Financial Sector Development in Ghana: Exploring Bank Stability, Financing Models, and Development Challenges for Sustainable Financial Markets

Description

This book investigates factors that contribute to the development of an efficient financial sector in Ghana. While sustainable finance has long been known to propel economic growth and development, and while many African countries have taken initiatives to develop integrated frameworks of their financial sectors that tackle developmental challenges, scholars and policymakers have always grappled with understanding of factors that enhance performance of the financial sector. In this book, an expert team of authors examines the financial landscape, central bank policies, competition, financial innovation, financial inclusion and banking stability in Ghana, while also exploring how financing models such as enterprise finance and microfinance can be more effective in sustaining financial markets. The authors discuss how Ghana can build fortified institutions, regulatory frameworks, and productive capacity to strengthen the financial sector and foster pathways that will enhance economic development. Empirical and scientific evidence give this book a unique approach that is both qualitative and quantitative. Acknowledgements Contents Notes on Contributors List of Figures List of Tables 1 Introduction 1.1 Ghana’s Financial Sector 1.2 Focus of the Book References 2 What Really Drives Financial Sector Development in Ghana? 2.1 Introduction 2.2 Literature Survey 2.2.1 Overview of Financial Development in Ghana 2.2.2 Theoretical and Empirical Literature Review 2.2.2.1 Endowment Theory (Settler Mortality Hypothesis) 2.2.2.2 Law and Finance Theory 2.2.2.3 Financial Liberalisation Theory 2.2.2.4 Inflation and Finance Theory 2.2.2.5 Growth-Led Hypothesis 2.2.3 Determinants of Financial Sector Development 2.3 Data and Methodology 2.3.1 Data 2.3.2 Estimation Strategy 2.3.3 Specification of Variable Selection Models 2.3.3.1 Specification of Standard Lasso and Minimum BIC Lasso Models 2.3.3.2 Specification of Adaptive Lasso Model 2.3.3.3 Choice of Tuning Parameter 2.3.4 Specification of Lasso Inferential Models 2.3.4.1 Specification of DSL Model 2.3.4.2 Specification of POLR Model 2.3.4.3 Specification of POIVLR Model 2.3.5 Data Engineering and Partitioning 2.4 Results and Discussion 2.4.1 Exploratory Data Analysis 2.4.2 Data Partitioning Results 2.4.3 Regularisation Results on Drivers of Financial Development 2.4.4 Pillars of Financial Development in Ghana 2.4.5 Lasso Inferential Results 2.4.5.1 The Education and ICT Pillar 2.4.5.2 The Macroeconomy Pillar 2.4.5.3 The Bank-Specific and Regulatory Pillar 2.4.6 Modelling Financial Sector Development in Ghana 2.5 Conclusion References 3 Harnessing Financial Innovation for Financial Inclusion in Ghana 3.1 Introduction 3.2 Overview of Financial Innovation Tools 3.3 Methodology 3.4 Ghanaian Context of Financial Innovation 3.4.1 Product Development and Innovation—Interoperability and Strategic Roadmaps 3.4.2 Financial Innovation by Banks and the Telecommunication Industry 3.5 Promoting Inclusion for the Financially Marginalised 3.5.1 Benefits of Financial Innovation 3.5.2 Financial Innovation and Client Protection 3.6 Conclusion References 4 Financial Inclusion and Monetary Policy Effectiveness in Ghana 4.1 Introduction 4.2 Review of Related Literature 4.3 Methodology and Data 4.3.1 Theoretical Model 4.3.2 Empirical Model and Description of Variables 4.3.3 Structural Vector Autoregressive Model (SVAR) 4.4 Data 4.4.1 Principal Component Analysis (PCA) 4.4.2 Time Series Properties and Descriptive Statistics 4.5 Results and Discussions 4.5.1 Impulse Response Function 4.6 Conclusions and Policy Implications Appendices References 5 Gendered Financial Behaviour in Ghana: A Comparative Study with South Africa 5.1 Introduction 5.2 Background Literature 5.2.1 The Context of Ghana and South Africa 5.2.2 Gender and Financial Use: Through the Lens of Ambivalence 5.3 Data and Empirical Model 5.4 Findings and Discussion 5.5 Conclusions 5.6 Appendices References 6 Bank Competition and Financial Sector Stability in Ghana 6.1 Introduction 6.2 Review of Related Literature 6.2.1 Stylized Facts and Data 6.3 Methodology 6.3.1 Measure of Competition 6.3.2 Bank Stability Measure 6.3.3 Data 6.4 Results and Discussions 6.5 Conclusions and Policy Implications References 7 Macroeconomic Determinants of Banking Instability in Ghana 7.1 Introduction 7.2 Banking Instability: A Review of the Literature 7.3 Methodology, Data and Data Sources 7.3.1 Data and Data Sources 7.3.2 Measures of Banking Instability 7.3.3 Measures of Macroeconomic Performance 7.3.4 The Logit Model 7.4 Study Results and Inferences 7.4.1 Descriptive Statistics 7.4.2 Unit Root Test 7.4.3 Estimation Results 7.5 Summary, Conclusions and Policy Recommendations Appendix 1 References 8 Financial Dualism in Ghana: The Implications for Monetary Policy on Loan Variations 8.1 Introduction 8.2 Literature Review 8.2.1 Financial Dualism and the Design of Monetary Policy 8.2.2 Brief Empirical Literature: Bank Lending Channel 8.2.3 Structure of the Financial Services Industry in Ghana 8.3 Methodology 8.3.1 Theoretical Framework 8.3.2 Empirical Modelling 8.3.3 Data 8.4 Results and Discussions 8.5 Conclusion and Recommendation References 9 Revisiting MSMEs Financing Through Banking Reform Processes: Assessing the Ghanaian Legal Experiences 9.1 Introduction 9.1.1 Background 9.1.2 Banks and Banking Reforms 9.2 Unsecured Transactional Financing and Dangers to MSMEs in Ghana 9.3 The Evolution of Legal Regimes for Banking Reforms and Application in Ghana 9.3.1 Phase One: 1953–1983 9.3.2 Phase Two: 1983–2000 Reforms 9.3.3 Phase Three: 2004–2015 9.3.4 The Present Phase: 2016-Date 9.4 Banking Sector Reforms in Nigeria and South Africa 9.5 Current Banking Reforms and Implications for Access to Credit by MSMEs 9.6 Conclusion 9.6.1 Findings 9.6.2 Recommendations References 10 Effectiveness of Credit Risks Management Policies Used by Ghanaian Commercial Banks in Agricultural Financing 10.1 Introduction and Background 10.1.1 Background to Agricultural Finance in Ghana 10.1.2 Regulatory and Institutional Background of Credit Risk Management in Ghana 10.2 Literature Review 10.2.1 Conceptualization of Credit Risk 10.2.2 Review of Empirical Studies on the Implementation of Credit Risk Management Strategies 10.2.3 Remarks on the Implementation of Credit Risk Management Policies in Ghana 10.3 Methodology 10.3.1 Population and Sample Selection 10.4 Results and Discussion 10.4.1 Analysis of Interview Results 10.4.1.1 Interview Results from Credit Officers 10.4.1.2 Interview Results from Borrowers in Agricultural Finance 10.4.2 Review and Analysis of Policy Documents on Credit Risk Management 10.4.2.1 Credit Agreement Policy 10.4.2.2 Credit Guarantee Policy 10.4.2.3 Training and Professional Competence Policy 10.4.2.4 Reporting Requirement Policy 10.4.2.5 Examination and Investigation Policy 10.4.2.6 Knowing Your Customer Policy 10.4.2.7 Minimum Capital Requirement Policy 10.4.2.8 Risk Monitoring and Review Policy 10.4.2.9 Comments on the Analysis of Policy Documents from BoG 10.4.3 Discussion of the Results 10.5 Conclusions and Recommendations References 11 Evaluation of Lending Methodologies Used by Ghanaian Banks to Extend Credit to SMEs 11.1 Introduction 11.2 Literature Review on Lending Methodologies 11.2.1 The 5Cs Principle of Credit Assessment 11.2.2 Relationship and Transaction-Based Lending Methodologies 11.3 Methodology 11.4 Data Analysis 11.4.1 Reliability and Validity Tests 11.4.2 Hypotheses Testing 11.5 Discussion of the Results 11.6 Conclusions and Recommendations References Index