microfinance institutional development in a number of African countries. The objective of the research is to analyze and document the experiences of leading rural and micro finance institutions (RMFIs) that have developed innovative approaches to providing financial services to the rural and urban poor. It is hoped that the research findings will provide information that can help RMFIs to develop more effective and sustainable operations. The Nsoatreman Rural Bank (NRB), Ghana, is one such institution which has significant experience in providing microfinance services. Establishment and Evolution The Nsoatreman Rural Bank was established in October 1984 during a period of national economic decline which resulted in generally poor performance of financial institutions in Ghana. The NRB is headquartered in the town of Nsoatre in the Brong-Ahafo Region of Ghana. Prior to its establishment, the concept of saving with financial institutions was almost unheard of in the predominantly agricultural community of Nsoatre, and bank credit facilities were almost non- existent. The bank was established to meet a dual objective of financial intermediation and poverty alleviation within the Brong Ahafo region. During the early years of its operations, NRB experienced setbacks, including lack of financial support, inefficient management, ineffective operations, and poor patronage. However, over the years, it has effectively combined external assistance with internally generated, community adapted strategies to become one of the most sustainable RMFIs in the country. Currently, the bank operates branches in the four adjacent rural centers of Sunyani, Yamfo, Chiraa and Jinijini. Operations The NRB offers both financial and non-financial services to members of the communities it serves. Financial services include lending, savings and other banking services' such as cheque clearing for cocoa farmers. Non-financial services include supply of agricultural inputs to farmers and farm extension services through a subsidiary organization created for this purpose. Approximately 50 percent of NRB's clients are engaged in agricultural activities, 30 percent in commerce and trading activities and 20 percent in cottage and other industries. The bank provides loans ranging between US$75--US$400 at commercial rates of interest. It is important to note that currently, most rural banks in Ghana do not provide more than minimal credit for agricultural production and processing, given the negative experiences from such lending. The fact that NRB successfully lends 50 percent of its total credit portfolio to the agricultural sector is therefore unique. ix Access, Outreach and Impact Between 1992 and 1994, the bank's clientele grew at an average of 55 percent per annum. In 1994, it had a total of 12,940 depositors and 15,620 borrowers. By 1998 it had a total of 22,236 depositors and 17,137 borrowers. During the period 1992--1994, the bank's deposit base increased from 0123million (US$102,885) to 0688million (US$572,978), and reached 01,1663million (US$831,391) by 1998. The number of loans grew by an average of 60 percent during this period and by 1998 had reached 17,137. In 1992 NRB provided a total of approximately 1,390 loans valued at 0120million (US$99,600), in 1998 it made about 17,137 loans with a total value of 01,757million (US$878,802).' Financial Performance Nsoatreman Rural Bank benefits from the financial and technical support of international agencies such as the International Fund for Agricultural Development (IFAD) and the International Development Association (IDA). Profitability increased between 1995 and 1998; the ratio of operating income to the total operating expenses increased from 114 percent to 123 percent. The bank's loan repayment rate varied between 85 and 90 percent in 1994, and increased to 99.5 percent by 1998. Innovations and Lessons Learned The NRB has a strong, highly qualified management staff and Board of Directors, all of whom are local community members with a personal stake in the community's development. The rate of turnover of board members and management personnel has been very low. This has been a major factor contributing to the bank's consistent policy formulation and implementation, resulting in its ability to overcome problems and show a positive performance. Among the lessons learned by this institution are: i. The bank has learned to combine flexible operations with diligent supervision of projects and loans. Through research and experimentation with various minimum deposits, the bank settled on a minimum deposit amount which was lower than the minimum deposit requirements of the commercial banks in the catchment area (e.g. 03,000 versus 05000, in 1994). The result has been a tremendous increase in deposit mobilization. Recent minimum deposit requirements are presented in Appendix 5. ii. The bank's lending practices have been equally innovative. For example, the bank lends to salaried workers, which has ensured high recovery rates because repayment can be deducted at source. Group borrowers are also required to use salaried workers as collateral for loans. In addition, the bank requires borrowers to maintain a minimum of 25 percent of outstanding debts in their savings accounts as partial collateral. To encourage high and prompt loan repayment, the NRB has successfully offered a 5 percent interest rebate on early loan repayments. Average exchange rate in 1994 was 01220/US$ and had increased to 02000/US$ by 1998. x iii. To help attract new customers and increase profits, the bank has introduced new services such as the establishment of a subsidiary, Consumer Services Ltd., which enables customers to purchase agricultural and consumer goods on hire-purchase terms. In addition, NRB has engaged in share-capital mobilization campaigns and education to raise its capital structure. As a result, its share-capital increased from 02 million to 011 million between 1990 and 1994, and to 056 million by 1998. iv. The NRB has developed collaborative arrangements with NGOs to help improve its capacity to monitor loans. Several NGOs have been identified nationwide to liaise with the bank in extending financial services to smallholders. The NGOs help identify, mobilize and educate rural groups about how to access the services of rural banks. The original terms of reference for the NGOs are modified to include loan monitoring and recovery roles to ensure higher loan repayment rates. The NRB and NGO staff visit borrowers regularly to avert the diversion of loan funds and to provide credit education on efficient fund utilization and the mechanics of loan repayment. The NGOs earn a modest commission on such loans. Xi  1. BACKGROUND Initial Objectives and Evolution The Nsoatreman Rural Bank was established in October 1984 with the objective of mobilizing savings and providing credit services in Nsoatre and the surrounding communities; and alleviating poverty through credit for productive activities that enhance customers' incomes. The initial mission of the bank's board members and management staff was to improve the area's standard of living by mobilizing resources to support economic activities and by developing local infrastructure such as electricity, potable water and education. While the NRB continues to pursue these broad goals, its focus has shifted to ensuring its own profitability and long-term sustainability in order to be able to realize its larger objectives. The initial successes of other rural banks in Ghana, such as Nyakrom and Biriwa Rural Banks, founded in 1976 and 1977 respectively, served as a catalyst for the establishment of NRB. The creation of these banks, in turn, was influenced by the rural banking models developed earlier in the Philippines and Mexico. In particular the pioneer rural banks in Ghana adopted the unit banking aspects of these models. The NRB experienced early organizational, technical, and social difficulties. These stemmed from the fact that the Bank of Ghana (BoG), the initiating and supervising authority, did not prescribe a detailed operational model to guide management in the implementation of this new concept. Staffing also posed a problem, as the NRB began with a skeleton staff of four persons: the manager, an accountant, a clerk/typist and a cashier/cleaner. The manager was the sole staff person with any technical background, and, apart from participating in initial training organized by the Bank of Ghana, he received little other support or guidance regarding banking operations. Thus, the bank staff and board members were left largely to their own devices in determining how best to move forward. The bank also experienced socio-political and economic problems which affected its operations. The major problem was the loss of confidence in the banking system as a whole because of undue interference by Government, most notably its decision in 1982 to freeze all bank accounts above 050,000. Internally, there was rivalry between sections of the community regarding candidates for Chairman of the Interim Management Committee (as governing bodies were then called). This led to dissension between the various factions in the town and aggravated the general loss of confidence in NRB and the banking sector as a whole. Initial Organization and Resources Table 1 indicates the array of services that NRB provides. Table 1: Services Provided Initial Financial Services Deposit Taking and Payment; Provision and recovery of credit. Additional Financial Business advice to customers to enhance their profitability and Services consequently credit repayment; Financial management training of women customers in conjunction with NCWD - a prerequisite under IFAD on-lending terms. Non-Financial Services Consumer credit services, as for agricultural input supplies and consumer durables. The NRB's initial financial resources consisted of its own equity contribution of 0250,000, a Bank of Ghana equity contribution of 0 125,000 and an annual deposit liability of 0 1.5 million. Of this amount, only 70 percent was available for lending since the Bank of Ghana required all rural banks to maintain a reserve requirement of 30 percent of deposits. The demand for credit far exceeded this amount, which further undermined the NRB's local reputation. Social and Macro-Economic Context The general economic situation of the country in 1984 and recently is presented in Table 2. At that time there was no banking facility in the community itself. A predominantly agricultural community, savings in financial assets were low and most of the people had not been exposed to bank credit concepts and facilities. The social conditions that existed at the time (specifically during the period 1987 and 1997) are reflected in the socio-economic indicators presented in Table 3 below. Comparative figures for the Brong Ahafo Region and national figures are presented in Appendix 1. Between 1984 and 1987, the Brong Ahafo Region was the highest producer of maize (21 percent of national production) and the second highest in cassava (23 percent), two primary staple foods in Ghana. In terms of agricultural employment, the proportion of the population engaged in agricultural activities (15 years and over) was 51.3 percent of men and 48.7 percent for women. Of those engaged in agriculture, 13.6 percent produced for subsistence only, 53.6 percent produced mainly for subsistence, and 32.8 focused on cash crop production. Since 1987 three main programs aimed at alleviating poverty of targeted beneficiaries have been implemented in the NRB catchment area. These are (i) the Enhancing Opportunities for Women in Development (ENOWID) Project, funded largely by Canadian International Development Agency (CIDA); (ii) the Rural Finance Project (RFP), funded by IDA; and (iii) the Smallholders Credit Input and Marketing Project (SCIMP), funded by IFAD. 2 Table 2: Macro-Economic Data 1984 and 1997 INDICATOR 1984 '199.7 Real GDP per capita (US$)* 383 411 GDP growth rate (%, 1984-89, 1990-98) 5.1 4.2 Inflation rate (%) 18 35 Formal sector lending Interest rate (%) 20 40 Informal sector lending interest rate (%) 40 50 Exchange rate (O/US$) 131 2000 Population Density (persons per sq. km) 52 80 * GDP at constant 1987 prices1 Table 3: Socio-Economic Conditions In Region Of Catchment Area (1987) And National (1987, 1997) SOCIO-ECONOMIC INDICATOR 1987 Local 1987-National 1997 National Population (millions) 1.2 12.0 18.0 Population Density (persons per sq. 30 52 80 km.) Life Expectancy Rate (years) 55 55 58 Infant Mortality (per 1000 life births) 65 NA NA The ENOWID project, which was implemented by the Ministry of Local Government and Rural Development, did not involve the NRB and has not been sustained after CIDA and other donors withdrew their support. This is largely because it did not forge strong links with any formal banks which could have taken over the clientele developed. Under IDA's Rural Finance Project, NRB was granted a total re-finance loan of 092.1 million between 1993 and 1994 which enabled it to disburse loans to about 3,900 beneficiaries. The project also provided some funding for staff training. By the end of 1994, NRB had 3 maintained an average overall recovery rate of about 85 percent for these funds. The project facility has become part of the NRB's lending assets, and has also increased its liabilities, as the installments due have to be repaid to the BoG. The SCIMP was in operation from 1990 through 1997. Under this scheme, NRB's annual budget for agricultural and women's income generating loans are approved and funds released for onlending to mixed groups (men and women) and women's groups that meet the project's eligibility criteria. By the end of 1994, NRB had disbursed a total of 0 130.0 million to twenty-one mixed and forty-nine women's groups. The total membership of the mixed groups and women groups was 210 and 400 respectively with an average of ten people in a group. During that period, NRB achieved a 100 percent recovery rate on IFAD loans due to high supervision and monitoring of borrowers by its credit officers. Their mobility was facilitated by the provision of a vehicle and two motorcycles by IFAD. Furthermore, IFAD provided quarterly reimbursement of the basic salaries and fringe benefits of the NRB credit officers assigned to IFAD projects. Even though NRB was able to obtain access to external resources from 1992 onwards, the effective demand for credit still exceeded its net resources available for lending. While total application for loans was 0651.7 million at the end of 1994, NRB's total amount of available resources after meeting its mandatory BoG reserve requirements, was only 0400.4 million. Table 4 shows the resources of funds available to NRB. Table 4: Sources Of Funds From 1994 - 1997 (0 millions) Total Equity 50 98 110 158 Bank of Ghana Loan - - 121 119 Deposits 512 809 1,181 1,789 Donor Loanable Funds 222 325 458 1,267 Grants Total Funds 784 1232 1870 3333 The Period after 1992 Between 1992 and 1994, macro-economic policies and legislation created a challenging environment for efficient operations of financial institutions. The policy with regard to granting credit has in some cases resulted in more formalities and rigidities in the delivery of that service. 4 The restructuring and divestiture of local banks led initially to some loss of confidence in the system by certain sections of the public. Coupled with other issues, such as significant increases in yearly nominal cocoa prices, petrol and petroleum products, these changes have made it difficult for NRB to meet the cash demands of customers. National budgetary deficits and the rapid depreciation of the currency have contributed to high circulation of currency in the system, leading to excess liquidity problems and inflationary pressures on the economy. The above led to high interest rates and negative real rates of interest, making deposit mobilization extremely difficult. Despite these conditions, however, NRB was able to achieve a five-fold increase in deposit mobilization between 1992 and 1994 in nominal terms. In real terms, there was an average annual growth rate of about 55.5 percent in the deposits of NRB. (Refer to Appendix 2 for details of real growth in NRB's deposits.) In terms of the delivery of financial services, the people of Nsoatre and its environs are now aware of banking services, and many more people have cultivated the habit of savings. Available data indicate that the number of depositors increased from 5,570 in 1990 to 12,943 by the end of 1994. Government and donor policies have to a large extent facilitated the operations of NRB. For instance, government policy which exempts rural banks from tax for a period of ten years has helped to generate enough income to cushion the capital base of the bank. Likewise, training programs offered under the auspices of Bank of Ghana as part of financial sector reforms initiated in 1987 have enhanced the productivity of NRB staff. As mentioned earlier, the assistance provided by IDA and IFAD have also helped to reduce the gap between local demand for credit and the NRB's ability to respond. In addition, the promulgation of the national Banking Law (PNDC LAW 225 of 1989) has had an impact on the functioning and re- orientation of NRB. Under this law, rural banks are expected to operate competitively and prudently, to maintain adequate liquidity and profitable operations. They are scrutinized more closely by the BoG than previously. Internal initiatives undertaken to ensure the continued functioning of NRB include: human resource development, internal financial re-structuring, and strengthening of the organization's governing body. High calibre staff and management trainees have been recruited and staff receive training on a regular basis. Moreover, the bank has introduced more income- generating strategies, such as the establishment of a subsidiary, Consumer Services Ltd., which enables customers to purchase consumer goods on hire-purchase terms. In addition, NRB has engaged in share-capital mobilization campaigns and education to raise its capital structure. As a result, the value of shares increased from 02 million to 0 12 million between 1990 and 1994, and then to 056 million in 1998. The impact of these interventions has been positive. Donor support has increased the amount of loanable funds. To the extent that donor funds by IFAD and IDA are on-lent by BoG at market rates, the flow of such funds is not in direct conflict with self-sustainability. On the contrary, through the provision of such donor funds to customers, NRB has been able to increase its outreach and consequently its deposit mobilization significantly. Recent government legislation requires strict adherence to regulations and prudent practices. As a result, NRB has had to change its mode of operations. Regular training has resulted in better service. This change has helped to alleviate the initial disappointment that certain sections of the population showed when NRB became more stringent in its operational and loan 5 disbursement procedures in order to comply with the standards mandated by the financial sector reforms. Social services and other assistance presently available to the population have also improved. On the national level, the Ghana Living Standards Survey (GLSS) for 1991/92 indicates that 49 percent of adults in Ghana are literate in English or a local language. Male literacy rate was 60.8 percent while female literacy rate was 38.5 percent. Since the improvement in social services is nationwide, it would be safe to assume that the Brong Ahafo Region in which NRB is located has experienced similar gains. Nsoatre is now connected to the national electricity grid and the road from Nsoatre to Kumasi (about ninety miles away) is of good quality. Nsoatre also has a Senior Secondary School (SSS) and a government health post. Financial Services Sector Currently, NRB has its head office in Nsoatre and operates branches and agencies in four surrounding communities -- Sunyani, Yamfo, Chiraa and Jinijini. A wide range of other financial institutions and entities also operate in this area. These include commercial and development banks and non-bank financial institutions, such as insurance companies, a building society and a cooperative credit group, the Tata Special Susu (TSS). Four commercial banks, Standard Chartered Bank (SCB), Barclays Bank (Gh) Ltd (BBG), Social Security Bank (SSB) and Ghana Commercial Bank (GCB) are engaged mainly in the delivery of commercial banking services such as the acceptance of deposits, payment of cheques and granting of loans/overdrafts. The SCB also provides clearing services to rural banks (RBs) in the region, while SSB offers consumer credit facilities to its customers in addition to its regular business. The development banks -- National Investment Bank (NIB), Agricultural Development Bank (ADB) and Bank for Housing and Construction (BHC) are engaged in the financing of short, medium and long term projects in various activities as indicated by their names. For instance, NIB is engaged largely in funding industrial projects; BHC focuses on the financing of infrastructure projects such as buildings and roads; while ADB finances smallholder farmers and fishermen, agriculture and its allied industries. The insurance companies -- State Insurance Corporation (SIC), Great African Insurance Company (GAIC) and Vanguard Insurance Company (VIC) offer insurance services to clients in the region. The Social Security and National Insurance Trust (SSNIT) undertake the provision of old age security through the payment of end of service benefits/pension emoluments to its contributors who are mainly workers. First Ghana Building Society (FGBS) is engaged in financing real estate development. And TSS is engaged in cash/savings mobilization for market women and local traders. The NRB is presently engaged in the mobilization of resources from the low and middle-level income groups and advancing credit to them. In future, NRB intends to broaden its scope of operation to attract the upper income level group in an attempt to widen its capital base. 6 2. STRUCTURE AND ORGANIZATION Organizational Structure and Conduct The current structure of the organization is depicted in Figure 1 below. Figure 1. BOARD OF DIRECTORS MANAGER PROJECTS BRANCH OPERATIONS ACCOUNTS SUB- CLERKS PROJECTS AGENCIES/BRANCHES OFFICERS Noteworthy adjustments that have occurred in the structure of the NRB during its ten years of existence, include increasing the number of management staff positions and re-orienting the eligibility criteria and - responsibilities of the bank's governing body. The NRB has implemented these and other changes in order to address some of the major problems it experienced during its early days. These included the following: i. Inadequate staff training. The bank did not provide staff training before the Rural Finance Project was implemented in 1990. ii. Limited geographic presence and operations. The NRB's branch operations were originally restricted to its headquarters (Nsoatre), where deposit mobilization and banking business were limited because of the small size of the town, population and level of commercial and economic activities. 7 iii. Non-competitive remuneration for staff. Salaries and benefits were lower than those paid by other banks, which made it difficult for NRB to attract and retain highly qualified and experienced staff. Changes in the NRB's policies and procedures were also stimulated by the promulgation of the Banking Law and the need to comply with new capital adequacy ratios, reserve requirements, banking supervision reporting requirements, etc. (Box 1). Box 1: NRB's Board Of Directors The governing body of the bank has been re-organized from an Interim Management Committee to a permanent Board, with more technically qualified, experienced members, that represent the community more effectively. The Chairman of the Board is a successful timber merchant who is ably supported by a retired banker and accountant as well as a professional teacher. The other Board members are all well experienced in their various fields. All the Board members are from the community and have been selected on the basis of their professional competence and experience. The majority of Board members have served for over nine years, which has engendered greater cohesion and understanding to achieving a common goal of building a viable and sustainable community bank. Over the years, the NRB Board has developed a number of programmatic banking practices and strong sense of financial discipline among staff. The Board concentrates on policy making, and leaves the day-to-day running of the bank to its management, which is required to give a monthly report to the Board. Since the bank is community based, most of its clients are also shareholders, and are represented on the Board. Through this arrangement, any operational lapses are detected and addressed quickly. Liberalization of the financial system has also led to increased competition from the eight commercial and development banks in NRBs operational area. This has compelled the NRB to strengthen its internal management policies and to re-orient its approach. The new approach to managing the organization has the following principles: i. ensuring effective, long-term planning by NRB's senior staff and board members; ii. expanding the number of branches and geographic areas of operation; iii. restructuring the NRB staff so as to manage new obligations; iv. improving the conditions of service of staff to ensure motivation; v. providing attractive borrowing and savings rates; vi. offering regular staff training; and vii. ensuring good staff/customer relationships. 8 As a result of these changes, the number of management staff positions increased from two to eight over the ten-year period (1984-1994). Currently, NRB has the following professional positions: Manager, Trainee-Manager, Project Officer, Accountant, Senior Clerk and three Sub- Accountants. The current employees have good educational backgrounds and adequate working experience. In addition, recruitment procedures are overseen by an appointments committee of the Board which ensures that certain minimum qualification requirements are met. For instance, the minimum qualification for a clerk is a Diploma in Business Studies. In addition, a training schedule for all categories of staff has been developed and is maintained. Both internal and external training are undertaken. Internal training includes in-service training, attachment to departments within NRB, seminars and workshops conducted at the week-ends for staff. External training is organized periodically for different categories of staff by the Association of Rural Banks (ARB). Staff of NRB participate in these external programs at least once every three months. The improved incentives for staff include basic entertainment, out-of-station, travel and transportation and housing allowances. In addition, the NRB occasionally pays a "bonus"/honorarium to staff members who perform exceptionally well. Legal and Organizational Structure The NRB operates under the Banking Law (PNDC Law 225) of 1989, and the Bank of Ghana is the overall supervisor of its operations. It is also linked to the mainstream commercial banking sector, specifically Standard Chartered Bank (SCB), through the check clearing system. In addition, it has linkages to the Ministry of Agriculture through the IFAD-supported SCIMP Program. As an agent of credit disbursement under various external donor assistance schemes, NRB has linkages to external donors such as IFAD, IDA and, more recently, Freedom From Hunger (FFH), a U.S. based nongovernmental organization (NGO) that offers credit to poor women in combination with health and education services. Nsoatreman Rural Bank also collaborates with the District Assemblies (local government) in the provision of infrastructure to communities. It operates in three administrative districts -- Sunyani, Berekum and Tano Districts. By 1994, there was one head office located in Sunyani, and four area branches, one of which is in an urban area. Out of thirty-seven employees, nine were women holding mainly secretarial and clerical positions; there was no woman credit officer. The reason NRB senior management cites for not having recruited female credit officers is that very few women living in the bank's catchment area had the required minimum qualification of a university diploma or degree in agriculture, economics or business administration. The NRB has since sought and recruited women credit officers specifically to oversee the Women In Development (WID) component under the IFAD-funded SCIMP project. 9 Management and Institutional Organization The NRB management has authority to initiate policies and implement procedures provided that such policies and procedures are within the framework of the Banking Law. The NRB has effective management information systems in place that are adequate. These are designed to conform to the reporting requirements of the BoG regarding liquidity, asset quality, debt exposure, sectoral distribution of credit, capital adequacy, maturity/ageing analysis, capital expenditure, and the compensation and benefits provided to bank directors and officers. The frequency of reporting has been structured in such a way as to facilitate the flow of information for management decision-making on a weekly, monthly, quarterly and half-yearly basis. Management is thus able to respond quickly to the information needs of clients, the BoG, and donors. The work of the NRB field staff is also enhanced by the efficient reporting and rapid feedback system that management has developed. However, while the management information systems have been adequate for the bank's past needs, they are very labor intensive and have become increasingly burdensome given the rapid increase in the number of customers. The NRB senior staff have a positive orientation towards capacity-building, particularly in the following areas: management, resource mobilization and prudent/productive lending. In this regard, funds are consciously budgeted and used for staff and client training activities. In addition to the training that bank staff receive from the Association of Rural Banks, they are also trained in conjunction with NGOs such as APPLE (which also participates in the IFAD- SCIMP Program), Freedom From Hunger (FFH) and quasi-government institutions for women, such as National Council on Women and Development (NCWD). Clients receive training to expose them to the -advantages of the various financial services that NRB offers. In this effort, NRB field staff help to identify potential activities and geographical areas for loan financing. They meet with potential beneficiaries and facilitate group formation. The animation of the groups is then undertaken by selected NGOs until the groups are ready to qualify for credit. This typically occurs within a period of six months. The groups elect executives to open and operate group bank accounts, and the group members receive training from the partner NGOs in basic book-keeping, group dynamics and credit management skills, as a precursor to receiving bank loans. Regular meetings are held with groups by project officers to ensure adequate communication and continuous efforts to address their problems. Since inception, NRB's significant achievements include: i. expanding the number of branches from one to five within the five years; ii. increasing the number of depositors from 5,570 to 12,943 and the number of borrowers from 5,754 to 15,618, within five years; iii. developing linkages with institutions and donors in order to enhance the bank's capital base and training capabilities. NRB has developed active linkages with two donors (IDA and IFAD), two NGOs (APPLE and FFH) and a quasi-government agency (NCWD). 10 Despite these achievements, initially NRB failed to take advantage of several new financial products that would have improved its ability to increase the scale of its deposit mobilization and credit activities. For example, the NRB offered depositors ordinary savings and current account services while it could have offered time deposits and negotiated certificate deposits services, as do many commercial banks in Ghana. Furthermore, it did not take advantage of the increasingly popular inventory credit schemes that the Agricultural Development Bank (ADB) offered for several years to small-scale grain farmers in neighbouring districts of the Brong-Ahafo Region. Human Resources The NRB branch structure, community representation on its Board, and its number of staff allow the organization to interact effectively with its clients, especially those living close to the various branch offices, (Box 2). However, clients living in more remote areas do not enjoy these services, as the ratio of its field credit officers to agricultural and rural customers is very low. This does not allow for effective project supervision, monitoring and recovery of credits to the agricultural and rural sector, and explains the lower recovery rate2 associated with the agricultural sector. The bank's average recovery rate for agricultural loans were typically between 65 percent and 75 percent, compared to personal loans recovery of between 90 percent and 96 percent for the same period. Box 2: Decision Making, Communication And Training Policies The full board of twelve members meets monthly to review the bank's operations, while a smaller executive board (of three members, including the manager) meets once every two weeks to consider loan requests above the branch manager's approval limits. Board/Management decisions are conveyed to staff through circulars, memoranda and staff meetings. Staff meetings are held monthly to apprise staff of current developments in the bank. Circulars are also issued periodically to inform staff about management policy decisions. Both staff and directors are given periodic training by resource persons engaged by the Association of Rural Banks (ARB). Areas of training include resource mobilization, capital re- structuring and share-holding. Training for staff includes accounting, book-keeping, project/credit evaluation, reporting and management information systems. In addition, staff also participate in joint training programs with local NGOs engaged in common donor-funded credit programs. Periodic in- service staff training programs also ensure continued efficiency. Borrowers are given some training in lending procedures, savings and their obligations to the bank at regular fora and at Annual General Meetings (AGM) with shareholders and Board of Directors. While the recovery rates for agricultural loans have been quite low, the NRB's experience has nevertheless been quite impressive when compared to most other rural banks and the banking sector in general. Most rural banks in Ghana and virtually all the commercial banks have discontinued lending for agricultural activities, especially by small-scale producers, as they have had very negative experiences, both in terms of loan recovery and the cost of providing loans. These days, most rural banks lend only to salaried workers living in rural areas and to 11 merchants and other business people in such locations. They also tend to keep most of their funds invested in treasury bills rather than take the risk of lending for agricultural activities. The fact that NRB has 50 percent of its loan portfolio in agriculture and maintains a high repayment rate, is therefore noteworthy. In order to improve the performance of its agricultural and rural loans, NRB decided to recruit additional field and management staff. It also expressed interest in exploring inventory credit and loans to groups of women as another means of improving its performance. Table 9 shows the productivity ratios of staff from 1994--1997. In 1994, the productivity ratios of 351 depositors per staff member, loan volume of 09.3 million/staff member and ninety-five loan beneficiaries per staff member, were low by MFI standards and indicative of under-utilization of staff, leading to higher than necessary overhead costs. The figures have since improved. Table 5: Productivity Ratios, 1994-97 Loans and Deposits Per Staff Member Year 1994 1995 1996 1997 Deposits: Client/Staff 351:1 540:1 572:1 378:1 Volume/Staff NA 17.2m :1 15.1m :1 38.1m :1 Loans: Client/Staff 95:1 272:1 325:1 292:1 Volume/Staff 9.3m : 16.1m :1 24.2m:1 40.9m:l 12 3. MODES OF OPERATION Deposit Services The factors that constrained the capacity of NRB with regard to deposit services include: i. competition from commercial banks in the catchment area; ii. inability of staff to develop new products; iii. logistical constraints for deposit mobilization in the catchment area, notably lack of vehicles for staff to travel to rural communities or to operate mobile banking schemes; iv. high transaction costs for depositors and borrowers in terms of transportation costs and time required to make deposits or withdraw funds in the branches; v. unfavorable macro-economic conditions, such as an inflation rate of about 35 percent in 1997 and continuous depreciation of the Cedi, resulting in negative real rates of interest being paid on deposits, while increasing operating expenses. Lending Services The NRB lends both to individuals and to groups. It expects that, over time, group borrowers would "graduate" from the group lending program to become individual borrowers as the scale of their enterprises grows. For instance, when smallholder farmers attain loan sizes that are sufficient to cover the cost of producing more than ten acres of maize, the NRB would then be willing to lend to them as individuals. To date, however, very few farmers have managed to graduate from group borrowing to become individual borrowers, as the great majority still have land holdings below the bank's threshold. Although the NRB's ability to monitor loans closely is constrained by its very high customer to project officer ratio and lack of vehicles, it has developed collaborative arrangements with NGOs to help improve its capacity in this regard. Under IFAD-supported credit programs, several NGOs have been identified nationwide to liaise with rural banks in extending financial services to smallholders. Initially, the NGOs helped identify, mobilize and educate rural groups about how to access the services of rural banks. Subsequently, several banks, including NRB, modified the original terms of reference for the NGOs to include loan monitoring and recovery roles to ensure higher loan repayment rates. The primary NGO that the NRB has collaborated with is APPLE which earns a 2 percent commission on the loans that the groups it assists receive (i.e. the groups pay the additional 2 percent to the NRB which then pays APPLE, for its services). This collaborative strategy ensures that NRB and NGO staff 13 visit borrowers regularly to avert the diversion of loan funds and to provide credit education on efficient fund utilization and the mechanics of loan repayment before the loans mature. Partly as a result of monitoring constraints, the NRB has concentrated on lending to customers who live in or close to the towns in which it has branches. The NRB management realizes that its ability to lend more extensively to rural smallholders would depend upon its ability to develop relationships with viable village groups and cooperatives through which individual loans can be wholesaled so as to reduce the bank's lending transaction costs. Box 3: Best Practices Of NRB For Deposit Mobilization Best practices for increasing deposit mobilization by NRB include: i. lowering of the minimum deposit requirement as compared to that charged by commercial banks in the catchment area; which has attracted many customers; ii. enforcement of 25% cash collateral as deposit for all loans, overdrafts approved and disbursed; iii. payment of nominal interest rate on savings, which though representing a negative real rate of interest, was attractive to savers than no interest at all as bysusu collectors, who are the next best financial intermediaries for the majority of rural bank customers. These practices have enabled NRB to increase its deposit base from 102,885 million in 1992 to 0511.978 million in 1994, and to 0831,391 in 1998. In real terms, NRB recorded an average annual growth rate of about 60 percent in deposit mobilization. Other Financial Services The NRB provides financial services to cocoa farmers by purchasing and honoring payment cheques (Akuafo cheques) for cocoa sold to buying companies. Apart from this, the bank does not engage in any other financial service such as insurance, leasing and loan guarantees. The effectiveness of this payment delivery service relieves the farmer of the high transaction costs likely to be incurred from cost of transportation and waiting time. The main constraint to the performance of this service is the lack of logistics to expand it. Non-Financial Services Other services that NRB provides are aimed at improving the financial management capacity of its customers by way of business and investment advice. However NRB is constrained in its ability to do this on a formal basis by its lack of technical staff to carry out this task. 14 The NRB also provides its customers with facilities such as: i. agricultural inputs to farmers; ii. education on improved farm practices and techniques; and iii. consumer credit services through its subsidiary, Nsoatreman Consumer Services Limited. The bank also provides social services to the community, such as the financing of street lighting and provision of school furniture. These services are provided out of the bank's profits as a form of public relations. The provision of these services increases the customer base, thus enhancing the bank's profitability. Box 4: Best Practices For Lending The interest rates set by NRB at any time, depends on the prevailing macroeconomic conditions, such as the rate of inflation. Financial sustainability is a major factor in determining interest rate policy because all the costs of capital, administration and possible loan loss through delinquency and default must be covered. NRB's policy also takes into account the need to make profit and to keep the value of its money intact. The charging of a positive real rate of interest is best practice which could lead to financial sustainability. Other best practices for lending include: i. Lending to salaried workers has ensured high recovery rates because repayment installments due are deducted from salaries, paid through NRB by government and other quasi- governmental institutions. Average recovery rate of 92% has been recorded for salaried workers; ii. Restricting loans only to those cocoa farmers who encash their cheques at NRB branches has ensured about 90 percent recovery rate for cocoa farm maintenance loans; iii. A 5 percent rebate on interest rate on early loan repayment is also an incentive for high loan repayment; and iv. Automatic loan renewal or repeat loans with upward adjustment for group loans has also ensured good loan repayment. 15 4. OUTREACH, ACCESS AND IMPACT Economic Outreach and Impact General Outreach Although NRB does not set outreach targets regarding the percentage of the local population that are customers, the number of its clients has continuously increased over the years. The number of rural clients increased by about 66.7 percent between 1992 and 1993, 42.9 percent between 1993 and 1994, and 22 percent between 1997 and 1998. While women constituted 45 percent of the bank's clients in 1992, this figure increased to 55 percent in 1993, and has increased to 70 percent by 1998 (Table 6). Due to paucity of data, it was not possible to disaggregate type of clients into poor, middle income, and rich peasants/traders. Table 6: General Outreach Total Number of 25,380 28,388 20,009 24,456 Clients Number of Female 17,766 19,872 14,006 17,119 clients Number of Male 7,614 8,516 6,003 7,337 clients Number of Rural 14,720 16,465 11,605 14,184 Clients Number of Urban 10,620 11,923 8,404 10,272 Clients Average 25,380 28,388 20,009 24,456 Percentage The distribution of clients per sector between 1995 and 1998 is shown in Table 7 below. There is consistency in the areas for which clients were served over the years. Most clients were in the service sector, then agriculture, commerce and trade, and then cottage industry. 16 Table 7: Number Of Clients Per Sector 1995 1996 1997 1998 Agriculture 8,122 8,604 5,692 7,116 Commerce and 5,076 6,877 5,778 6,667 Trade Cottage Industry 761 807 534 668 Services 11,421 12,100 8,005 10,006 Total 25,380 28,388 20,009 24,436 Loans The total number of loans increased from 1992 to 1994 and continued to increased from 1995 to 1996, then decreased in 1997 and picked up again in 1998. The primary reason for the increase in the first three years was availability of funds from the IDA-RFP and IFAD programs. While the number of clients in the agriculture sector represented about a third of the bank's total clientele in 1995, the percentage of agricultural loans in the portfolio constituted about three quarters of bank's total loan portfolio within the same period. By 1998 the percentage of agriculture in the portfolio had reduced to about 60 percent. Though there were fewer clients in cottage industry, the volume of loans ranked second after agriculture, conversely there were several commerce and trade clients but a corresponding low loan volume, Table 8. Table 8: Number Of Loans Per Industry I995 1996 1997 1908 Agriculture 9,618 11,490 10,282 12,852 Commerce and 3,206 3,830 3,427 4,284 Trade Cottage Industry 8,977 10,724 9,597 11,995 Services 3,847 4,596 4,113 5,141 Total 12,825 15,320 13,710 17,137 17 Deposits As from Table 9, most depositors are from the service sector followed by agriculture. The number of depositors has not increased since 1995, however the total value of deposits has, as shown in Table 10. Table 9: Number Of Depositors Per Sector 1995 '1996 1997 1998 Agriculture 8,122 8,604 5,692 7,116 Commerce and 5,076 5,378 3,558 4,447 Trade Cottage Industry 761 807 534 668 Services 11,421 12,100 8,005 10,006 Total 25,380 26,889 17,789 22,236 Table 10: Value Of Deposits And Loans 1995 1996 1997 1998 Total Value of 660,813 709,782 807,674 831,391 Deposits Total Value of 630,989 697,744 868,836 878,802 Loans Social Impact Client Participation Clients participate in NRB decision-making largely through their representatives on the bank's Board of Directors. Though all board members are NRB customers, three of the twelve members represent three important client constituencies, namely salaried workers, farmers and the traditional council (chiefs and influential people of the area). Furthermore, client feedback and suggestions are provided at public fora, group meetings and at the Annual General 18 Meetings (in which the bank's management participate). These help the bank to determine client needs and improve the quality of its service delivery. Gender and Poverty Awareness While NRB has no written policy specifically targeting women or the poor as customers, it is increasing its efforts to lend to women largely due to the good repayment experience it has had with female customers through various special projects (namely, the IDA Credit Facility for agricultural production, agro-processing and marketing and the IFAD Program that specifically targets women farmers). The NRB hopes to increase the number of female customers in the future. It is encouraged in this regard by recent interviews with female customers who came into contact with the bank through donor-supported projects that indicate that the women are now sufficiently confident in the bank to conduct business with it on an individual basis (as opposed to the group lending basis specified under the donor-supported programs). These interviews further indicate that these new female customers are encouraging other women to use the bank's services. The bank's recruitment practices have generally not reflected gender sensitivity. Out of the bank's employees, women are mainly employed as secretaries, clerks and cashiers, and few are employed as loan officers. To some extent, collaboration with other organizations in the implementation of projects has reflected the NRB's awareness of gender and poverty issues. For instance, the bank works with officers of the National Council on Women and Development on the IDA Project. The bank's role is to organize, train and facilitate credit for the processing groups that are assisted through the IDA project. It also collaborates with officers of the Department of Agricultural Extension to provide training for poor farmers. Under this project, the bank works through a female agricultural extension officer to provide services to groups of farmers in Chiraa district, one of its catchment areas. The bank has been encouraged by donors to recruit female field agents and bank officers. It plans to improve its ability to provide services to female and poor clients by making staff more poverty and gender-sensitive. The bank hopes that its participation in a new gender- sensitive nutrition and income-generating assistance project with Freedom From Hunger would facilitate this. Its management intends to incorporate the lessons learned from this association into its plans for the expansion of its regular banking operations in the future. Interviews with the NRB's customers reveal that, in general, they find the bank more convenient and accessible relative to other financial institutions in the region, primarily due to its multiple branch structure and presence in rural towns, as opposed to being located in the major cities. Even so, customers did cite the time required to obtain bank services as an area that requires improvement. At peak periods in the month, customers often have to spend several hours conducting their banking transactions. The bank is aware of the problem and it is considering the merits of a computerized system to expedite services to its clientele. A major factor that hinders access to NRB's services for some potential customers is the lack of collateral. The types of collateral preferred by the bank includes savings deposits, 19 financial instruments such as treasury bills and government bonds, bank and insurance guarantees, and buildings. Because most potential rural bank clients do not possess these assets, the bank has decided to encourage the development of a savings habit in order to use customers' savings accounts as partial security in lieu of other collateral. Currently, the bank lends up to four times the amount that customers who save on a regular basis maintain in their savings accounts. Although the NRB has a relatively long history of operation and a strong community presence in the area, the bank's management employs various methods suitable to its clientele to advertise its services. To promote its services, it uses mobile information vans and also provides free products, such as calendars and pens, to customers. Savings Awareness and Opinions of Clients Customers are generally well informed regarding the mechanics of operating their savings accounts. This is due to the efforts made by NRB staff to promote such awareness at group meetings and fora organized for this purpose as well as in client training sessions. Customers also seemed to be generally satisfied with the way the NRB's saving services are structured. For instance, customers noted that the bank's requirement of a minimum initial deposit required to open a savings account was not prohibitive to attracting new members. They are also generally quite satisfied with the interest rate offered on savings accounts. The relatively low interest rate as compared to that offered by some large commercial banks, appeared to be compensated for by the proximity and the opportunity to have access to the bank's other financial and non-financial services. The NRB renders payment services by honoring cocoa farmers' "Akuafo cheques" and by managing the payment of salaries for workers in the formal sector. This saves the beneficiaries travel costs, time and risk. Non-financial services available to customers include the provision of various goods and inputs on credit terms. Credit Awareness and Opinions of Clients Customers appear to be well aware of the range of credit services the bank offers. They identified various credit facilities for marketing and production activities and personal loans for salaried workers as those that were used most frequently. All the customers interviewed had benefited from one or more of these services and had repaid credit facilities extended to them successfully. Customers were generally appreciative and complimentary of the services provided by the bank. They compared the performance of Nsoatreman Rural Bank favorably with other financial institutions that had served the area in the past. Reference was made, in particular, to two commercial banks which customers found very frustrating because bank staff were only available to conduct transactions in Nsoatre two days per week. This resulted in customers having to travel to Sunyani, the regional capital, for their banking needs on the days that staff did not come to Nsoatre. Farmers interviewed indicated that the various credit facilities for production were particularly useful. They stated that eligibility to benefit from facilities in the future depended on their repayment records. However, they indicated that various factors could influence their 20 ability to repay on schedule, such as weather patterns and market prices of their produce. They also stated that the bank's practice of requesting that loans be paid by December of each year sometimes made it difficult for them, since prices of produce at that time of the year are typically low. Farmers expressed the need for intensification of the provision of non-financial services such as farming inputs. Traders and producers patronize current account services and the various credit facilities for marketing and production. Salaried workers benefit from personal loan and consumer credit facilities. Women customers had benefited from various services including savings and group credit schemes under various projects. The respondents had successfully repaid facilities granted them. They were also complimentary about the services they received. In general, NRB's customers perceive two fundamental differences between themselves and non-customers: bank customers felt they had acquired the savings habit and the discipline of repaying loans on schedule. However, they also noted that for relatively poorer persons living in the region's rural communities, traditional sources of savings and credit, such as susu collectors (mobile money collectors who operate in local market places), rotating savings and credit associations ("ROSCAS") and local money lenders would continue to be more convenient than the NRB, or other rural banks, given their closer proximity and more rapid loan approval procedures. When asked why they did not use these services themselves, customers cited the NRB as being more secure than the traditional mechanisms and as offering significantly lower interest rates on loans than informal money lenders. Impact on Individual Capacity Customers indicated that their involvement with the bank has had a positive impact on their individual capacities. Farmers indicated that in most cases their production had doubled. One woman stated that prior to her benefiting from bank services she had been able to produce only ten bags of maize per season. Subsequently she was able to produce twenty-five bags. Other programs had provided capital equipment including commercial food processors and mills. Salaried workers indicated that credits from the bank had improved their ability to provide consumer items for their families, meet family and social commitments and to handle emergency situations without getting into debt. Salaried workers reported a general improvement in their families' social well-being and status. The changes that customers typically cite as indicative of improvements in their well- being as a result of access to banking services include: the purchase of appliances such as televisions and freezers, the construction or improvement of their houses, and the ability to pay school fees for their children. Interaction with the bank had also resulted in empowerment for some customers. A woman agro-processor interviewed had benefited from a group credit facility and doubled her output as a result. She indicated that from this experience she has gained the confidence to approach the bank in her individual capacity for advice and assistance on personal investment projects. 21 Impact on Institutional and Community Capacity Beneficiaries of NRB's services indicated that apart from the enhancement of individual capacity, the presence of the bank has had a developmental impact on the community and organizations within it. The NRB clients interviewed regarding the bank's impact on the community included various local opinion leaders, such as chiefs (traditional authority), assembly members (local authority), teachers, adult functional literacy coordinators, agricultural extension officers and leaders of women's groups. In terms of the NRB's support for general community development, they cited as most noteworthy the bank's provision of street lighting, school furniture, cement and other building materials for public structures, and financial assistance for the construction of the chiefs palace. In terms of support for local organizations, they cited, in particular, the bank's assistance to the local private transport providers union (Ghana Private Road Transport Union) to purchase a bus to facilitate transportation to and from the town. They noted that the proceeds from the bus's operations have been used to purchase another bus. They also mentioned that several local church groups have acquired loans for their development activities. And they further noted that the loans provided under the IFAD scheme, in collaboration with NGOs, such as APPLE, have provided agro-processing machinery for groups of borrowers, which, in turn, provide significant time saving for community members, especially women. In addition to providing support for the development of local infrastructure, the NRB also plays other important, but often less visible, community development roles. While the bank has not been formally involved in the resolution of community conflicts, some bank staff, given their experience and prominence within the community, often serve in an individual capacity as mediators in conflicts and counselors on social issues. The bank also provides other services that include the acceptance of documents and other valuables for safe-keeping, training in the preparation of wills, and education on banking and financial services that customers can utilize in their business dealings and with other financial institutions. In some instances the bank has also served as the executor of clients' wills. Regarding their educational efforts, bank staff have interacted effectively with related development projects such as the Functional Literacy Program of the Non-Formal Education Division of the Ministry of Education by providing training to participants in investment decision making, business planning, feasibility analysis and other related subjects. 22 5. FINANCIAL PERFORMANCE Sources and Uses of Funds The indicators shown in Table 11 have been applied to measure the financial performance of NRB. Table 11: Financial Performance Of NRB INDICATOR MEASURE i. Provision for loan loss/volume of loan Quality of loan assets outstanding ii. Deposits as a percentage of total funds Volume of deposits mobilized iii. Debt: equity ratio Leverage iv. Operating income/total operating expenses Profitability v. Net interest margin Profitability vi. Average employee compensation/GDP/capita Level of compensation Over time improvements made in the assets quality of NRB can be attributable largely to: i. Lending to salaried workers whose loan installments are deducted at source; ii. Lending to cocoa farmers who only encash their cocoa cheques at NRB branches thereby allowing loan installments due to be deducted at source; iii. Insisting on maintaining a savings balance of at least 25 percent of outstanding loans as part collateral; and iv. Providing loans to groups organized, animated and linked to the bank by collaborating NGOs. Together with the bank staff, these NGOs supervise, monitor and collect loans. 23 Profitability Profitability of NRB has increased as operating income/total non-interest operating expenses increased. The net interest margin has also declined. The increase in the profitability of NRB could be attributed mainly to the following: i. Loans volume increased during the period because IFAD and IDA provided additional loanable funds. This culminated in higher interest incomes; ii. The NRB has increased its investments in treasury bills significantly which provided higher interest/yield incomes than loans. Challenges and Future Plans The NRB has conducted an internal institutional assessment and subsequently developed a five- year plan to address identified constraints, consolidate its gains and accelerate its growth on a sustainable basis. The plan describes the culture and structure that the bank aspires to create and sets out goals, targets, innovations and action strategies. As a result of this planning exercise, bank staff have decided to seek to transform the institution into a community bank, as they believe this structure will help to overcome some of the identified constraints. In its assessment, the bank identified the following weaknesses: i. low financial resource mobilization culminating in inadequate loanable funds; ii. slow pace of group formation due to a lack of logistical support (transportation) and a high customer-credit officer staff ratio (3500:1); iii. high financial transaction costs due to inflationary pressures in the economy; iv. lack of innovation in products for savings mobilization and lending; v. low human resource development; and vi. a relatively cost-ineffective, manual management information system. The NRB has set the following goals within the five year plan for capacity-building and its transformation into a community bank: i. higher rates of deposit mobilization; ii. increased equity share capital; iii. increased profitability; 24 iv. higher reserves; and v. increased capital adequacy base. The transformation of NRB into a community bank has the following possible advantages and consequences: i. To meet the eligibility criteria, its equity capital base will have to be increased to at least 020.0 million which would provide the bank with a larger capital base for lending operations; ii. The NRB would have clearing facilities directly with the Central Bank, rather than through local commercial banks and to deal in and hold foreign currencies; and iii. community patronage is likely to increase as a function of the additional services the bank would be able to provide but also because community members will see the bank as having higher status and credibility. The five year targets the bank has set for itself include: i. deposit mobilization: to raise the present level from 0471 million to 03.5 billion; ii. equity shares: to increase from its present level of 023.4m to 073m; iii. reserves: to raise the present level of 0121.3m to 0605.5m; and iv. capital adequacy: to rise from its present level of 072.8m to 0300m. The strategies for achieving these goals and targets include: i. expansion of its catchment area; ii. computerization of its management information systems; iii. more intensive training of clients on their obligations to the bank to reduce loan delinquency and default rates; iv. intensive staff training; v. recruitment of high quality personnel; vi. better conditions of service for staff; 25 vii. forging symbiotic linkages with formal financial institutions, such as the Agricultural Development Bank and credit unions, and with informal financial institutions (IFIs), such as susu collectors and ROSCAS. The NRB linkages with formal banks will provide increased funds which it will be able to onlend to its customers. Linkages with IFIs will enhance its deposit mobilization through the lodgements of the IFIs and also enable it to wholesale its credit through the IFIs to their customers and patrons. The wholesaling lending strategy will reduce transaction costs; viii developing stronger linkages with NGOs active in rural development; and ix. procuring adequate logistic support, especially transportation. In its efforts towards reaching full sustainability, NRB intends to pursue the following measures: i. instituting cost-center accounting for each of its branches/agencies to eliminate unprofitable centers; ii. encouraging the development of innovative products for deposit mobilization through the provision of additional incentives for saving; iii. paying competitive interest rates for deposit mobilization in order to maintain and increase its market share; and iv. levying appropriate interest charges on its credit facilities in order to maintain the real value of its capital. 26 6. INNOVATIONS AND LESSONS LEARNED Some unique features of the Nsoatreman Rural Bank include: i. The bank has a strong, highly qualified management, staff and board of directors, all of whom are local community members with a personal stake in the community's development. The rate of turnover of board members and management personnel has been very low. This has contributed to the NRB's consistency in policy formulation and implementation, and to its positive performance in overcoming problems, which still plague many other rural banks in Ghana. ii. The NRB has learned to combine flexible bank operations with diligent supervision of projects and loans. Through research and experimentation with various minimum deposits, the bank has settled on a minimum deposit amount which is much lower than the minimum requirements of commercial banks in the catchment area (i.e. 03,000 versus 05,000). The result has been a tremendous increase in deposit mobilization. iii. The bank's lending practices have been equally innovative. For example, lending to salaried workers has ensured high recovery rates because of repayment deductions at source. The group borrowers that apply to the NRB are also required to use salaried workers as guarantors for loans. In addition, the bank requires borrowers to maintain a minimum of 25 percent of outstanding debts in their savings accounts as partial collateral. To reduce the risk of loan defaults in its agricultural lending, the NRB extends credit only to Cocoa farmers, who encash their government-issued checks and maintain savings accounts with the bank. To encourage high and prompt loan repayment, the NRB has successfully offered a 5 percent interest rebate on early loan repayments. iv. To help attract new customers and increase profits, the bank has also introduced new services such as the establishment of a subsidiary, Consumer Services Ltd., which enables customers to purchase agricultural and consumer goods on hire-purchase terms. The NRB has engaged in share-capital mobilization campaigns and education to raise its capital structure. As a result, its share capital has increased over time. v. The NRB has developed collaborative arrangements with NGOs to help improve its capacity to monitor loans. Several NGOs have been identified nationwide to liaise with the bank in extending financial services to rural smallholders. The NGOs help identify, mobilize and educate rural groups on how to access the services of rural banks. The original terms of reference for the NGOs are modified to include loan monitoring and recovery roles to ensure higher loan repayment rates. The NRB and NGO staff visit borrowers regularly to avert the diversion of loan funds and to provide credit education on efficient fund utilization and the mechanics of loan repayment. The NGOs earn a modest commission on such loans. 27 ANNEX Annex 1: Data Number of Depositors 1951996 1997 1998 Total Number of 25,380 26,889 17,789 22,236 Depositors Number of Female 17,766 18,822 12,452 15,565 Depositors Number of Male 7,614 8,067 5,337 6,670 Depositors Number of Rural 14,720 15,596 10,318 12,897 Depositors Number of Urban 10,660 11,293 7,471 9,339 Depositors Average 25,380 26,889 17,789 22,236 Percentage Number of Borrowers 1995 1996 1997 1998 Number of Female 9,618 11,490 10,283 12,852 Borrowers Number of Male 3,206 3,830 3,428 4,284 Borrowers Number of Rural 8,978 10,724 9,597 11,996 Borrowers Number of Urban 3,848 4,596 4,113 5,141 Borrowers Total Borrowers 12,825 5,320 13,710 17,137 28 Number of Loans per Industry 1995 1996 1997 1998 Agriculture 9,618 11,490 10,282 12,852 Commerce and 3,206 3,830 3,427 4,284 Trade Cottage Industry 8,977 10,724 9,597 11,995 Services 3,847 4,596 4,113 5,141 Total 12,825 15,320 13,710 17,137 Loan Portfolio Distribution per Industry (millions of cedis) '1994 1995 1996 1997 Agriculture 111 154 347 581 Commerce and 144 146 393 689 Trade Cottage Industry 32 70 34 42 Transport 19 135 46 80 Other 51 253 318 532 Ratio of Operating Income to Operating Expenses 1995 996 1997 1998 Income 114 106 120 123 Expenses _ Loan Recovery Rate 1995 1996 1997 1998 Loan Recovery 98.3 98.4 99.5 99.5 Rate 29