Governor of the Bank of Ghana (BoG) Dr Ernest Addison has said that Rural and community banks continue to be drivers for financial inclusion and socio-economic development in Ghana.

He stated that going down memory lane, rural and community banking was conceptualized at a time when access to bank credit for farmers and traders, especially in rural areas, was inadequate.

It was envisaged as a unique business model where rural banks thrived based on community empowerment, community ownership and community participation in governance.

With this background, the first rural bank was established in Agona-Nyakrom, a farming community in the Central Region in 1976, and a year later, a second rural bank was established in Biriwa, a fishing community also in the Central Region. After these two rural banks, several others were licensed, including the Akuapem Rural Bank in 1981, which was the third for the Eastern Region.

With the increasing number of rural and community banks, an Association of Rural Banks (ARB) was formed by the then 30 existing rural banks to support RCBs in building capacity in areas such as risk management, credit analysis, and delivering financial literacy programs to the rural communities.

Subsequently, the Bank of Ghana issued comprehensive guidelines for the establishment of rural banks and introduced the Akuafo Cheque operations in cocoa growing areas in 1982. In 2000, the ARB Apex Bank was established as an umbrella body of RCBs, with 9 branch offices across the country. Thus, the Bank of Ghana regulates RCBs through the ARB Apex Bank.

Dr Addison said this while speaking at the 40th anniversary celebration of Akuapem Rural bank limited.

He stated that in 2017, the Bank of Ghana embarked on a clean-up exercise of the financial sector, having identified the prevalence of system risks across several institutions, including some RCBs.

These included severely impaired capital, low asset quality, liquidity crises, and poor governance structures, which threatened depositors’ funds and undermined efforts aimed at promoting financial inclusion.

“After the initial clean-up of the banking sector, the Bank collaborated with the ARB Apex Bank to reposition RCBs to better realign with the founding objectives of fostering rural economic development. Given the unique nature and expected role of RCBs in the financial sector, the Bank has rolled out some initiatives, including an ongoing review of the Apex Bank model as well as the regulatory and supervisory frameworks to restructure the rural banking concept in Ghana.

“To address lingering corporate governance and risk management weaknesses in the rural banking sector, the Bank published the Corporate Governance Directive and Risk Management Guideline for rural and community banks.

“The Corporate Governance Directive establishes sound corporate governance principles and best practices within the rural banking sector. Among others, it is expected to promote governance systems that will create the environment for individual institutions to undertake their licensed business sustainably, serve the best interest of depositors and other stakeholders and enhance overall corporate performance, accountability, and public trust.

“There is also the Risk Management Guidelines that seek to provide a comprehensive risk management framework that will enable rural and community banks to fashion an appropriate culture of risk management in their respective institutions,” he said.