Enabling poor rural people
to overcome poverty



THEME: Formal financial services can learn from the client-tailored characteristics of popular informal counterparts

Women in Ghana, as elsewhere, usually do not have good access to formal financial services. Northern Ghana is the most ‘under-banked’ part of Ghana. According to a 2000 IFAD report, one rural bank office serves an average area of 53 000 km2. There are no formal financial institutions in the majority of the districts in the north. It is not only the travel requirements that exclude women, but also the minimum loan size, the male staffing patterns and the processing and collateral requirement. Therefore, except where semi-formal financial services (such as NGO-operated special programmes) have come in, women petty traders and women with small off-farm businesses use mainly informal alternatives for credit and savings. These have a long history in Ghana. They include susu groups, susu collectors and moneylenders. Informal financial transactions do not involve legal documentation and are based primarily on a personal or business relationship. This makes them easier and pleasanter for women.

Susu groups are basically savings groups, with group members arranging for collection and payment. The ROSCA (rotating savings and credit association/club) is a modified form of susu group. Under the ROSCA model, the members decide on the amount to be contributed by each member at regular intervals. The total collected is given to each member in turn.

Almost all the susu collectors in Ghana are male. Acting as mobile mini-bankers, they accept an agreed upon amount from a saver at regular intervals when they come to a village. This money is meant to be securely deposited for a specific period of time. At the end of this period, the deposit, less a small commission for services, is returned to the depositor. At times, women have emergencies and need to withdraw the funds earlier. Susu collectors usually deposit the money with a bank. Sometimes they invest the funds in their own businesses or lend it to others. There are reports of fraud among susu collectors. The Ghana Cooperative Susu Collectors Association (GCSCA) has been formed to regulate the activities of the susu collectors, but it does not have chapters in all areas of the country. In the north, they are confined to the three regional capitals and a few urban district capitals.

The moneylenders in Ghana are usually the wealthier farmers or traders who have either their own funds to lend or access to credit from banks. Moneylenders know their borrowers, which encourages repayment. The moneylender lends for anything – weddings, funerals, urgent medical expenses, the purchase of extra food, or for more productive uses in farming or off-farm activities. They are not concerned about savings. The loans extended are based solely on the capacity of the borrower to repay. How borrowers use the funds is their business.

These informal financial services have certain advantages, such as:

  • good knowledge of the local economy;
  • good outreach to clients (doorstep service);
  • intimate knowledge of their clientele and their businesses;
  • low transaction costs;
  • very little or no bureaucracy and paperwork;
  • flexibility to adjust to changed circumstances, as in emergencies; and
  • quick turn-around time;

There are also recognized disadvantages, such as:

  • susu system losses as a result of inflation, late collection or the lack of interest on savings;
  • often high interest rates among moneylenders;
  • overdependence on trust, which can be abused;
  • no linking of credit and savings;
  • low volumes of credit or savings;
  • limited financial products;
  • no legal recourse to deal with defaulters or, for savers, fraud;
  • with ROSCAs, each member has to await his or her turn to receive a loan.

Therefore, while informal financial services have definite drawbacks, they also have strengths, and often an established presence in Ghana. Usually, the best approach, as in all development, is to encourage both formal and informal linkages between formal financial service providers and more traditional savings and credit micro-institutions.

Adapted from:

IFAD, Ghana: Rural Financial Services Project, 2000. Pre-appraisal Mission Working Paper: "Re-Packing the Rural Finance Sub-sector in Ghana Poverty Gender and Rural Informal Sector Perspectives" and Working Paper: "Strategy for Mainstreaming Gender with a Specific Focus on Northern Ghana." (All secondary sources are as referred to in these documents.)