Barely 15 years ago, financial services in Ghana were the preserve of banks and other institutions licensed by the central bank. The design and modus operandi of these institutions tended largely to exclude the predominant informal sector from access to financial services, which limited economic opportunities for millions of people. Steps to include the informal sector in the formal financial industry encountered bottlenecks until technology broke the barrier to access, bringing with it incalculable benefits to consumers.
Eleven years ago, MTN, the mobile network operator, pioneered the country’s first mobile money service, which enabled users to send and receive e-money on their mobile handsets. This novelty in financial services piggybacked on the growing penetration of mobile technology, and other telecom operators (telcos) soon launched their own mobile money platforms.
The mobile money journey encountered difficulties initially, especially in the first three years when uptake was low. This was probably due to the Bank of Ghana’s branchless banking guidelines which created bottlenecks for telecoms firms trying to provide financial services.
The central bank remedied this in 2013 with the introduction of the e-money issuers guidelines, which among others directed telcos to decouple their mobile money business from their telecommunication functions—bringing mobile money under the direct regulation and supervision of the Bank of Ghana.
This development, coupled with relaxed Know Your Customer (KYC) requirements for basic mobile money accounts, increased the popularity of the service, with active users increasing from under 0.5m to over 13m as at end of 2019.
The exponential growth of mobile money has transformed the financial landscape of the country, showing the possibilities with using mobile technology to reach the unbanked given the right regulation, stakeholder collaboration, and a conducive environment for investment.
Thanks to improved internet connectivity and ubiquitous mobile technology, banks and other financial institutions have been able to develop and promote digital channels for transactions with customers. At the same time, these technologies are enabling these institutions to repurpose their business models while making it possible for new types of providers to enter the market.
On the back of the growing trend in digital financial services, the government recently outdoored the Digital Financial Services (DFS) Policy, which is a blueprint for how Ghana can leverage digital finance to achieve its financial inclusion goals.
As the Finance Minister, Ken Ofori-Atta, says in the foreword to the policy, telecoms operators have already taken the country’s payments infrastructure into the twenty-first century and riding on top of these digital rails, e-commerce is expected to grow rapidly.
Financial technology (fintech), which has grown substantially in the past decade, is on course to revolutionise product design, delivery and user experience of financial services.
Covering a four-year period and six thematic areas, the DFS policy outlines in detail steps the government and the payments industry will take to bolster the country’s DFS ecosystem. The policy contains short- and medium-term action points that provide clear and consistent guidance for all stakeholders in both the public and private sectors to work together to realise a shared goal of robust digital inclusion.
Implementation of the policy should enhance the governance of the DFS ecosystem; create a regulatory framework that supports innovation, competition and financial inclusion; strengthen the monitoring capacity of regulators; enhance the utility of digital infrastructure; prioritise the digitisation of digital-use cases; and consequently support the emergence and growth of fintechs.
The government envisions that by the end of the four-year period of implementation, all Ghanaians will have access to a broad range of suitable and affordable digital financial services—including payment, credit, savings, insurance, and investment.
Payment flows will have been digitised and formalised, thereby shrinking the informal economy, increasing government revenues, and making monetary policies more effective. In addition, businesses and government will have achieved greater transparency and efficiency to contribute to economic growth. To achieve these goals, the government has committed to fostering an open and level ecosystem that welcomes the new entrants, embraces technology, and protects users.
Institutions like the Organisation for Economic Cooperation and Development (OECD) argue that a growing digital financial sector typically requires regulators and supervisors to develop regulation that is technology-neutral, device-agnostic, principles-based, and proportional to risk, creating a level playing field for all players.
It is thus not surprising to see the DFS policy highlighting six action areas that relate to governance of the ecosystem, regulation, capacity building, market infrastructure, promotion of digital payments as well as support for fintechs. The government goes further to pledge its leadership of the process using a range of policy instruments.
“We can drive the digitisation of the economy by adopting electronic payments and supporting specific digital payment use cases,” says the Ministry of Finance. “We recognise that payment connectivity is more than a tool to digitise the government’s existing payment flows, and that digital payments can evolve into a far-reaching platform for strengthening energy policy, food security, government transparency, and other core policies. Further, we can put in place policies that incentivise specific DFS, such as responsible digital credit, savings and insurance services to improve the financial lives of citizens.”
In 2015, the Consultative Group to Assist the Poor (CGAP), an independent think tank that works to empower poor people to capture opportunities and build resilience, argued that Ghana was, in some ways, the most “DFS-ready” country in Africa, with 92 percent of adults holding a form of ID required to open an account, 95 percent having basic numeracy, 91 percent owning a mobile phone and 74 percent already sending and receiving text messages.
Following the rapid developments in digitisation since this assessment and the introduction of the DFS policy to further accelerate the transformation, CGAP describes the country’s DFS future as promising. That is a projection that few will contradict.