Computerised Accounting in Rural Banking
Computerised Accounting in Rural
Banking
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INTRODUCING RURAL BANKING TO THE WEST AFRICAN SUB-REGION
* INTRODUCTION
The mission of this delegation is to introduce to you the rural banking system
which is currently operating very well after 33 years of its introduction.
Other parts of the world, notably the Netherlands and the Philippines have had
tremendous benefits out of their rural banking system. The search for a system
to tackle the financial problems of the rural dweller started as far back as
the 1960s under the Nkrumah regime. During that period, the need for a
veritable rural financial system in Ghana to tackle the needs of small scale
farmers, fishermen, craftsmen, market women, traders and all other
micro-enterprises was felt. The need for such a system was accentuated by the
fact that the bigger commercial banks could not accommodate the financial
intermediation problems of the rural poor as they did not show any interest in
dealing with these small scale operators. Attempts in the past to encourage
commercial banks to spread their rural network and provide credit to the
agricultural sector failed to achieve the desired impact. These banks were
rather interested in the finance of international trade, urban commerce and
industry. There was therefore a yawning gap in the provision of institutional
finance to the rural agricultural sector. The inability or failure of the
commercial banks to lend on an appreciable scale to the rural sector attributed
to the lack of suitable security on the part of the rural dweller. Secondly,
the centralised structure of the banking set up was such that vital decisions
were taken at their head offices, making decentralisation less effective. The
disadvantage of such a system was that it could not compete with the local
money lenders in terms of local knowledge flexibility and speed of response for
financial support from customers. Thirdly, the branch network of many
banks cover mainly the commercial areas where business is thought or seen to be
vibrant and did not reach down to the rural communities. Rural dwellers were
therefore denied access to organised financial institutions in addition to
being prevented from availing themselves of the opportunity of safe guarding
their money and other valuable property that a bank provides. The realisation
that the existing framework for institutional credit did not favour rural
development let to the search for a credit institution devoid of the
disabilities of the existing banking institutions but possessing the advantages
of the non-institutional credit organisations. This institution is what
we call the RURAL BANK. * CHARACTERISTICS OF RURAL BANKS
* A rural bank is owned by the people in the rural community within which it
operates. * It is permitted to operate within forty kilometres radius from its
head office. * It operates according to the dictates of the banking law and has
primary and secondary reserve requirements. * Its shareholders are mainly from
its catchment area. * It has a board constituted among the shareholders and
operates on the principles of the Companies Code, 1963 Act 179 and the Banking
Law 2004, Act 673. * Each rural bank is also registered as a limited liability
company and requires a banking licence and a certificate to commence business
before it is permitted to operate. * It has a minimum paid-up capital set by
the Central Bank. * There are existing guidelines for establishing a rural
banking relating to the following:- * Eligibility / Qualification criterion
* Ownership and capitalisation, including limitation to share ownership *
Regulations of the proposed company
* Feasibility report – business plan and financial projections for the first 5
years * Permissible activities
* Operational requirements
* Viability (based on 5 year projection of income statement and balance sheet)
* Staffing requirements
* License
* Processing fee and licensing fee
* Initial training
* Equipment requirements and specifications
* OBJECTIVES OF THE RURAL BANKING
SYSTEM
Rural banks were established with the following key objectives:- * To mobilise
savings in the communities from where they operate * To grant credit to
customers who deserve them
* To stimulate economic activities in their catchment areas * Contribute to the
socio-economic development of their catchment areas * Make profit for their
shareholders
* WHAT HAS BEEN THE IMPACT OF THE
RURAL BANKS IN GHANA
The rural banking network controls
about 9% of total domestic deposits of the banking sector in the country. They
mobilise savings from their catchment areas and lend them out to deserving
customers in the same area. They help existing enterprises in the rural communities
to improve upon their performance and promote new economic activities thus
assistance to enhance standards of living. They contribute to the
socio-economic development of their catchment areas by using part of their
profits to support brilliant but needy students, offer significant support for
street lighting, construction of bore holes for potable water, construction of
school buildings and health care facilities among many others Indeed the
contribution of RCBs towards corporate social responsibility in total far
exceeds the contributions of all the other banks put together year-on-years. It
is in this light that the clamour for the establishment of more rural banks
keeps ranging from one community to the other. It is therefore not surprising
that the clamour for the establishment of more rural banks keeps raging from
one community to the other. It is therefore not surprising that the rural
banking system constitutes the largest banking network in Ghana with over five
hundred and ninety-five (595) offices dotted across the face of Ghana.
* INVESTMENTS BY THE RURAL BANKS
As part of the mandatory requirement by the Central Bank, all banks were
required to maintain primary and secondary reserves. The secondary reserves
were normally used as investments in government paper, mainly treasury bills.
* INSTITUTIONS WHICH HAVE HELPED IN THE DEVELOPMENT OF THE RURAL BANKING SYSTEM
IN GHANA Up to this point in time there are several institutions which have
helped the rural banking system to thrive in Ghana. Key among them are:- 1. The
Bank of Ghana
2. The Association of Rural Banks
3. The ARB Apex
4. The World Bank
5. International Fund for Agricultural Development (IFAD)
6. Danish International Development Agency
(DANIDA)
7. African Development Bank
* The Bank of Ghana
The Bank of Ghana pioneered the establishment of rural banks and had the first
one established in 1976. Since then, a number of rural banks have been
established. Bank of Ghana established a Rural Finance Inspection Department
which was later subsumed under the Banking Supervision Department. The Central
Bank also provided banking services to the rural banks by clearing their
cheques, supplying them with specie as well as inspection services. In 1991,
the government initiate a Rural Finance Project (RFP) which involved the
restructuring of rural banks and provision of on-lending funds to those rural
banks found to have met certain set criteria. The Central bank provided the
necessary support and initiative towards the establishment of the Apex
structure for the rural banking system. It continues to regulate the rural
banks by assisting to develop regulations that guide the relationship between
the Apex Bank and the rural banks. Throughout the life of the rural banking
system, the Bank of Ghana has nurtured its growth and development, developing
the necessary sanctions and penalties that go with default. In 1999, rural
banks which were distressed beyond redemption arising out of management and
operational problems, had their licences withdrawn by the Bank of Ghana as
these rural banks could no longer meet withdrawal demands. With the
establishment of the ARB Apex Bank, virtually all the services that it used to
provide have been ceded to this new ‘mini central bank’, though with some measure
of difficulties which saw the rural banking system being pillaged by the
orthodox banks when the central bank decided in 1994 that it would no longer
clear cheques for and on behalf of the rural banks. * The Association of Rural
Banks
The rural banking system which came into being in 1976 sought to render
invaluable financial services in the rural communities which had been neglected
by the commercial banks. In order to promote the aims and objectives of the
rural banking system, the Association of Rural Banks (ARB) was established in
1981 with the following aims and objectives:- a. To provided and exchange
information on rural banking services in Ghana and to serve as a forum for the
discussion of common problems of rural and community banks and their possible
solution. b. To find ways and means by which the ARB can contribute to the
development of agriculture, commerce, industry and the general well being of
rural areas in Ghana a. To ensure that rural and community banks are seen as
instruments of national development in the rural areas. The ARB since its
establishment has done a lot for the rural banking system in Ghana. Among these
are:- * Conducting training for rural banks’ directors, managers, accountants
and project officers, clerks and cashiers from 1981 to 2002, when finally the
ARB Apex bank was established to take over the training function. * Advocating
for the granting of a 10 year tax holiday for rural banks. * Advocating for a
reduction in corporate tax from 35% of profits to 8%. * Advocating and
clamouring for the establishment of the ARB Apex Bank which is the min central
bank for the rural banks in Ghana. * Sensitising rural and community banks
throughout the country about the need to establish rural banks in areas where
financial services are absent. * Educating staff and directors of rural banks
on the HIV/AIDS pandemic in collaboration with the Ghana Aids Commission. This
is being done with the view to protecting staff and management of RCBs so that
they do not lose them through this ailment.
* The ARB Apex
Essay on accounting cycle
The Association of Rural Banks which came into being in response to emerging
needs of rural banks clamoured for the establishment of the ARB Apex Bank as a
further evolutionary response to the needs of rural banks.
However, due to manpower, management
and operational problems, as well as the harsh rural environment, these
conditions did not easily offer the impetus for the rural banks to thrive in a
number of cases. For example, between 1999 and 2000, the bank of Ghana
withdrew the banking licences of 23 rural banks. The various operational
bottlenecks, key among which was the decision in 1994 by the Bank of Ghana that
it would no longer perform cheque clearing functions for rural banks, compelled
rural banks to call for the establishment of the ARB Apex Bank since the
commercial banks which they relied on to clear their cheques, specie supplies
and treasury functions become unreliable, the reason being that they were
competitors of the rural banks. As a result of several consultations that the
Association of Rural Banks and the Central Bank had with the World Bank aimed
at establishing an apex body for the rural banks in Ghana, a team was
commissioned in 1996 to explore the legal viability and banking dimension of
such an apex body. The commercial banks frustrated the rural banks by delaying
their clearing of cheques, giving them lower denomination of currency supplied,
mutilated notes and in some cases enormous quantity of coins were supplied to
the rural banks to be used in paying their customers. Delays in placing funds
for investment purposes let to losses in income for the rural banks. The
cumulative effect was that confidence in the rural banking system was eroded.
As a result of several consultations that the Association of Rural Banks
and the Central Bank had with the World Bank aimed at establishing an apex body
for the rural banks in Ghana, a team was commissioned in 1996 to explore the
legal viability and banking dimension of such an apex body.
* Clearing of cheques for the rural banks
* Provision of specie
* Development of products
* Inspection
* Computerisation
* Training
* Funds management
* Sourcing of funds for on-lending by the rural banks In 1998, a consulting
firm was commissioned to examine the feasibility of establishing an Apex Bank.
The conclusion obviously is the ARB Apex Bank we have today. The functions of
the bank, which is to perform banking and non-banking support services in order
to improve the operational efficiency and remove the operational bottlenecks
which had hindered the growth of the rural banks included: Since its
establishment, the bank has supported the rural banks through the performance
of these functions.
Apart from supporting the rural banks, it has also introduced a star product
called the Apexlink which is patronised by customers to transfer money
domestically to every nook and cranny where services of the rural banks are
available. With the establishment of the Apex Bank, the operational
bottlenecks relating to cheque clearing, specie supply etc have completely
evaporated and the rural banks are growing from strength to strength as
depicted in the two tables below:- Performance indicator| 4TH quarter -
2008 (DECEMBER , 2008)GH¢’M| 1ST quarter - 2009 (MARCH, 2009)GH¢’M| VARIANCE
(%) Increase/DECREASE| Total Assets | 466.99| 503.20| 7.8|
Total Advances | 225.34| 226.86| 0.7|
Total Investments (Short Term)| 99.60| 115.05| 15.5|
Total Deposits| 346.48| 375.13| 8.3|
Profit Before Tax | 15.76| 5.74| (63.6)|
Paid-Up Capital | 17.33| 17.86| 3.1|
Networth | 62.38| 68.01| 9.0|
TABLE 1
Performance indicator| 1ST quarter (MARCH, 2007)GH¢’M| 1ST quarter
(MARCH, 2008)GH¢’M| 1ST quarter (MARCH, 2009)GH¢’M| (%) Increase/
DECREASE MARCH ’08-MARCH ‘09| Total Assets |
322.34| 407.13| 503.20| 23.6| Total
Advances | 129.66| 180.65| 226.86| 25.6|
Total Investments (Short Term)| 92.39| 100.52| 115.05| 14.5| Total Deposits|
245.32| 303.61| 375.13| 23.6|
Profit Before Tax| 3.37| 3.40| 5.74| 68.8|
Paid-Up Capital | 9.66| 11.98| 17.86| 49.1|
Networth | 41.67| 52.65| 68.01| 29.2|
Essay on overview of accounting
* World Bank
* The Rural Finance Project (1991 – 1994)
The World Bank’s support for the rural banking sector became very significant
from the early 1990’s when the Rural Finance Project (RFP) was launched. This
project saw the implementation of restructuring audits of all the rural banks
with the view to ascertaining their operational efficiency and putting in
measures to address all identified inefficiencies and operational bottlenecks.
As a result of the RFP, Messrs Sycip, Gorres Volayo and Co. (SGV & Co.) of
the Philippines working in collaboration with Arthur Andersen Consultants were
engaged by the project to assist the Association of Rural Banks to conduct a
Training Needs Assessment (TNA) and also develop training modules to address
the felt training gaps of the rural banking network. At the end of the RFP in
1994 the under listed training modules had been developed by the Andersen
Consultants:- * Credit Investigation
* Loan Monitoring and Supervision
* Loan Recovery Procedures & Strategies
* Annual Planning & Budgeting
* Management Information Systems
* Bank of Ghana Reporting Requirements
* Accounting for Non-Accountants
* Interpretation of Financial Statements
* Organisation Principles and Processes
* Management Decision Making
* Policy Formulation and Implementation and Other Board Functions * Resource
Mobilisation
* Funds Management
* Internal Control Systems
* Cost Reduction Programme
* Legal Aspects of Banking
* Selected Topics in Rural Bank Accounting
* Overview of Rural Bank Accounting System
* Book Keeping
* Cashiering
* Customer Relations
Apart from developing these modules, rural banks’ personnel ranging from
directors, managers, accountants, project officers through to clerks and
cashiers were trained continuously in the relevant modules during the lifetime
of the World Bank financed project. A core group of resource persons made up of
directors and managers were also trained and used in the training programmes.
In addition, the project provided logistics and equipment to support the
Association of Rural Banks which at the time was responsible for training,
capacity building and advocacy. * The Rural Financial Services Project
(2000 – 2007) The World Bank also spearheaded the formulation of the Rural
Financial Services Project (RFSP) which brought into being the ARB Apex Bank
Ltd. The RFSP had for (4) main components, namely:- * Capacity building of the
Informal Financial sector
* Capacity building of Rural and Community Banks
* Institutional building of the ARB Apex Bank Ltd.
* Institutional Support to the Banking Supervision Department of the Bank of
Ghana and the Ministry of Finance The RFSP which started from 2000 ended in
2007 and a lot was achieved through its implementation of the various action
steps initiated to meet the objectives of the project. The total amount
involved in the RFSP was US$22.96 out of which the International Development
Association (IDA) of the World Bank contributed US$5.13m.
* International Fund for
Agricultural Development
The International Fund for Agricultural Development (IFAD) which supported the
RFSP provided a whopping U$11.3 million as its contribution to the entire
project. Its support was used in supporting the various components of the project
and especially to the microfinance sector. The fund, in an earlier project
called the Rural Enterprises Project, (REP) provided on-lending loans to rural
banks to enable them to assist those classified as the poorest-of-the-poor in
the catchment area of the REP which started in 1995 and has since had its
mandate renewed to cover the entire nation. In terms of the RFSP, IFAD has been
the major contributor and has, even before the RFSP become effective helped the
newly established ARB Apex Bank to initiate a Monitoring Unit responsible for
reporting and rating of the rural banks through performance rating and
benchmarking.
* Danish Development Agency (DANIDA)
Before the establishment of the ARB Apex Bank, DANIDA provided substantial
assistance to the Association of Rural Banks by assisting the rural banking
sector through:- * Conduct of training needs assessment
* Development of additional training modules
* Development of criteria for rating of rural banks
* Introducing the concept of Inspection to the rural banks and developing
guidelines for rural banks’ inspection * Assignment of consultants to the ARB
to co-ordinate DANIDA activities for the rural banking sector * Assignment of
radio communication equipment to the rural banking sector to enhance intra and
inter rural banks’ communications * Assisting the rural banking sector to
develop a test key for financial communication and payment systems * Providing
the Association of Rural Banks with the logistics for training and also
supporting its operations with a fleet of vehicles * Supporting rural banking
sector to run an Apprenticeship Banking Course (ABC) for the benefit of staff
of the rural banks * Conduct of periodic training for directors, managers and
staff of rural banks on the code of conduct with the view to improving moral
and ethical behaviour among rural banks’ personnel * African Development Bank
The African Development Bank also contributed to the Rural Financial Services
Project. Its contribution of US$5.01m was used in supporting the
computerisation and training of the rural banks. The amount was used in the
acquisition of uniform applications software as well hardware and networking
some of the rural banks. In addition certain equipment like power generators
and motor bikes for credit monitoring was also done through this facility.
Above all, the conduct of a training needs assessment and development and
conduct of training for the rural banking sector was done through the support
offered by the African Development Bank from 2002-2007. * CONCLUSION
* The presence of rural banks in Ghana has helped in no small measure in
creating a dependable channel for savings and credit among rural dwellers. *
Access to credit through the rural banking sector in Ghana has really enhanced
development through the generation of jobs and all kinds of economic activity
including those relating to agriculture, fishing, transportation, cottage
industries, trading and commerce, education and health care among many others.
The rural banks have acted as economic stimulants in the rural communities and
have hastened the development of Ghana. All the attributes of the banking
industry are now being enjoyed by people in the rural communities of Ghana and
it is imperative that its establishment should be encouraged, supported and
promoted in the sub-region and beyond.
Thank you.
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