DECLARATION

I, Mr. Alaji Mamadou Cire BAH ,bearing Roll Number:540910685,student of SIKKIM MANIPAL UNIVERSITY, hereby declare that the project report titled PROFITABILITY STUDY OF THE e-SUSU PRODUCT of ADVANS GHANA Savings and Loans Limited submitted for the partial fulfillment of the requirement of the award of degree in MASTER OF BUSINESS ADMINISTRATION (MBA), is a bona fide work done by me and it is not submitted to any other university or Institution for the award of any Degree, Diploma Certificate or published any time before.

Alaji Mamadou Cire BAH

Date: 31/07/2011 Place: ACCRA

BONAFIDE CERTIFICATE

Certified that this project report titled PROFITABILITY STUDY OF THE e-SUSU PRODUCT of ADVANS GHANA Savings and Loans Limited is the bonafide work of Alaji Mamadou Cire BAH who carried out the project work under my supervision HEAD OF THE DEPARTMENT FACULTY IN CHARGE

Gajendra SINGH Academic Head

M/S Knowledge Workz Ltd. Authorized Learning Center Sikkim Manipal University 276/3 Ring Road Central P.O. Box Ad 421 Adabraka Accra, GHANA

Manish MITTAL Sr Lecturer MBA

M/S Knowledge Workz Ltd. Authorized Learning Center Sikkim Manipal University 276/3 Ring Road Central P.O. Box Ad 421 Adabraka Accra, GHANA

ABSTRACT

This paper is a Project report submitted to SIKKIM MANIPAL UNIVERSITY as part of the requirements for the award of an MBA. The research was conducted over a period of eight months starting 20th September 2010 at Advans Ghana Savings and Loans Limited a leading company in the microfinance sector in Ghana. The emphasis of this study is to analyze the profitability of a service called eSusu that Advans Ghana intends to launch. To assess the profitability of that product, traditional methods of Project analysis were used namely market, technical, financial, and economic analysis.

ACKNOWLEDGEMENT This dissertation would not have been possible without the guidance and the help of several individuals who in one way or another contributed and extended their valuable assistance in the preparation and completion of this study. First and foremost, the one above all of us, the omnipresent God, for answering my prayers and giving me the strength to plod on despite my constitution wanting to give up and throw in the towel, thank you so much Dear Lord. My utmost gratitude to my uncle: Mr. Souleymane BAH, who provided me the required fund to undertake this MBA.Thank you Uncle for believing in me, for allowing me to further my studies. Please do not ever doubt my dedication and love for you. To my Mum Hadja Umar Sodo BAH and Dad Alaji Abdurahman BAH for all that you have done and continue to do for me. Words cannot explain what you mean to me. I extend my sincere thanks to all the staff of the Authorized Learning Centre of SIKKIM MANIPAL UNIVERSITY in Accra KNOWLEDGEWORKZ LIMITED for their continuous help and guidance providing me the necessary information throughout the preparation of this project, especially Gajendra SINGH Head Academics and Manish MITTAL Senior Lecturer I also express my heartfelt thanks to Mr. Tanguy GRAVOT Managing Director of ADVANS GHANA Savings and Loans Limited for providing me an opportunity to work in his esteemed and flourishing organization. Last but not the least many thanks to all those not mentioned here who have contributed their bit towards the study.

DEDICATION

IN LOVING MEMORY OF MY LATE UNCLE ALPHA AMADOU BAH 1977-2000 REST-IN-PEACE

LIST OF TABLES GRAPHS and FIGURES

NAME

PAGE

Table 1: Summary of Formals Financial Institutions 38 in Ghana Table 2: Shareholding Structure of Advans Ghana 46 Savings and Loans Limited Table 3 : e-susu projected cash flows 93 Graph 1: Number of active loan clients of Advans 46 Ghana as at 31/12/2008 Graph 2:Loan portfolio of Advans Ghana as at 31/12/2008 Graph 3: Loan Portfolio of Advans Ghana (Real/ Objectives) as at 31/12/2009 Graph 4:Deposit portfolio of Advans Ghana (Real /Objectives) as at 31/12/2009 Graph 5: Loan Portfolio (Real/Objectives) as at 31/12/2010 Graph 6: Deposit Portfolio (Real/Objectives) as at 31/12/2010 Figure 1:Microfinance Products Figure 2:Evolution of Microfinance Figure 3:Advans Ghana Logo Figure 4:Summary of e-susu transactions Figure 5:Strenghts and Weaknesses of e-susu Figure 6: E-Zwich smartcard Figure 7:E-Zwich Points of Sales Figure 8: GhIPPSs System Host 47 48 49 52 53 17 19 43 61 62 88 89 90

LIST OF ABBREVIATIONS:

ADB: Asian Development Bank ATM: Auto Teller Machines BoG: Bank of Ghana the Central Bank. CGAP: Consultative Group to Assist the Poor DR: Danish Radio EIB: European Investment Bank FIs: Financial Institutions FINCA: Foundation for International Community Assistance IFC: International Finance Corporation IPO: Initial Public Offering KfW: Kreditanstalt fr Wiederaufbau, meaning Reconstruction Credit Institute LCDs: Less Developed Countries MFIs: Microfinance Institutions MSMEs: Micro Small and Medium Enterprises. NGos: Non Governmental Organization NBFIs: Non-bank Financial Institutions ORS: Oral Rehydration Solution POS: Point of Sale RCBs: Rural and Community Banks ROSCA: Rotating Savings and Credit Associations SEWA: Self-Employed Womens Association SME: Small and Medium Enterprises S&L: Savings and Loans Company WWB: Womens World Banking

TABLE OF CONTENT

CONTENT PART 1 Chapter 1 Chapter 2 Chapter 3 PART 2 Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 PART 3 COMPANY PROFILE Introduction of Microfinance Microfinance in Ghana Advans Ghana Savings and Loans Limited PROJECT OVERVIEW Introduction Objectives Research and Methodology Limitations and Constraints Data Analysis and Interpretation Summary, Conclusions and Recommendations REFERENCES Bibliography Notes 9

PAGE

10 37 41 57 58 63 65 67 70 103 107 108 110

PART 1 COMPANY PROFILE

CHAPTER 1: INTRODUCTION OF MICROFINANCE

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MICROFINANCE:
I.

DEFINITION:

"Microfinance is an idea whose time has come." Kofi Annan, Former Secretary-General of United Nations Microfinance has been defined in different manner by different authors, basically it is the provision of financial services to low-income clients or solidarity lending groups including consumers and the self-employed, who traditionally lack access to banking and related services.[1] Lets look out some of the definitions provided by some scholars: According to the Asian Development Bank (ADB) Microfinance is any financial service targeted toward the poor, such as:

deposits finance schemes or loans up to $3,000 payment services money transfers insurance to poor and low-income households and their microenterprises

In their book Financial Institutions With A Double-Bottom Line: Implications For The Future Of Microfinance CGAP Occasional Paper, July 2004,Robert Peck CHRISTEN, Richard ROSENBERG and Veena JAYADEVA stated that Microfinance is broadly a movement whose object is a world in which as many poor and near-poor households as possible have permanent access to an appropriate range of high quality financial services, including not just credit but also savings, insurance, and fund transfers. In Microcredit: Sound Business or Development Instrument?

Oikocredit,2004 Gert van MAANEN wrote Microfinance, is banking the

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unbankables, bringing credit, savings and other essential financial services within the reach of millions of people who are too poor to be served by regular banks, in most cases because they are unable to offer sufficient collateral. In general, banks are for people with money, not for people without. In Microfinance Revolution: Sustainable Finance for the Poor, Marguerite ROBINSON says Microfinance refers to small scale financial services, primarily credits and savings provided to people who operate small enterprises or micro enterprises
II.

MICROFINANCE INSTITUTION (MFIs):

According to the definition on Microfinance Gateway an MFI is an organization that offers financial services to the low-income people. There is a wide range of micro financial institutions. Mostly when we talk about these, financial Non Governmental Organization (NGOs) come into the mind. These financial NGOs provide micro credit and micro finance services too and in most cases these financial NGOs are not allowed to capture saving deposits from general public. Many NGOs provide other financial services along with the micro finance and similarly some commercial bank are also providing micro finance along with their routine financial activities so because of these micro finance services which are quite bit part of the whole of the activities of these commercial banks we can call these as a micro finance institutions (Rehman, 2007). There are some other MFIs that can be considered in the business of micro finance. These institutions are the community based financial intermediaries such as credit union; cooperative housing societies and some others are owned and managed by the local entrepreneur and municipalities. This type of institution is varying from country to country (Rehman, 2007).
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III.

LEADING VIEWS ON MICROFINANCE:

According to Marguerite ROBINSON (2001), there are two leading approaches to microfinance: Poverty lending approach. Financial systems approach. Both these approaches tend to provide the availability of financial services for the poor, despite having consonance in their goals, each approach tends to adopt a different modus operandi for the achievement of their desired aim. We look at how these two approaches tend to operate: 1. POVERTY LENDING APPROACH: According to Marguerite ROBINSON (2001), the basis focus of the poverty lending approach is the reduction of poverty through institutions which receive funds from donors or governmental authorities. The basic aim of the poverty lending approach is to reach the poorest of the poor. In poverty lending approach to microfinance saving is only limited to a trivial status i.e. only as a compulsion for receiving credit. Institutions adopting the poverty lending approach are not sustainable, the reason being that the interest rate on their loans is too low for the recovery of even their costs. These institutions also do not cater to the demand for micro saving services among the poor. The focus of poverty lending approach is upon micro-credit not microfinance. 2. FINANCIAL SYSTEMS APPROACH: According to Marguerite ROBINSON (2001), the financial systems approach focuses on financial intermediation between the poor borrowers and savers on commercial basis. This approach lays its emphasis on the institutional self-sufficiency. The world has witnessed the emergence of many commercial microfinance intermediaries in the past decades. These commercial microfinance intermediaries provide credit and saving services to the economically active poor. The loans of these institutions are financed by
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savings, commercial debts and through profitable investments. The financial systems approach represents a more globally acceptable model of microfinance.
IV.

TARGET MARKET-OBJECTIVES-SERVICES :

A target market is a group of potential clients who share certain characteristics, tend to behave in similar ways and are likely to be attracted to a specific combination of products and services. A target market represents a define market segment that contains identifiable clients who demand or represent a potential demand for the products or services offered by a particular enterprise. In selecting a target market FIs need to determine their own objectives, understand what motivates a group of client and assess whether the target market can be reached in a way that will eventually be financially sustainable. Most important the market must be chosen based on effective demand for financial services .Failure to define objectives, hence target market for an organization will result in difficulties for that organization to manage its operations and stay focus. From the above definitions we can confidently state that the target market of microfinance is the poor. The followings questions: Who is poor? Do poor people need financial services? To what extent? Will give us the target market, objectives, and the different types of products offered by Microfinance.
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1. WHO IS POOR? The World Bank defines poverty as living on less than 75 cents a day. Nobel Prize winner Amartya Sen (1999) has observed Poverty must be seen as the deprivation of basic capabilities rather than merely as low incomes. Though there are multiples degrees and kinds of poverty, Marguerite ROBINSON in Microfinance Revolution has distinguished 2 types of poverty: The extremely poor and the economically active poor. [2] The Extremely Poor: She wrote People living in extreme poverty exist below the minimum subsistence level; they include those who are unemployed or severely underemployed as well as those whose work are so poorly remunerated that their purchasing power does not permit the minimum caloric intake required to overcome malnutrition. Also included are people who live in regions severely deprived of resources; those who are too young, too old, or too disabled to work, those for reasons of environment, ethnic identity, politics, gender, and the like have little or no employment opportunities and who have no earning assets or household members to support them, and those who are escaping from natural or human made catastrophes. The Economically active poor: Refers to those among the poor who have some form of employment and who are not severely food deficit or destitute. 2. DO POOR PEOPLE NEED FINANCIAL SERVICES? IF YES TO WHAT EXTENT?

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"People, poor and rich, need reliable financing so that their ideas can be brought together with assets to generate long-run sustainable growth. Raghuram G.RAJAN Economic Counselor and Director, Research Department IMF By definition poor people have very little money but circumstances often arise in their lives in which they need money or the things money can buy. Stuart RUTHERFORD in The Poor and Their Money, oxford university press Delhi 2000 highlighted some of the financial needs of poor people a. Lifecycle Needs: such as weddings, funerals, childbirth, education, homebuilding, widowhood, old age. b. Personal Emergencies: such as sickness, injury, unemployment, theft, harassment or death. c. Disasters: such as fires, floods, cyclones and man-made events like war or bulldozing of dwellings. d. Investment Opportunities: expanding a business, buying land or equipment, improving housing, securing a job (which often requires paying a large bribe), etc. To meet these financial needs poor people borrow from informal moneylenders and save with informal collectors. They receive loans and grants from charities. They buy insurance from state-owned companies. They receive funds transfers through formal or informal remittance

networks.Traditionals Banks do not provide their needs: they are not bankable the reason being the lack of collateral, steady employment, income and a verifiable credit history, because of these reasons they cant even meet the minimal qualifications for a ordinary credit.Banks incur substantial costs to manage a client account, regardless of how small the sums of money involved. For example, although the total gross revenue from delivering one
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hundred loans worth $1,000 each will not differ greatly from the revenue that results from delivering one loan of $100,000, it takes nearly a hundred times as much work and cost to manage a hundred loans as it does to manage one. The fixed cost of processing loans of any size is considerable as assessment of potential borrowers, their repayment prospects and security; administration of outstanding loans, collecting from delinquent borrowers, etc., has to be done in all cases. There is a break-even point in providing loans or deposits below which banks lose money on each transaction they make. Poor people usually fall below that breakeven point. That is where Microfinance comes into the picture, by providing a broad range of financial services to the poor. Brett Matthewss graph gives us a summary of the financial needs of the poor and the different services offered to them by the microfinance industry.

Figure 1

V.

HISTORY:
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Microfinance is not anything new; it follows humankind since the ancient era. It markedly appeared already in the 18th century (e.g. Jonathan Swift inspired the Irish Loan Funds) and especially in the first half of the 19th century in the middle Europe. Several credit union systems and cooperative banks have been named after Raffeisen, Kampelik etc. Robert Owen, William King, G.D.H. Cole, Charles Gide and others were very well known theorists in this period. Micro-financial activities in the poor countries in the world, especially in the tropics and subtropics, have a relatively short history. Their importance (beginning) developed in the 70s of the last century in the period of decolonization when new states originated. Great banks of the metropolitan countries created environment for the MFIs in this period and gave rise to the relative vacancy in providing basic micro financial services to the rural poor in developing countries. Simultaneously, the influence of the Green Revolution on the agricultural production disappeared. This revolution contributed by new technologies to the higher level of the agricultural basic industry, but not to the higher income for the poor. Financial income reinforced mainly the tertiary sphere; especially middlemen, usurers etc. The poor rural areas in developing countries were not reinforced, it was rather the opposite. Important personalities, who have merited in the highlighting and next development of the microfinance in Less Developed Countries (LCDs) in the 70s of the last century, were: Muhammad Yunus (Grameen Bank) in Bangladesh John Kaith Hatch (FINCA system) Akhtar Hameed Khan (Comilla Cooperative Pilot Project) in Pakistan
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 Ela Ramesh Bhatt (SEWA Self-Employed Womens Association) in India Michaela Walsh (WWB Womens World Banking) Development of MFIs in less developed countries (LCDs) could be dived into some important periods stages, which overlap each other as depicted by the following figure:

1970-1980 Period EXPANSION

1980-1990 Period GROWTH

1990-2000 Period

2000-present Period

COMMERCIALISATION TRANSFORMATION

Figure 2

1. FIRST PERIOD 1970-1980:Expansion Characterized mainly by: a. Providing social benefits and taking priority over the raising of the MFIs profitability;

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b. Loaned (start-up) money is paid back, but without dividends (interest, profit); c. The principle of mutual guarantee in terms of Peering Groups, SelfHelp Groups or in the initiative informal micro- financial activities; d. Micro- financial activities are characterized as: self-sustaining, selfexpanding and self-perpetuating; e. High level of enthusiasm among persons who were at the beginning of this movement (e.g. Muhammad Yunus); f. Appeal on poverty reduction. In the scientific and research area, this question prevailed: Does microfinance influence really so strongly the poverty reduction in LDCs? Poor countryside in LDCs is an entrepreneur environment for the MFIs. These institutions influence not only poverty reduction and debt relief of the heavily indebted countries but currently they are one of the decisive factors to maintain or completely change the living environment in the regions where MFIs appeal. Formal MFIs can very easily come under the endeavor to make profit at the expense of the mainly sustainable environment and poverty reduction. Definitely, microfinance is not the only factor influencing poverty reduction in LDCs. There are more factors, as for example developing the area of research, science, technology, etc. 2. SECOND PERIOD 1980-1990:Growth The second period is characterized by a rapid development of the formal MFIs. Different types of formal MFIs began to evolve in the second half of 80s of the last century. It concerns especially the South-East Asia and Latin America. The Financial Dualism which is the coexistence of formal and informal microfinance system also appeared in this period. The modern and transparent formal system dominates in the municipal environment, but it is less accessible to the poor clients. The informal system is more spread in
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rural areas where it is accessible to the very poor clients and it is cheap but not quite transparent. The formal system is commonly much more known than the informal one in which the understanding is obvious from the financial relations between creditors and debtors. These relations are mostly based on historical, tribal, familiar and traditional relationships. The principle of these relations is honor and promise which is stronger than a written agreement or pledge. 3. THIRD PERIOD 1990-2000:Commercialisation This period is characterized not only by the ongoing growth of microfinance activities, but mainly by the acceleration of transformation of the informal types of MFIs to formal ones. The main scientific question in this period was an assessment of the objective framework: When are the informal MFIs suitable for a transformation? The conditions and suitability for transformation of informal MFIs to formal ones are highlighted in the scheme of the three triangles the institution has to meet three requirements: a. Stability maintenance in the environment in which the MFIs operate; the critical triangle b. Outside sustainable development of the MFI outside institutions stability; the triangle of outside economic stability (Zeller, Meyer 2002) c. Inside economic sustainability of MFI inside institutions stability; the triangle of inside economic stability Critical triangle (stability of the region) characterizes a space in which it is rational for formal MFIs to develop their activities. Actually, it concerns a balance keeping in solution of the most serious needs in the given regions:

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sustainable environment development, the necessity to remove hunger and the need of poverty reduction in the region. Triangle of professor Zeller (outside economic stability of MFI) describes the outside stability results from the scope and quality of the provided financial and other services. These services have to fulfill three following requirements: financial stability which ensures sustainable development of the institution, sufficient scope and quality (to hold out with the competition, to be able to spread its provided services) and the necessity of an effective impact on the clients rising economic stability and prosperity. The inside economic stability of MFIs (Triangle of MFIs inside economic stability) concerns the coincidence of three factors which are expressed in bigger financial institutions on the base of business Cash-flow. The factors are the following: profitability of MFI, i.e. its management in the way in which the yield is higher than costs and the MFI reaches profit; liquidity the ability of MFIs to transform its financial deposits into the liquid assets (the ability to pay off to the clients their deposits when required from their own reserves, property converted into money or deconsecrating of its actives) and solvency the ability to reimburse from their usual income, eventually by releasing their common reserves, the costs and obligations even in the cases when losses happen (this enables continuing activities and does not transfer the negative economic results to the clients). 4. THE FOURTH PERIOD 2000-Present: transformation

secularization Microfinance creates financial markets and builds up civilized structures in isolated and remote regions: that is why some banks buy at present the whole portfolios or even the whole institutions. Initially, microfinance had the character of self-help and charity. In the 21st century, microfinance more and more attract the attention of small- and middle-sized investors.
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Small informal MFIs are mostly of the self-help character with the charity support (Charity Model) and the formal MFIs with a significant support of NGOs (as a financial intermediary), middle- and large-scale banks as well as other large organizations (Business Model) What change brings a strong entry of financial capital to microfinance activities in the poor regions?, Charity or business? these often asked questions are among others the current debate in microfinance.
VI.

IMPACT OF MICROFINANCE:

"Our experiences point that providing the poor with microcredit results in asset creation, employment generation, economic security and empowerment of the poor, particularly the women. We have reaped enormous benefits from microcredit in improving our social sector indicators . . . The International Year of Microcredit in 2005 will present us with an excellent opportunity to highlight the efficacy of microcredit in combating poverty." Iftekhar Ahmed CHOWDHURY, Ambassador and Permanent Representative of Bangladesh to the United Nations Chairman of the Second Committee (Economic and Financial) The microfinance institutions have a pivotal role to play in a society marked by economic classes. By providing small loans to poor people, these institutions attempt to provide remedies to the woes of the deprived classes. Apart from this, it is through these institutions that poor people are able to avail small loan facilities on reasonable terms and interest rates. In the absence of these institutions the poor people are more likely to fall prey to the exploitation of money lenders, who are more likely to exploit the poor masses by providing loans on enormously high rates. As a result the problems of the poor class are likely to be multiplied instead of being nullified. According to, Marguerite ROBINSON (2001), poor people are exploited by informal money lenders who provide loans at high costs which can range from ten to more than a hundred percent.
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Microfinance has helped poor in increasing their income levels and improvements in other social indicators. In case of Lusaka, an impact study by Copestake et al. (2001) report there was increase in the business and house income of borrowers who were able to repay the first loan. Aghion and Morduch (2005) show how a loan of $150 changed the life of a poor woman and after ten loans she builts a toilet and was looking forward to do much. Microfinance has changed lives of thousands of poor just as this woman which is yet to be captured by studies. There are so many examples in this regards. According to Goldberg, apart from these income increases there were social gains of the microfinance programs like the increase in education of children, nutrition of babies and empowerment of women (Goldberg, 2005). Following are some studies that have revealed the positive impact of microfinance in poverty reduction: 1. Barnes Carolyn and Erica Keogh March 1999: An Assessment of the impact of Zambukos Microenterprise program in Zimbabwe. In the Zimbabwe study there are major differences in income distribution between clients and non clients of microfinance. For instance nearly half of the new clients and non clients households had a monthly income of less than Z2, 000$ Compared with about one fifth of the repeat client households. In Contrast half of the repeat clients had an estimated monthly income of Z4, 000$ or more. Members of repeat borrower households have on average one year of education more than those of non clients households.

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The average number of income sources was 2.5 for clients households compared with 2.1 for non clients 2. Chen Martha Alter and Donald Snodgrass August 1999: An assessment of the impact of SEWA Bank in India. In the SEWA Study the proportion is about 40% compared with 50% and 62% of saver only and non client household respectively. The median income is 30% and 61% higher than for a saver only and non client household respectively. Average daily expenditure on food is 21% higher than in non client household, In Contrast saver only households enjoy only a small dietary margin over non client household. Average daily expenditure on food is only 5% higher than in non clients households 3. McCulloch, Neil and Bob Baulch. 2000. Simulating the impact of Policy upon Chronic and Transitory Poverty in Rural Pakistan. Journal of Development Studies. Is poverty static? Anti-poverty programmes often assume so. Recent studies suggest, however, that poor households move in and out of poverty a great deal. Research from the UK Institute of Development Studies shows that poverty has two parts: a chronic part and a transitory part. The researchers therefore examined the impact of two different types of policy - those designed to smooth out incomes and those designed to promote income growth - on the extent of transitory and chronic poverty in rural Pakistan. The study suggests that policies which help households to smooth income can

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dramatically reduce transitory poverty. But in the long-term, only large and sustained growth in household incomes will reduce chronic poverty. The results of applying different measures of transitory and chronic poverty to the income data suggest that 68 percent of total poverty is transitory, arising from variations in households incomes. Implications for anti-poverty policy include: a. Enhancing the ability to smooth out income fluctuations could lead to large reductions in overall poverty in the short-term. b. Possible interventions could include provision of micro-credit, seasonal public works, crop insurance and food price stabilization schemes. c. Reduction in chronic poverty will still require improvements in the human and physical capital of the poor. Improving education, particularly of the household head, reduces poverty since it can help people formulate effective strategies for income generation 4. Zaman, Hassan. 2000. Assessing the Poverty and Vulnerability Impact of Micro-Credit in Bangladesh: A case study of BRAC. World Bank. Zaman examines the extent to which micro-credit reduces poverty and vulnerability through a case study of BRAC, one of the largest providers of micro-credit to the poor in Bangladesh. The main argument in this paper is that micro-credit contributes to mitigating a number of factors that contribute to vulnerability whereas the impact on income-poverty is a function of

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borrowing beyond a certain loan threshold and to a certain extent contingent on how poor the household is to start with. Household consumption data collected from 1,072 households is used to show that the largest effect on poverty arises when a moderate-poor BRAC loanee borrows more that 10,000 taka (US$200) in cumulative loans. Different control groups and estimation techniques are used to illustrate this point. Zaman discusses several ways by which membership in micro-credit programs reduces vulnerability: By smoothing consumption, By building assets, providing emergency assistance during natural disasters, And by contributing to female empowerment. The existing evidence on the impact of micro-credit on poverty in Bangladesh is not clear-cut. There is work that suggests that access to credit has the potential to significantly reduce poverty; on the other hand there is also research which argues that micro-credit has minimal impact on poverty reduction. The evidence on reducing vulnerability is somewhat clearer. The provision of micro-credit has been found to strengthen crisis, coping mechanisms, diversify income-earning sources, build assets and improve the status of women Khandker in one of his Study estimated that for every 100 taka lent to a woman, household consumption increases by 18 takaModerate poverty falls by around 15% and ultra-poverty by 25% for households who have been BRAC members for up to three years controlling for other factors according to the author.
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However Morduch pointed out a problem with this analysis. He noted that the assumption of perfect targeting which underlies Khandkers selectivity correction is flawed given the fact that in the data set 30% of households were above the eligibility threshold. Using an alternative approach to correct for selectivity, Morduch found no evidence of increase in consumption (and therefore reduction in poverty) using the same data. According to him there is other work in Bangladesh supporting the hypothesis that micro-credit impact is more significant for vulnerability than for income-poverty. Zaman further examined that whilst there are several channels by which micro-credit services can reduce vulnerability there are fewer ways by which it can single-handedly reduce poverty. This is partly due to the fact that the concept of vulnerability is a somewhat broader one that of income poverty and as such there are more channels by which impact can be achieved. Hence the conclusions on RDPs impact on its members welfare depend on which econometric specification one considers to be more valid and which control group (non borrowing member or eligible non member) is considered more appropriate. In view of the fact that cumulative borrowing is largely a function of membership and socio-economic differences between borrowers and non-borrowing members are minimal. It can be argued that the non-borrowing member control group is a better comparison group. 5. MkNelly, Barbara and Christopher Dunford. 1998. Impact of Credit with Education on Mothers and Their Young Childrens Nutrition: Lower Pra Rural Bank Credit with Education Program in Ghana. Freedom from Hunger Research Paper No. 4, Freedom from Hunger, Davis, CA.
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The increase in net farm monthly income (revenue minus costs) was $36 for participants, $18 for non-participants (note: non-participants became participants after the initial 3 year study was complete thus negating the possibility of a self-selection bias as to the type of women who choose to participate in microcredit programs) and $17 for control group residents. Participants tended to be engaged in a greater diversity of income-generating activities than nonparticipants. 80% of the participant sample had secondary work as compared to only 50% of the non-participants and 60% of the control group. Despite involvement in their loan-financed activities, participants did not wean their children any earlier than did non-participants. Children of participants also experienced significantly greater improvement in feeding frequency as compared to the children of the two non-participant groups. The nutritional status of participants one-year-old childrenboth in terms of weight-for-age and height-for-agewas also significantly improved between the years relative to the children of residents of control communities. Relative to non-participants or control community residents, participants reported significantly greater positive change in a variety of the health/nutrition practices promoted by the education component of the program. E.g. giving newborns colostrums; introducing liquids and first foods closer to the ideal age of about 6 months; rehydrating children who had diarrhea by giving them either ORS or home liquids etc. Women frequently mentioned what influenced them most as to what income-generating activities they might undertake was whether they had working capital or could get the necessary inputs on a credit basis. Repayment rate: 98.7 %. Cost recovery within 3-5 years of start up. Impact study on 370 mother-one-year-old-child pairs for baseline in 1993.
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Follow-up 1996 for 300 mothers subdivided in 3 groups of 100: a. CWE for at least one year b. in CWE community but who hasn't joined c. in a non CWE community. Results: Diarrhea prevention: CWE mothers delayed very significantly in giving water to newborns, by almost 3 times. Women's income more than doubled. CWE mothers are 2,5 X mores confidents about counselling other mothers about health care for the children. This extends benefits of CWE to non-participants. Positive and significant impact on Height for Age in favour of CWE children. No improvement of BWI (body/weight index) in the women. Number and duration of periods with less food more than halved in CWE. 81 % cost recovery in 6 months. Conclusion: "This combination of positive impact and financial sustainability make Credit with education a strategy with exciting potential for widespread and sustainable impact on child survival"
VII.

CRITICISMS OF MICROFINANCE:

Most criticisms of microfinance have actually been criticisms of microcredit, delivered in the absence of other microfinance services such as savings, remittances, payments and insurance. For example, there has been much criticism of the high interest rates charged to borrowers. The real average portfolio yield cited by the sample of 704 microfinance institutions that voluntarily submitted reports to the Micro Banking Bulletin in 2006 was
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22.3% annually. However, annual rates charged to clients are higher, as they also include local inflation and the bad debt expenses of the microfinance institution [3]. Muhammad Yunus has recently made much of this point, and in his latest book Creating a World without Poverty: Social Business and the Future of Capitalism. Public Affairs, New York, 2007 argues that microfinance institutions that charge more than 15% above their long-term operating costs should face penalties. Milford Bateman, the author of Why Doesn't Microfinance Work?, argues that microcredit offers only an "illusion of poverty reduction". "As in any lottery or game of chance, a few in poverty do manage to establish microenterprises that produce a decent living," he argues, but "these isolated and often temporary positives are swamped by the largely overlooked negatives." Bateman concludes that "The international development community is now faced with the reality that, overall, microfinance has been a development policy blunder of quite historic proportions."[4] Here Bateman, like many writers, confuses microfinance as a broad sector with microcredit, a single microfinance intervention. The role of donors has also been questioned. The Consultative Group to Assist the Poor (CGAP) recently commented that "a large proportion of the money they spend is not effective, either because it gets hung up in unsuccessful and often complicated funding mechanisms (for example, a government apex facility), or it goes to partners that are not held accountable for performance. In some cases, poorly conceived programs have retarded the

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development of inclusive financial systems by distorting markets and displacing domestic commercial initiatives with cheap or free money.[5] There has also been criticism of micro lenders for not taking more responsibility for the working conditions of poor households, particularly when borrowers become quasi-wage laborers, selling crafts or agricultural produce through an organization controlled by the MFI. The desire of MFIs to help their borrower diversify and increase their incomes has sparked this type of relationship in several countries, most notably Bangladesh where hundreds of thousands of borrowers effectively work as wage laborers for the marketing subsidiaries of Grameen Bank or BRAC Critics maintain that there are few if any rules or standards in these cases governing working hours, holidays, working conditions, safety or child labor, and few inspection regimes to correct abuses [6]. Some of these concerns have been taken up by unions and socially responsible investment advocates. For example, Business Week reported that some Mexicans are stumbling with terms of newly available funding.[7] Other criticism was raised by the IPO (Initial Public Offering) of a Mexican MFI Banco Compartamos in 2007. As the company put its shares on Mexican Stock Exchange it was able to generate very high profits that were achieved by rising interest rates on their micro-loans that at some point reached 86% per year. In July 2010 India's biggest MFI, SKS Microfinance also went public. In both instances Muhammad Yunus publicly stated his disagreement, saying that the poor should be the only beneficiaries of microfinance.

32

Microcredit has been blamed for many suicides in India: aggressive lending by microcredit companies in Andra Pradesh is said to have resulted in over 80 deaths in 2010. [8] Some alleged problems with microcredit are documented in a film of the Danish journalist Tom Heinemann which was shown on Norwegian National Television in December 2010 and in Danish National Television January 31, 2011. In 1997 the Norwegian authorities discovered that 608 million kroner (US$ 100 Million approximately) aid from Norway and other countries contributed to the Grameen Bank was being diverted by Mohammed Yunus and his closest associates to a company that was engaged in an entirely different sector. When the Norwegian Embassy raised the alarm about the relationship in 1998, more than 50 million aid money had already been transferred to the For-Profit company Grameen Phone in which Norways Telenor is the largest shareholder. The whole matter had been kept a secret until now. The Norwegian Foreign Affairs committee in Norways Parliament has reacted strongly to the information presented in the documentary and under a third of the missing money was later returned to the original account. Mohammed Yunus mention in his letters to his closest associates that the reason for the transfer was to not pay tax. Most of the money are still missing or not accounted for. The film reports that money was set aside by the very most central person of microloans establishing a secret company in order to not pay tax, evidenced with letters written by himself [9]

33

The film also documents that when Hillary Clinton visited a village in Bangladesh, women from outside were transported into the village and out of the 50 to 80 people in the village who had received microloans, none were ever asked for their views regarding microloans. Only 3 or 4 of the people in the village had been able to successfully build a house using microloans and at least one man in the village considered attempting suicide. The film suggests that the house which Hillary Clinton was shown as an example of microloan success was actually a house uninvolved with any microloan. The Danish journalist travelled to Mexico, Nigeria, India and Bangladesh, even visiting the same places following a 2-year interval, and found the same results, namely that the majority of people got worse because of the high interest rates and mafia-like ways of collecting interest payments from the poor. The film interviewed the mother of a girl who lit herself on fire to commit suicide after her sewing machine was repossessed. The documentary film maker Tom Heinemann also revealed that Prof Mohammed Yunus refused to speak to him during the making of the documentary despite repeated attempts to get his version of the story. The documentary also looks at the effectiveness of Grameen Bank along with its "miraculous" stories of transforming peoples lives and concludes that it has had little impact on poverty in all these years. In one segment Heinemann visits the home of the celebrated original Grameen loan-taker Sufiya Begum in Jobra village. Celebrated in Grameen folklore that is. He finds some very uncomfortable stories and comes to know that she died in poverty and all her daughters today are beggars. This story is disputed, since documentary maker Gayle Ferraro found the woman alive and well, confirming the original Grameen story.

34

Documentary broadcasting in the Danish Radio DR also documented that people receiving microloan often end in a spiral of debt because the interest rate often is 100% a year
VIII.

CURRENT SCALE OF MICROFINANCE:

Estimates of the number of poor people in the world who use microfinance range from 70 million to 750 million. One of the goals of the International Year of Microcredit is to improve statistics on the nature and scale of the penetration of microfinance. But the essential goal is to strengthen and spread the availability of good financial services, which offer the possibility and the hope to many poor people of improving their own situations through their own efforts." Stanley FISCHER: Governor Bank of Israel. No systematic effort to map the distribution of microfinance has yet been undertaken. A useful benchmark was established by an analysis of 'alternative financial institutions' in the developing world in 2004.[10] The authors counted approximately 665 million client accounts at over 3,000 institutions that are serving people who are poorer than those served by the commercial banks. Of these accounts, 120 million were with institutions normally understood to practice microfinance. Reflecting the diverse historical roots of the movement, however, they also included postal savings banks (318 million accounts), state agricultural and development banks (172 million accounts), financial cooperatives and credit unions (35 million accounts) and specialized rural banks (19 million accounts). Regionally the highest concentration of these accounts was in India (188 million accounts representing 18% of the total national population). The lowest concentrations were in Latin American and the Caribbean (14 million accounts representing 3% of the total population) and Africa(27 million accounts representing 4% of the total population, with the highest rate of penetration in West Africa, and the highest growth rate in Eastern and
35

Southern Africa. Considering that most bank clients in the developed world need several active accounts to keep their affairs in order, these figures indicate that the task the microfinance movement has set for itself is still very far from finished. By type of service "savings accounts in alternative finance institutions outnumber loans by about four to one. This is a worldwide pattern that does not vary much by region. An important source of detailed data on selected microfinance institutions is the Micro Banking Bulletin, which is published by Microfinance Information Exchange. At the end of 2009 it was tracking 1,084 MFIs that were serving 74 million borrowers ($38 billion in outstanding loans) and 67 million savers ($23 billion in deposits) [11]

36

CHAPTER 2: MICROFINANCE INDUSTRY In GHANA

37

In Ghana 63% of the total population of 24,233,431 is predominantly rural and poverty is a real phenomenon in the rural areas. Forty percent (40%) of Ghanaians are below the poverty line [12]. Persons engaged in agriculture, the dominant economic activity in the rural areas, are the poorest among the economically active poor in the country. That notwithstanding, the poor need to access financial services (credit, savings facilities, money transfer insurance) that can significantly improve their economic activities and better their lives. These services are supplied by the various financial institutions operating within the country. They are: 1. The formal Institutions: Banks, including the Rural and Community Banks (RCBs), Non-bank Financial Institutions (NBFIs).These formal institutions are licensed and supervised by the Bank of Ghana (BoG), the Central Bank. 2. The semi formal Institutions: Are financial institutions are statutory bodies engaged in financial services but not regulated by the BoG. These are the Credit Unions which are registered with the Registrar of Cooperatives, the Non-Governmental Organization (NGOs) which register with the Registrar of Companies as companies limited by guarantee (not for profit) and the Susu associations 3. The Informal Institutions: Such as: Money Lenders, Susu collectors and Rotating Savings and Credit Associations (ROSCA). Below is the Summary of the Formal Financial Institutions in Ghana:

BANKS 30
Table 1

RCBs 135

NBFIs 48

38

The NBFIs comprises 22 finance houses,19 Savings and Loans,1 Credit Reference Bureau,2 Leasing houses,2 Finance and Leasing houses, and 1 Mortgage Finance Institution.[13] The main players in the Microfinance industry in Ghana are The RCBs, The NBFIs and the informal Susu Collectors whose share cannot be neglected. Some NGOs offer microcredit at a very small scale but they are primarily focused on their humanitarian objectives. These various financial institutions create a continuum of microfinance services with a variety of products available to the urban and rural productive poor. In Ghana the Microfinance era started in 1955 when the first credit union in Africa was established in the northern part of the country by Canadian Catholic missionaries. However, Susu, which is one of the microfinance schemes in Ghana, is thought to have originated from Nigeria and spread to Ghana in the early twentieth century. In 1976 a banking act provided access for the rural community to the banking system in a less intimidating way. In the early 1980s, a large number of RCBs were licensed to enable the peasant cocoa farmers to have convenient access to banks in the rural areas to encash special checks introduced at that time to pay for cocoa purchases. This enabled the farmers to open savings accounts and cash their checks conveniently and at low transaction costs, as compared to doing business in urban towns which may be a long traveling distance away. Regulatory requirements were relaxed to allow the RCBs to run temporary offices in the open at buying centers where local farmers send their produce for sale to buying agents. Some of the commercial banks have extensive networks in the rural areas to facilitate access to financial services. But the rigidity of their procedures does not meet the needs of the poor properly.
39

Over the years, the microfinance sector in Ghana has thrived and evolved into its current state where 358,719 active borrowers share a portfolio of 131.2millions (USD) and 1.3 millions of depositors have a total amount of 140.2 millions(USD). It is in this context that Advans Ghana Savings and Loans decided to enter the industry of microfinance in Ghana.

40

CHAPTER 3: ADVANS GHANA Savings and Loans Limited

41

I.

INTRODUCTION

Advans Ghana Savings and Loans Limited is a Micro Finance Institution licensed as a Savings and Loans Company, by the Bank of Ghana on the 4th September 2008 (license n FNB 0046). Advans Ghana is an affiliate of Advans Group, a network of financial institutions currently in five countries, which provides financial services to micro, small and medium scale enterprises. The Advans group of companies was created by Advans S.A. a Luxembourg based Venture Capital Investment Company. The shareholders of Advans Ghana include Advans SA, as the major shareholder, International Finance Corporation (IFC), European Investment Bank (EIB) and SG-SSB, (the Ghanaian subsidiary of the Societe General Group) On Monday, October 6, 2008, the first branch was opened at Newtown, a suburb of Accra. Subsequently 7 other branches have been opened in Okaishie, Agbogbloshie, Koforidua, Maamobi, Ashaiman Kaneshie and Teshie. Thus, currently Advans Ghana has eight (8) branches and plans are underway to open three more branches in 2011. Advans Ghana has been since its opening offering complete set of financial services, which include group loans, individual loans for working capital needs and for investment in fixed assets as well as deposit-taking services such as current account, saving accounts and term deposits. As at 31 December 2010, Advans Ghana was having 5,077 Active Loan Borrowers that include 5,006 Micro loans and 71 Small-Medium-Entreprises SME loans for an Outstanding Loan Portfolio of 5,386,871 GHC for the lending side and, 14,524 deposits account for an outstanding deposit of 1,207,271GHC for the deposit side.
42

II.

MISSION:

ADVANSs Mission is to provide adapted financial services primarily to micro, small, and medium sized enterprises in Ghana, which have limited or no access to formal banking services. III. BRAND IDENTITY:

ADVANSs logo is represented by the following designed hologram:

Figure 3

ADVANSs slogan is GROWING TOGETHER in the sens that the Organization targets both returns on investment and social development. IV. HISTORY: ADVANS Ghana Savings and Loans was incorporated on the 20th November 2007 with a initial share of 2,649,000 Ghana Cedis provided by the different shareholders which are:

Advans SA SICAR (Advans SA): Advans SA SICAR (Advans SA), formerly La Fayette Investissement, was created in August 2005 and is supervised by CSSF, Luxembourgs financial supervision authority. Advans SA was created by Horus Development Finance with the support of financial institutions deeply committed to development issues: the European Investment Bank (EIB), the German Bank of Development (KfW), the French Agency for Development (AFD Group), the Dutch Financial
43

Institution for Development (FMO), the International Finance Corporation (IFC World Bank group) and CDC Group plc, the United Kingdom Development Finance Institution. Advans SA is a venture capital investment company whose mission is to broaden access to financial services for Micro and Small and Medium Enterprises MSMEs, through the building of an extensive network of financial intermediaries operating in developing countries and emerging economies. Advans SA has a committed capital of EUR 40.1 million. Advans SAs operating methods involve investing as lead shareholder in the creation of financial institutions targeting MSMEs, commonly known as microfinance institutions (MFIs).

KfW Bank of Development (KfW) is a competent and strategic advisor on current development issues. Reducing poverty, securing peace, protecting natural resources and helping to shape globalization are the main priorities of KfW. On behalf of the German Federal Government, it finances reforms, infrastructure, and financial systems for socially and ecologically compatible economic growth. As part of KfW Bankengruppe, it is a worldwide financing partner, and it also employs funds of its own for development projects. KfW is aware of potentials and problems in developing countries thanks to its close cooperation with local partners and target groups. It actively seeks to cooperate with German and International partners in order to further enhance the developmental effectiveness and efficiency of its activities.

44

The International Finance Corporation (IFC): is the private sector arm of the World Bank Group with its headquarters in Washington D.C. IFC coordinates its activities with the other institutions of the World Bank Group but is legally and financially independent.

IFC's 179 member countries provide its authorized share capital of USD2.4 billion, collectively determine its policies, and approve investments. The IFC mission is to promote sustainable private sector investment in developing and transition countries, helping to reduce poverty and improve people's lives. IFC finances private sector investments in the developing world, mobilizes capital in the international financial markets, helps clients improve social and environmental sustainability, and provides technical assistance and advice to governments and businesses.

SG-SSB: is the fourth-largest bank in Ghana with 38 fully networked branches across the country and member of the Socit Gnrale Group. SG-SSB's mission is to create the preferred banking institution, which employs professionalism, teamwork, and innovation to provide quality products and services that best satisfy the needs of its customers. SG-SSB operates in the Retail, Corporate and Small and Medium scale Enterprise banking markets. Find below Shareholding structure of Advans Ghana Savings and Loans

45

Advans Ghana - Shareholding Structure All GHS Advans SA IFC KfW SG-SSB Total
Table 2

figures

in % 1,442,600 479,000 457,400 270,000 2,649,000 54.46% 18.08% 17.27% 10.19% 100%

ADVANS Ghana Saving and Loans started operations on the 6th October 2008, with one point of sale The Newtown Branch. By ending of December 2008 after just 3 months of production the lending activity expanded to a very appreciable level: 455 active loan clients for an outstanding loan portfolio of 295,477. The followings two graphs (Graph 1, Graph 2) depict the evolution of Advans Ghanas clients and portfolio during the first quarter of operations.

Number of active loan clients

Active borrowers

500 450 400 350 300 250 200 150 100 50 0

Oct-08 Nov-08 Dec-08

Graph 1
46

Outstanding loan portfolio (GHS)

Loans outstanding
350,000 300,000 250,000 200,000 150,000 100,000 50,000 0
Oct-08 Nov-08 Dec-08

Graph 2

V.

OPERATIONAL PERFORMANCES 2009:

Following a strategy of going to the customerAdvans Ghana expanded its scale of operations by opening two branches Accra Okaishie on the 18th March 2009 and Accra Agbogbloshie on 20th May 2009. On the first Board of Directors meeting held in Paris (France) on the 22nd December 2009, Management of Advans Ghana revealed the followings results: 1. BRANCH DEVELOPMENT: Advans Ghana network has reached three branches namely: Accra Newtown branch and Head office Accra Okaishie (largest commercial centre in Accra) Accra Agbogbloshie (second largest commercial centre in Accra) In the Credit Side loan portfolio in these 3 branches reached GH1,540,778 as a budgeted amount of GH 2,041,301which represent an achievement of

47

75% for 2,029 active borrowers compared to a budgeted number of 2,426 (84% achievement)

Loan portfolio (Real / Objectives) ALL BRANCHES

2,000,000

Portfolio

Objectives 2009

2,041,301

1,600,000

1,540,778
1,200,000

800,000

400,000

12/1 0/200 8

26/1 0/200 8

09/1 1/200 8

23/1 1/200 8

07/1 2/200 8

21/1 2/200 8

04/0 1/200 9

18/0 1/200 9

01/0 2/200 9

15/0 2/200 9

01/0 3/200 9

15/0 3/200 9

29/0 3/200 9

12/0 4/200 9

26/0 4/200 9

10/0 5/200 9

24/0 5/200 9

07/0 6/200 9

21/0 6/200 9

05/0 7/200 9

19/0 7/200 9

02/0 8/200 9

16/0 8/200 9

30/0 8/200 9

13/0 9/200 9

27/0 9/200 9

11/1 0/200 9

25/1 0/200 9

08/1 1/200 9

22/1 1/200 9

06/1 2/200 9

20/1 2/200 9

Graph 3

In the Deposit side by ending of December 2009 the portfolio was at GH160,880 for a budgeted amount of GH 330,210 (48% achievement) for 2,292 active accounts against a budgeted number of 5,531 (41% achievement). (See graph below)

48

03/0 1/201 0

Outstanding voluntary deposits Objectives deposit portfolio

Deposit portfolio (Real/ Objectives) ALL BRANCHES

350,000

330,210
300,000

250,000

200,000

160,880
150,000

100,000

50,000

12/7/2008

3/29/2009

4/26/2009

5/24/2009

6/21/2009

7/19/2009

8/16/2009

9/13/2009

10/11/20

10/12/2

12/6/2009

11/9/2008

11/8/2009

1/4/2009

2/1/2009

3/1/2009

Graph 4

2. NEW SERVICES: During 2009, besides the traditional micro credit (Individual loan, Group loan) Advans added several products to his existing line of product: Moneygram: Advans signed an agreement with Moneygram International on the 3rd February 2009.Agreement that empowered Advans to operate fund transfer as an agent of Moneygram International. SMS Service: That enables the customers to receive directly their Deposit account balances in their phones was also launched in 2009. Other products and services under implementation: Include Kids account, School fees payment, and Payroll management. 3. FINANCIAL STATEMENTS: Following are the unaudited 2009 Financial Statements of Advans Ghana

49

1/3/2010

a. Balance Sheet: 31/12/2009:

2009 Budget

Balance sheet GHS

2009 Forecast

ASSETS *
Current Assets Cash in Bank and Near Cash Gross Portfolio Outstanding (Less: Loan Loss Reserve) Net Portfolio Outstanding Short-term Investments Savings reserves Other Current Assets Sub-total, Current Assets Fixed Assets Furniture and Equipment (gross) (Accumulated Depreciation) Net Fixed Assets Other Long-Term Assets Other long-term assets (net) Sub-total, Long-term Assets TOTAL ASSETS 95,318 2,041,301 (118,272) 1,923,029 482,838 113,125 57,661 2,671,970 1,054,727 (222,877) 831,850 240,924 1,072,774 3,744,744 235,005 1,584,340 (81,389) 1,502,951 626,079 77,684 47,991 2,489,710 905,003 (210,976) 694,027 436,366 3,620,103 3,649,518

LIABILITIES *
Current Liabilities Accrued/(Pre-paid) expenses Savings deposits Concessional Loans Commercial Loans Long term liabilities TOTAL LIABILITIES 93,259 166,736 259,995

359,741 359,741

EQUITY *
Shareholder equity Dividend payments Accum. Net Surplus (Deficit), prev. periods Net Surplus (Deficit), current period TOTAL EQUITY TOTAL LIABILITIES AND EQUITY 4,649,000 (719,160) (544,837) 3,385,003 3,744,744 4,649,000 (731,366) (557,526) 3,360,108 3,620,103

50

b. Income Statement:31/12/2009

Income Statement GHS

Financial Income Interest on loans Commissions and fees incl. penalties Income on Investments Total Financial Income Financial Costs Interest and fees on borrowed funds Interest paid on savings deposits Total Financial Costs Gross Financial Margin Provision for loan losses Net Financial Margin Operating Costs Salaries and benefits Other operational expenses Depreciation Total Operating Costs Net Income from Operations (before taxes) Amount of taxes paid Net income from operations (after taxes)

2009 Budget
617,566 78,887 131,250 827,704 9,167 6,714 15,881 811,823 127,709 684,114 527,103 524,831 177,017 1,228,951 (544,837) (544,837)

2009 Forecast
559,605 105,634 169,883 835,122 2,795 2,394 5,189 829,933 82,113 747,820 480,140 661,966 163,240 1,305,346 (557,526) (557,526)

51

VI.

OPERATIONAL PERFORMANCES 2010: 1. BRANCH DEVELOPMENT: Following a strategy of expansion throughout the country Advans Ghana increases its branches in 2010, from 3 points o sales in 2009, the network reached 7 points of sales: Accra Newtown Branch and Head Office: Accra Okaishie Branch: Accra Agbogbloshie Branch: Accra Mamoobi Outlet (under supervision of Newtown Management) Accra Ashiaman Branch: Accra Teshie Outlet( under supervision of Ashiaman

Management) Koforidua Branch Loan development in these 7 points of sales at the end of December 2010, reaches GHS 4,501,230 as compared to a budgeted amount of GHS 4,883,461 with represent an achievement of 92.17%
Micro Loans Portfolio

Micro Loans portfolio (Real / Objectives) ALL BRANCHES

5 000 000 4 500 000

Objectives 2010 (Micro Loans Portfolio)

4 883 461
4 262 401

4 501 230

4 000 000
3 711 913

3 500 000
3 161 634

3 415 270

3 000 000
2 808 255

2 500 000
2 212 139

2 544 212

2 000 000
1 823 707 1 688 415

1 997 003

1 500 000 1 000 000 500 000 0

10/01/2010 24/01/2010 07/02/2010 21/02/2010 07/03/2010 21/03/2010 04/04/2010 18/04/2010 02/05/2010 16/05/2010 30/05/2010 13/06/2010 27/06/2010 11/07/2010 25/07/2010 08/08/2010 22/08/2010 05/09/2010 19/09/2010 03/10/2010 17/10/2010 31/10/2010 14/11/2010 28/11/2010 12/12/2010 26/12/2010

Graph 5

52

In the deposit side the result was much above the budget. Volume of total deposit amounted for GHS 1,087,342 for a budgeted amount GHS 681,937 (160%)

Deposit portfolio (Real/ Objectives) ALL BRANCHES

1 200 000

Outstanding deposits Objectives deposit portfolio

1 087 342
1 000 000

800 000

681 937
600 000
511 855 439 318 592 436

400 000
321 636 274 480 232 052

374 039

200 000
134 574 152 117

200 220 171 571

0
10/01/2010 24/01/2010 07/02/2010 21/02/2010 07/03/2010 21/03/2010 04/04/2010 18/04/2010 02/05/2010 16/05/2010 30/05/2010 13/06/2010 27/06/2010 11/07/2010 25/07/2010 08/08/2010 22/08/2010 05/09/2010 19/09/2010 03/10/2010 17/10/2010 31/10/2010 14/11/2010 28/11/2010 12/12/2010 26/12/2010

Graph 6

2. NEW SERVICES : Besides the strategy of branch development, in 2010 Advans continued as well to fill its product line by adding two new services to the existing ones: a. Chequebooks: Chequebooks were made available to all current account holders to help them easy their transactions. b. OBRA PA Insurance: A insurance scheme Obra pa (which means good life in Twi the local language) were designed to offer clients protection against wide variety of risk including death insurance, disability insurance, insurance for natural disasters.

53

c. e-Susu: The e-Susu which is the focus of this project was launch as pilot at the Newtown Branch in September 2010.We will discuss inn details the features of this product throughout this study. 3. FINANCIAL STATEMENTS: Following are the unaudited 2010 Financial Statements of Advans Ghana: a. Balance Sheet: 31/12/2010

Balance Sheet GHS ASSETS * Current Assets Cash in Bank and Near Cash Gross Portfolio Outstanding (Less: Loan Loss Reserve) Net Portfolio Outstanding Short-term Investments Savings reserves Other Current Assets Sub-total, Current Assets Fixed Assets Land Buildings (gross) Furniture and Equipment (gross) (Accumulated Depreciation) Net Fixed Assets Other Long-Term Assets Long-term Investments

2010

547,356 5,545,135 (176,326) 5,368,809 201,842

397,555 6,515,562

1,917,804 (450,299) 1,467,505

54

Other long-term assets (net) Sub-total, Long-term Assets

267,878 267,878

TOTAL ASSETS
LIABILITIES * Current Liabilities Accrued/(Pre-paid) expenses Savings deposits Short-term Commercial Loans Other Current Liabilities Sub-total, Current Liabilities Long-term Liabilities Long-term Concessional Loans Long-term Commercial Loans Other long-term Liabilities Sub-total, Long-term liabilities TOTAL LIABILITIES EQUITY * Accum. Donated equity, prev. periods Donated equity, current period Shareholder equity Dividend payments Accum. Net Surplus (Deficit), prev. periods Net Surplus (Deficit), current period TOTAL EQUITY

8,250,945

244,475 1,291,624 4,880,000

6,416,100

6,416,100

4,649,000

(1,366,280) (1,447,875) 1,834,845

TOTAL LIABILITIES AND EQUITY

8,250,945

55

b. Income statement: 31/12/2010

Income Statement GHS

2010

Financial Income:
Interest on loans Commissions and fees incl. penalties Indexing income on loans Other Earned Income Income on Investments Total Financial Income 1,792,620 308,742

27,520 2,128,881

Financial Costs:
Interest and fees on borrowed funds Interest paid on savings deposits Indexing expense of deposits Total Financial Costs Gross Financial Margin Provision for loan losses Net Financial Margin 298,224 34,958

333,181 1,795,700 170,557 1,625,143

Operating Costs:
Salaries and benefits Other operational expenses Depreciation and amortization Total Operating Costs Net Income from Operations (before taxes) Amount of taxes paid Net income from operations (after taxes) 1,384,835 1,417,658 270,525 3,073,019 (1,447,875)

(1,447,875)

56

PART 2 PROJECT OVERVIEW

57

CHAPTER 1:

INTRODUCTION

58

I.

SUSU:

The true origin of the word Susu is unknown but in the Akan language (Southern Ghana) Susu means small small. The word is also found in Nigeria among the Yoruba. [14] Susu collectors are one of the oldest financial groups in Africa. Based largely in Ghana they provide (for a small fee) an informal means for Ghanaians to save and access their own money, and gain limited access to credit, a form of microfinance. They run their businesses from kiosks located in the market place and act as mobile bankers. Deposits, often of low but regular value, are usually taken on a daily basis over the course of a month. At the end of this period the Susu collector returns the accumulated savings to the client but keeps one day's savings as commission. Susu collection is a very old and popular practice in Ghana and according to bank of Ghana the magnitude of this informal financial system has reached more-than-160 million cedi (USD 160 million), that operates in the informal sector. Services range from individual Susu collectors serving a handful of clients to large agencies that serve close to 10,000 clients. But the major challenge that Susu clients are facing is insecurity, most often Susu collectors run away with their clients savings II. e-SUSU:

Advans Ghana Savings and Loans presently deliver savings services, alongside with loans and transfers. Although it has been primarily focused on developing loans, they have attracted a significant number of clients whose interests lie mainly in savings. There is a strong potential to increase this figure, if relevant activities are implemented. Advanss Top Level Management believe in putting a stronger focus on developing savings could have positive impacts on the financial sector of Ghana , through:
59

a. Lowering the cost of savings collection: By implementing advanced savings collection practices on a large scale, possibility to supply clients with higher quality service, at a lower cost compared to existing competition could be obtained. b. Securing clients savings: In many African countries, most savings (including those of MSMEs) are collected by informal or semi-formal financial institutions or saving groups. Most of these institutions are poorly managed and subject to frequent frauds. Setting high standards in terms of security (through high management standards), transparency and liquidity will have an immediate impact on the security of savings deposited by Advans clients, and a longer term impact on the governance of the whole financial sector. Based on the above beliefs Advans Ghana has designed a mobile cash collection scheme called e-Susu. The service is called e-Susu because eZwich will be used to record your deposits e-Susu is a electronic susu scheme that uses the E-zwich technology to enables clients make deposits payments on the field but unlike the traditional susu the e-susu is more secure and more reliable in the sense that by using the E-zwich technology, at enrollment clients open accounts with Advans Ghana and subsequently all money collected in the field by e-susu officers are directly deposited into their account.

60

SUMMARY OF e-SUSU TRANSACTION

Client=depositor 1. Gives cash E-Susu officer

4. Confirm the transaction using his fingerprint

3. Deposit the amount on the Clients E_Zwich card

2. Counts cash

5. Makes the Client sign the 2 receipts, gives 1 to the Client, keeps the 2nd When the E-Susu officer leaves the Client : he has in cash the amount deposited by the Client and the Client has on his E_Zwich card the same amount
Advans Ghana E-Susu Service Page 3

Figure 4

e-Susu is an innovation of the traditional Susu. Rational behind the design of the e-susu product is decision of Bank of Ghana in January 2008 to introduce: a. A National Switch (E-ZWICH) to create a common platform for payments for banks and Savings and Loans Companies: b. A Biometric Smartcard (E-ZWICH Smartcard), a new very secure way of paying for goods and services for all Ghanaians on line and offline.

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Advans Ghana took advantage of introduction of the E-zwich to design a new product adapted to the demand of his existing clients and potential ones. Basically the e-Susu product of Advans Ghana is a Capital Investment more precisely a Diversification Investment because the idea behind the introduction of the product is to come out with a new product to cater to the growing demand of microfinance services.

e-susu: strengths & weaknesses

COMPARED TO TRADITIONAL SUSU COLLECTORS SECURITY & RELIABILITY PRICING Strong point in favour of Advans COMPARED TO SAVINGS & LOANS SUSU SERVICES Strong point in favour of Advans (most S&L do not use Mobile-banking technologies) Advans pricing is comparable / less favourable depending on the institution:
Advans monthly fee + project E-zwich fee are comparable. Some S&L, though not all, offer interest...

Advans pricing is favourable:

Advans monthly fee is cheaper for deposits Advans clients can get interest by transferring money to their Advans savings account

ACCESSIBILITY OF FUNDS

Mixed: traditional collectors can bring money to the clients business place, but often with some delay Weak point: acceptance of E-zwich techonology and constraints, compared to very simple pass-book based schemes, to be tested.

Favourable: other Savings & Loans clients have to go to the branch; Advans clients can use internal cheque, or E-zwich POS close to them Weak point: acceptance of E-zwich techonology and constraints, compared to very simple pass-book based schemes, to be tested.

SIMPLICITY

Strong interest of loan clients in preparing loan repayment through daily susu deposit Possibly of interest to larger clients: withdrawals from POS / ATMs in various places, payment to suppliers through transfers to bank accounts
Page 2

Figure 5

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CHAPTER 2:

OBJECTIVES

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The main objective of this project is to find out the profitability of the e-Susu product. To do so traditional methods of project analysis were used. In this Study we will step by step conduct Market Analysis, Technical Analysis, Financial Analysis and Economic Analysis to assess to worthiness of the eSusu.
I. MARKET ANALYSIS:

In this analysis we will be interested in gathering and analyzing data on the potential clients as well as assessing the potential market of Susu.
II. TECHNICAL ANALYSIS:

In this part of the analysis we will consider the choice and appropriateness of the technology, the machinery and equipment and all others relevant technical aspects of the project.
III. FINANCIAL ANALYSIS:

Will include assessment of the cost of the project, the means of financing and the most crucial part, the one that will determine whether the project is worthwhile or not the investment appraisal.
IV. ECONOMIC ANALYSIS :

In which we will try to assess the impact of the product on the environment within which Advans Ghana is operating.

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CHAPTER 3:

RESEARCH & METHODOLOGY

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I.

RESEARCH OF THE STUDY: 1. Type of Research:

This project is an Applied Research. It has been carried out to find a solution to a practical problem that required a management decision and for that matter it is a problem-oriented and action-directed research that seeks an immediate and practical result. The bottom line is Whether or not to introduce the e-Susu product. 2. Sources of Data: The data that is used in this project is mainly in the form of Primary data collected directly by the researcher through direct observation and interview of Clients as well as from the Company Staff (Managers, Loan officers) Secondary data were also collected from The Database of the Company, Articles in Journals, Internet and Books.
II.

METHODOLOGY OF THE STUDY: 1. Analysis:

The traditional methods of market analysis, technical analysis, financial analysis and economic analysis were used in this project to assess the profitability of the e-Susu product of Advans Ghana. 2. Tools used: Microsoft Office Excel was used for graph and chart building and Microsoft Office PowerPoint for some of the presentations. 3. Timeframe: The whole operational activities of the Study was conducted over a period of 8 months starting 20/09/2010

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CHAPTER 4:

LIMITATIONS AND CONSTRAINTS

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LIMITATIONS AND CONSTRAINTS: Every study, no matter how well it is conducted, has some limitations. This is why it does not seem reasonable to use the words "prove" and "disprove" with respect to research findings. It is always possible that future research may cast doubt on the validity of any hypothesis or the conclusions from a study. The limitations that need to be acknowledged and addressed regarding the present study are related to the different analysis conducted:
I.

Market analysis limits:

The target population of 1,000 that was interviewed may not reflect the behavior and tastes of the overall population, Field investigators were not also market research experts, they were trained just for the purpose of the survey these could made biases to crept in to the findings of the survey.
II.

Financial Analysis limits:

Given the importance of capital budgeting in project evaluation, Management of Advans Ghana decided to outsource the estimation of Cash flow of the project to Horus Development Finance which is the major shareholder of Advans, therefore the researcher carried out the capital budgeting based on the received data which might as well be misleading.
III.

Economic Analysis Limits:

The Economic analysis of the e-Susu was extended to an economic analysis of microfinance services in general and based on findings from previous empirical studies that revealed the positif impact of microfinance on poor people, though these studies have been subject to critics over the years.
IV.

Budgetary Constraints:

Though the findings and recommendations of this research would greatly benefit Advans Ghana, the company did not fully finance it. The researcher
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bore some of the costs. Due to this Budgetary Constraint some degree of limitations are to be expected.

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CHAPTER 5:

DATA ANALYSIS & INTERPRETATION

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I. MARKET ANALYSIS:

In most cases, the first step in a project analysis is to estimate the potential size of the market for the product to be manufactured (or service planned to be offered) and get an idea about the market share that is likely to be captured. Put differently, market or demand analysis is concerned with two broad issues: What share of the market will the proposed project enjoy? What is the likely aggregate demand for the product or service? These are very important ,yet difficult, questions in project analysis .Intelligent and meaningful answers to them call for an in-depth study and assessment of various factors like patterns of consumption growth , income and price elasticity of demand, composition of market, nature of competition, availability of substitutes, reach of distribution channels so on and so forth. In our case to answer these two crucial questions we will use: A Market Survey of the potential demand of Microfinance services for the former A Characterization of the Market of Microfinance in Ghana latter 1. MARKET SURVEY: Given the importance of market survey it should be carried out in an orderly and systematic manner. Advanss market survey which was called Advanss customer survey followed all the keys steps required for a good survey and it involved all levels of management .It was conducted as follow: a. Target Population: A target population of 1,000 respondents was selected among which 500 were loan clients of Advans. b. Field Investigators:
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for the

10 loan officers of Advans helped by 10 extra part time workers hired for the purpose of the study conducted the survey. All Field investigators receive an intensive 5 days training from 20/09/2011 to 25/09/2010 on customer survey techniques and Advanss customer policies and procedures. c. Timeframe: We started the survey on 27/09/2010 and it lasted for 5 days. d. Questionnaire: The questionnaire was designed by a consultant from Horus Development Finance which is the major shareholder of Advans. Since the survey was targeting a population made up of micro business owners who are mainly illiterate the questionnaire was made simple and short however its effectiveness were not given short shrift. A part from the general information (gender, age, type of business) the questionnaire was seeking to find out: Savings habits of respondents Satisfaction with Advans product in case were respondents are Advans clients Advans rating among other financial Institutions. Interest in others Advans Product Find below the survey form 0001 of our customer survey questionnaire

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2. FINDINGS OF THE MARKET SURVEY: a. General Information: 65% of the sample size interviewed are female, while the remaining 35% are male, majority of them (40%) are between 30 and 45 years, the 20-30 accounts for 21%,the 45-63 for 33% the more than 63 years account only for 6%. There are mainly involved in agricultural activities (49% of them), those engaged in Commerce and Services represent respectively 20% and 18%. Only 13% are engaged in Production. Those among the respondents who received primary education are 48%, Secondary 13%, Tertiary 7%, graduated represent 2%. b. Savings Habits: Majority of the respondents (82%) are practicing Susu but those doing it with formal institutions are only 28%, the big majority 72% are saving with traditional Susu collectors. The main institutions attracting their savings are Procredit 5% and Women Worlds Bank 3%. Most of the respondents are saving-oriented, since 40% of them have been practicing Susu for more than 5 years. c. Others: Though most of the respondents practice Susu with informal Susu collectors only 22% of them trust their Susu collectors. Advanss clients are at 51 % satisfy with the services offered. Most complains received have got to do with the interest rate.

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3. CHARACTERIZATION OF THE MARKET: The overall Characterization of the market was done based on secondary data collected from Ghana Financial Sector Assessment by The United Nations Advisors Group on Inclusive financial Sectors Private Sector Working Group Edition 2010. To answer our second question in the market analysis what is the likely aggregate demand for the product? We will need to conduct a top down analysis (Macroeconomics environment Assessment MF Industry

Analysis).Our focus in this top down analysis would be to find out: Demand of MF Services Players in the Industry Methods of distribution Government Policy Constraints and Challenges of MF a. Demand of MF Services: Brief overview of the socio economic conditions: Ghana is a middle income economy with an estimated population of 24,233,431 in 2010 39.5% are below the poverty line (1990-2009).The Gross Domestic Product in 2010 was $71.216 billion PPP with a GDP per Capita of $2,931 PPP with a real growth rate of 6.0% and a inflation rate of 10.9% The distribution of the GDP by sector is as follow: 29.8% Services 25.2% Industry 9.1% Manufacturing 36.1% Agriculture, Forestry, & Fishing

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Population growth is slowing in Ghana because of a decline in the fertility ratewhich is estimated at4.5 children per woman, the lowest in West Africaand relatively stable mortality rates .Average population growth declined from 2.8% between 1985 and 1994to 2.2% between 1995 and 2002.Population growth in 2005 was estimated by the IMF to be jus tunder 2.1%. A large number of Ghanaians (around 3m) also live abroad, and there have been concerns that an increasing number of people are emigrating, although there is little evidence to verify this. Ashanti is the most populous region, containing 19.1% of the total population, followed by Greater Accra (15.4%). However, Greater Accra is the most densely populated region with 895.5 people per sq km, followed by Central and Ashanti regions. The predominant ethnic group is the Akans, who constitute 49.1%of the population, followed by the Mole-Dagon (16.5%) and the Ewe (12.7%).Government estimates in the 2007budget have indicated that real GDP growth has exceeded forecasts and has been strongest in the industrial and services sectors. Electricity shortages have continued to plague the local manufacturing and mining sectors. High inflation has been an ongoing problem. Bank of Ghana figures reveal that inflation unexpectedly increased in December 2006, to10% year-on-year. Agriculture has long been an important sector of the economy, employing about 50% of the labor force and contributing around 35%of GDP. Cocoa is the major export crop, followed by timber and non-traditional products such as horticulture, fish/sea foods and pineapple. Sales and services at18.2% is another important employer of the labor force.10.87m were employed (2006 est.) of which almost half are men and half are women. The unemployment rate was estimated at 20% in 1997.Poverty has declined during the1990s. Using an income of 900,000(US $110) per year as a poverty line, the
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percentage of the Ghanaian population defined as poor declined from almost 52% in 1991-92 to just below 40% in 1998-99. But the decline was not evenly distributed geographically; the reduction in poverty was concentrated in Accra and the forest zones. Rural income per head is 90% of the national average. The regions with the lowest income per headthe poorest areas of the countryare the Northern, The Upper West and the Upper East regions. Within the rural areas, incomes were higher in the forest zones than in the coastal and savannah zones. Literacy rates are improving but regional disparities in education still occur. The reduction in illiteracy rates has continued, to 18% of males and34% of females in 2002. Furthermore, although the gross primary education enrolment rate reached 83.3% in the2004/05 academic year; it was only 71.5% in Northern region compared to85.2% in Brong Ahafo region. The informal economy: Of the labor force aged 15 to 64 years, 52% were self-employed in agriculture, 34.3% worked in the informal economy, and only 13.7% worked in formal public or private employment. Due to factors described more below, Ghana has a very large informal economy. When agriculture and nonagricultural activities are included, the informal sector accounted for almost 91% of total employment in 1998-9. The lack of structural transformation of the Ghanaian economy has constrained the development of new and better employment opportunities and a fuller utilization of the labor force. Under the economic reform programs, higher rates of growth have not improved employment for a large segment of the working population Instead, the majority of employment opportunities continued to consist of low-income agricultural and informal activities. Moreover, the number of formal public and private sector jobs has declined. Some challenges to employment generation in Ghana include:
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 Infrastructure and Public investment. Access to markets. Financial sector. Macroeconomic management. Labor force information. Policy coordination. Agriculture dominates the informal employment sector. But more men (47.5%) than women (30.5%) are employed in the agricultural informal sector. Women (37.5%) were more likely to be employed in the nonagricultural informal sector than men (15.8%). Women have significantly less access to wage employment (Formal and informal) Types of products demanded and percentage of demand being met: Credit Savings Insurance Remittances However Over 50% of microfinance demands of the existing microfinance institutions (MFIs) clients are not met due to limited access to on lending funds. Furthermore, of the total demand for microfinance loans, less than 10% of the demand is presently being met by the formal and semi formal MFIs; presently the microfinance services in Ghana reach only about 300,000 people against a potential of 3 million active and bankable poor. Others either have no access to microfinance services or depend upon the informal sector to meet their needs. Thus, the formal and semi formal sector is not able

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to provide most potential clients access to microfinance services. The SME sector employs about 15.5% of the labor force in Ghana. In Ghana, the sectors output as a percentage of GDP accounted for 6% of GDP in 1998. Access to finance remains a dominant constraint to small scale enterprises in Ghana. SMEs often cannot obtain long-term finance in the form of debt and equity. The most significant financial service provider to the poor in Ghana is the Susu (savings collection) system. The susu system primarily offers savings products to help clients accumulate their own savings over periods ranging from one month (susu collectors) to two years (susu clubs), although credit is also a common feature. The susu collectors are the most visible and extensive form. Even though they mobilize savings, the central bank has refrained from attempting to regulate them, leaving them to try to improve the reputation and quality of the industry through self-regulation. The importance, and certainly the registration, of individual moneylenders may have been reduced by the emergence of rural banks, Credit Unions, susu associations and clubs, and especially S&Ls, which has enabled money lending-type operations to become licensed. b. PLAYERS IN THE INDUSTRY: As stated in chapter 2 the main players in the microfinance sector in Ghana are the RCBs, the NBFIs and the informal Susu collectors. c. METHODS OF DISTRIBUTION: The Susu (savings collection) system is a major distribution channel to reach the poor. Lower-income brackets and women constitute 65-80% of the clients of the Susu schemes. Thus the combination of specialized categories of licensed financial institutions and traditional methodologies has succeeded both in mobilizing savings from lower-income households and giving them access to financial services that are part of the formal, supervised system.
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d. GOVERNMENT POLICY: Interest rates : Interest rates have not been officially controlled since 1987 but the Government has introduced a credit programs targeted for small business development or poverty alleviation whose interest rates are set well below market-determined rates. District Assemblies have been mandated since 1979 to provide 20% of their Common Funds for micro and small enterprises at an interest rate of 75% of the commercial bank rate. Furthermore, the Government in 2001 has pegged the interest rate for loans under the poverty reduction strategy at 20%. Regulatory Body: The Bank of Ghana has legal authority over all banking and credit institutions, whether formal or informal. Among its function stipulated by the Bank of Ghana Act 2002 are to regulate, supervise and direct the banking and credit system and to license, regulate, promote and supervise nonbanking financial institutions. The NBFI Law also gives Bank of Ghana the supervisory authority in all matters relating to the businesses of any nonbank financial institution licensed under the law. The supervisory functions of the Bank of Ghana arising out of these laws have been carried out from two departments: the Banking Supervision Department and Non-Bank Financial Institutions Department. The latter was established in 1994 to oversee the licensing of NBFIs under the new Law, supervise and regulate them, and provide advisory and promotional services. It was put under the Banking Supervision Department in 2002. Until 2002, a separate department was involved in promoting RCBs and, to some extent, following up on supervision issues. The Credit Union Association serves as a self-regulatory apex body for the 232 credit unions (as of 2002) and its norms must be met as a condition for full registration of a new credit union by the Department of
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Cooperatives. The susu system is not regulated per say but the GCSCA imposes a number of regulatory barriers to entry as well as providing services to its members. A prospective member must be recommended by a zonal executive, provide two sworn guarantors, deposit about 1m (about US $130) into a security fund, save 5,000 a month, take a medical examination, and undergo a 3 month training with an existing member. e. CONSTRAINTS and CHALLENGES: Government programs with below market interest rates have potential to hamper the rural and microfinance institutions in Ghana. Ghana has evolved different licensing and regulatory structures for different segments of the financial system, including rural and microfinance and administered them in a flexible manner, with periodic revisions of regulatory standards and introduction of new legislation and with relatively high tolerance for traditional financial mechanisms and NGOs that are behaving in a responsible manner. While this approach has avoided overly restricting NGOs that are not covered, the Bank of Ghana has adopted these measures more in response to emerging situations than through several years of systematic study of and consultation with the rural and microfinance industry. In part for this reason, regulation and supervision have not been as systematic in Ghana as appears likely to be the case in other countries, such as Uganda. Ghanas process of encouraging entry and then adjusting regulation has fostered a wide range of RMFIs and products in formal, semi-formal and informal segments, including some suitable for microenterprises and lowerincome house-holds, with some reasonably strong linkages between segments. The strength of Ghanas system lies in a diversified structure of both institutions and regulatory regimes, well adapted to local economic circumstances. But the outreach of the system, particularly with respect to credit and to the rural poor, has been fairly limited. Most RMFIs serve only a
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local market, and no high-performing financial intermediaries with a significantly large national client base have emerged. The biggest challenge in regulating the RMFIs has been to find the right balance between ease of entry for greater outreach, prudential regulations to promote sustainability, and supervision capacity. Summary of other constraints to the growth of the microfinance sector. Although, reports are being submitted by the NBFIs according to the BOGs required formats, for many NBFIs gathering this information is an additional burden. Often these reports are not very accurate and are submitted late. Moreover, since these reports focus on compliance with the prudential regulations, they are not useful for taking managerial decisions. Thus, it is apparent that most NBFIs have a poor MIS system due to which they often do not have information useful for management decisions. 4. FINDINGS MARKET: There is a huge demand for financial services in Ghana, but the microfinance industry in the country is still young, reaching only a fraction of the estimated three million Ghanaians who would benefit. Non Banks Financial Institutions (NBFIs) currently reach out to the poor in urban areas, and Rural and Community Banks (RCBs) serve in rural areas. However, most rural areas, especially in north Ghana, still seriously lack financial access. The Susu (savings collection) system is a major distribution channel to reach the poor. Through Bank of Ghana which is the regulatory body the Government is encouraging investment in microfinance services as part of it poverty reduction program.
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OF

THE

CHARACTERIZATION

OF

THE

II. TECHNICAL ANALYSIS:

The broad purpose of the technical analysis is to ensure that the project is technically fiable in the sense that all the inputs required to set up the project are available. The e-susu service of Advans Ghana uses the E-zwich technology to enables clients make deposits payments. In this technical analysis we will discuss the choice and appropriateness of technology. 1. CHOICE OF TECHNOLOGY: A study of Bank of Ghana indicated that 80% of the bankable population of Ghana either does not have bank accounts or are under banked meaning that they do not have access to financial services. That means about 80% cash is in circulation and not in the banks. This is due to the cost of setting up offices in remote areas. Currently Ghana is operating a cash based economic system i.e. heavy dependence on cash for payment of goods and services in so doing Financial Institutions cannot design product without good knowledge of spending trends since citizens spending patterns are not well known. To reverse this situation On January 2008, Bank of Ghana (BOG) in collaboration with the Ghana Association of Bankers decided to introduce: a. A National Switch (E-ZWICH) to create a common platform for payments for banks and Savings and Loans Companies: b. A Biometric Smartcard (E-ZWICH Smartcard), a new very secure way of paying for goods and services for all Ghanaians on line and offline. To manage this new payment system Bank of Ghana set up the Ghana Interbank Payments and Settlement System (GhIPSS). Business to be managed by GHIPSS will include the following:
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 National Switch Biometric Smart Card Cheque Clearing Code line Cheque Truncation Real Time Gross Settlement System (RTGS) Automated Clearing House (ACH) Advans Ghanas choice to use the e-Zwich technology of GhIPSS was largely influenced by security and reliability that GhIPSS as a subsidiary of bank of Ghana have.
2.

APPROPRIATENESS OF TECHNOLOGY:

GhIPSS mandate is to implement and manage interoperable payment system infrastructures for banks and non bank financial institutions in Ghana. The company is committed to partner the financial services industry by promoting, developing and managing efficient and secure electronic payment systems. The National Switch (E-ZWICH) created by GhIPSS offers appropriate technology to all banks and financial institutions in Ghana that want to offer electronic banking and payment services to its clients The major features of the e-zwich are as follows: Smartcard:

Figure 6

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It is a plastic card with an embedded microcomputer chip which allows you to store: Personal information (Name, address etc.) Biometric information (Finger prints) Account details e.g. funds loaded, payments, receipts, available balance etc. The e-Zwich Smartcard is secure. It requires biometric (fingerprint) authentication for its use Terminals or Points of Sales (POS):

Figure 7

It is the device that allows a customer with a smartcard to carryout transactions. The POS has a smartcard drive where the customer insert his card and authorizes its use by presenting a matching finger print to the finger print drive stored on the chip of the smartcard

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System Host:

Figure 8

It is the transaction processing centre hosted and managed by GhIPSS. Smartcard, Terminal, and System host are linked together by the UEPS (Universal Electronic Payment System) Software The overall system operates offline, online and real time. 3. FINDINGS OF THE TECHNICAL ANALYSIS:

In the light of this analysis we can conclude that Bank of Ghana through GhIPSS offers a secure platform (e-Zwich) that can enable all financial institutions to implement mobile cash collection schemes.
III. FINANCIAL ANALYSIS:

(All figures are expressed in Ghana cedis) The keys steps involved in determining whether a project is financially worthwhile or not are: Estimation of the Cost of the project Calculate the cost of capital
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Evaluate the investment and judge whether the project is financially good or bad

1.

COST OF THE PROJECT:

Conceptually the cost of project represents the total of all items of outlay associated with a project which are supported by long terms funds. Advans Ghana submitted a business proposal to SG-SSB, (the Ghanaian subsidiary of the Societe General Group of Bank) for financing its project of introducing the e-Susu service in to the market. This business proposal stated the followings costs: a. Cost of equipments: Which include cost of acquiring all machineries and equipments like the ATM machines, and the POS. b. Cost of Labour: Made up of salary and wages of e-Susu officers, cost of recruitment and training of new staff, consultancy fees of experts for their technical knowhow... c. Advertising Cost: Like TV and radio presentations, T-shirts, flyers, banners... d. Initial cash losses: Most projects incur cash losses in the initial years and for that matter provision was made for such losses. e. Contingencies: A provision for contingencies was also made to provide for certain unforeseen expenses and price increases over and above the normal inflation rate which is already incorporated in the cost estimates. In his Business proposal Advans Ghana estimated all these above listed costs to GHc100, 000.
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SG-SSB agreed to grant the GHc 100,000 needed funds to Advans Ghana for a period of 4 years at the very competitive interest rate of 12%. 2. INVESTMENT EVALUATION:

Investment evaluation is done using criteria. There are several criteria that have been suggested by economists, accountants, and others to judge the worthwhileness of projects. Some are general and applicable to a wide range of investments; others are specialised and suitable for certain types of investments and industries. The most important investment criteria are broadly classified as discounting non-discounting criteria

A qualitative survey of investment evaluation practices in India conducted by U.Rao CHERUKERI revealed the followings: Over time discounting criteria have gained in importance and internal rate of return is the most popular evaluation method. Firms typically use several evaluation methods. Accounting rate of return and payback period are widely employed as supplementary evaluations methods. A quantitative survey of corporate finance practices in India by Manoj ANAND reported in the October-December 2002 issue of Vikalpa revealed that the following methods investment proposals: are followed by companies to evaluate

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Methods Internal rate of return Payback period Net present value

%of companies considering as important 85 67.50 66.30

In the US a study conducted by William Petty and David Scott showed that Internal rate of return is the most used evaluation techniques among business firms in America. Based on all these findings we will use the internal rate of return to evaluate the profitability of the e-Susu service of Advans Ghana. According to Horus development Finance, the major shareholder of Advans Ghana the e-Susu project would generate the following cash flows:

Year

Cash flow
Table 3

(100,000)

30,000

30,000

40,000

45,000

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The Internal Rate of Return of a project is the discount rate which makes its Net Present Value equal to zero. Put differently it is the discount rate which equates the present value of future cash flows with the initial investment. It is the value of r in the following equation: INVESTEMENT= nCt (1+r)t

Where Ct= Cash flow at the end of year t r= Internal rate of return. n = Life of the project In our case the IRR is the value of r which satisfies the following equation: 100000= 30,000 30,000 40,000 45,000 (1+r)1 (1+r)2 (1+r)3 (1+r)4

The calculation of r involves a process of trial and error. We try different values of r till we find the right hand side of the above equation is equal 100,000. Lets begin with r =15%.This makes the right hand side equal to: 30,000 30,000 40,000 45,000 .=100,802

1.15 (1.15)2 (1.15)3 (1.15)4 This Value is slighter higher than our target value: 1000,000. So we increase the value of r from 15% to 16% (In general a higher r lowers and a smaller r increases the right hand side value.) The right hand side becomes: 30,000 30,000 40,000 45,000 .=98,641

1.16 (1.16)2 (1.16)3 (1.16)4

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Since this value is now less than 100,000 we conclude that the value of r lies between 15% and 16% Lets find a more accurate value of r: The net present value of the two closest rates of return:

(NPV/15%) =802 (NPV/16%)=1,359 The sum of the absolute values of the Net Present Value obtained above: 802+1,359=2,161 The ratio of the Net Present Value of the smaller discount rate:

802/2,161=0.37 Lets add this ratio to the smaller discount rate:

15+0.37=15.37% So the internal rate of return of the project is equal to 15.37%. 3. FINDINGS OF THE FINANCIAL ANALYSIS:

The IRR rule is to accept the project if it is greater than the cost of capital and Reject it otherwise. Since the interest charged on the bank loan is equal to 12%. We can confidently conclude that: The project of introducing the e-Susu service which has an IRR of 15.37% by taking a loan of GHc100, 000 at the interest rate of 12% is financially viable.

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IV. ECONOMIC ANALYSIS:

"Microfinance stands as one of the most promising and cost-effective tools in the fight against global poverty."Jonathan MORDUCH, Chair, UN Expert Group on Poverty Statistics. Economic analysis also called Social Cost Benefit Analysis is a methodology for evaluating investment projects from the point of view of society as a whole. Since the e-Susu that is the topic of discussion here is merely a microfinance service we will extend our economic analysis of the e-Susu service to an economic analysis of microfinance in general. In this regard we will look out the social benefits and costs of microfinance services. Microfinance has generated a lot of hope in the past few years. Proponents of this informal type of finance asserted that it would serve the poor by providing them with access to credit, and other services thereby alleviating poverty. It would also be financially sustainable. Three types of cost-benefit analysis are possible: The first is at the individual level: by comparing benefits and costs at the individual level, is it possible to isolate determinants explaining the fact that an individual will benefit from microfinance service? A second question concerns whether microfinance is a cost-beneficial development programme. Does it generate more benefits from a social point of view than costs from a financial point of view? A final question concerns donors: from an outsiders viewpoint, is it more worthwhile to invest in microfinance than other development programs?
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1.

Individual level:

The question of whether microfinance is beneficial to customers is a typical evaluation problem. The objective here is to identify the average effect of participation in microfinance on, for example, expenditure, in cases where people have access to the former. A participants expenditure should be compared to a counterfactual expenditure that of the same individual in the same situation at the same time without access to microfinance. Since the counterfactual is never observed, even with individual panel data observations, it must be estimated. Ideally, an experiment would randomly assign loans to people and compare average outcomes of groups with and without loans. Lacking a controlled randomized experiment, we must turn to non-experimental methods that mimic it under reasonable conditions. Pitt et al (1998) in a large survey conducted in Bangladesh divided their target population in to 5 groups A, B, C, D, and E. Group A corresponds to ineligible individuals in villages having access to microfinance whereas group B corresponds to ineligible individuals in villages without microfinance. Group C corresponds to eligible individuals who choose not to participate and group D to eligible individuals who choose to participate in villages where microfinance is available. Group E includes eligible individuals in villages without microfinance. One should not estimate microfinance impact by differentiating expenditure between groups D participants and group C non-participants. Such a difference would be misleading due to the problem of self-selection. People self-select in microfinance programs. This difference would measure entrepreneurial skills as well as microfinance impact.

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Equipped with such skills, participants might have done better with or without microfinance. This survey concluded that: Programme participation raised household consumption by 18 Takas (Bangladeshs currency) for every 100 Takas lent to an individual woman. Microfinance has a negative impact on expenditure variation. (Smoothing effect of MF). However, the results are not very significant. Women also appeared to benefit from MF services as far as their nonland assets are concerned. MF Services seem to increase both male and female school enrolment. Girls school enrolment in particular is positively affected by the participation in microfinance. Weaker results for boys may simply be a reflection of their greater initial enrolment. In fact, 60% of boys were enrolled, compared to only 56% of girls. Many others empirical studies have revealed the positif impact of MF services on Individual as those already mentioned in section 6 of part I of this study. There might also be numerous indirect effects, such as: Displacement effects (activities created by the programme at the expense of other jobs in the economy), Substitution effects (jobs created for participants that replace those in other categories due to the change in relative wage costs), Dead-weight effects (subsiding training that would have taken place in the absence of the programme), Tax effects (effects of taxation on participants behavior).

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2. Microfinance as a development program: The second level of our SCBA deals with MF as a development program. Interesting questions in this regard might be: Is microfinance profit-making and poverty-reducing? Is there a Win-Win Policy? Can MFIs be sustainable? In The Role of Subsidies in Microfinance: Evidence from the Grameen Bank, Journal of Development Economics MORDUCH computed the beneficial impact of the Grameen Bank of Prof YUNUS Muhammad. According to his results, participants of MF programs spend approximately 3% more than nonparticipants. At the individual level, this means that on average participants earn 250 Takas more than non-participants. The monetary value of such an improvement can be calculated for each individual. This benefit can be divided by the loan amount for each individual: the average of this variable is 0.028. This means that out of a 100 Taka loan, people will be able to spend 2.8 Takas more. He then compared this estimates with the overall financial position of the Grameen Bank. Morduch found that the Grameen Banks reported profits should be considered with great caution. He recalculated profit subtracting income grants, subsidies on equity and subsidies on capital. He also found that the Grameen Bank did not respect elementary accounting rules such as provisions. He therefore discounted profits by an amount corresponding to a 3.5% loss provisioning in addition to the 5% loss provisioning more frequently used by commercial banks. In the light of his research The Grameen Bank appears cost-beneficial according to the reported profit: microfinance seems to be a win-win policy. Microfinance serves the poor and is (almost) sustainable. Sustainable in the sense that it has the capacity:

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To provide for the best services and programs to the poor To improve the lives of beneficiaries through available resources To generate the resources necessary to achieve its planned targets

3. Microfinance and other development programs: The last level of analysis under SCBA tries to compare Microfinance to other antipoverty programs in terms of delivering services and generating benefits to the poor? a. Development Programs in Third world countries:

Many other development programs operate in third world countries. In Bangladesh for instance, Food-For-Work is a wage employment-generating program targeting the wage-employed poor who find it difficult to find work during the off season. The program employs people to build rural roads and other types of infrastructure, such as canals and embankments. It is selfselecting in that only the very poor accept the low-level manual jobs the program offers. Another prominent anti-poverty program in Bangladesh is Vulnerable Group Development which is a self-employment generating program using food to promote productive self-employment for poor people not covered by FoodFor-Work. In African countries many such programs are also operating offering a broad a range of developmental services. Most of them are UN related. The benefits of these programs include food allocated to program participants and consumption increases associated with the infrastructure improvements created by these programs. In third world countries Poverty have also been combated by investing in infrastructure. Unlike targeted food program, which effect only consumption,

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or targeted credit program, which finance low-growth activities, investment in infrastructure may promote the broad-based growth needed to reduce poverty. For instance a village with electrification or paved roads is able to generate higher income and employment for its entire population, thereby promoting growth and reducing poverty. b. Microfinance vs. development programs: Ahmed R.and Hossain in Development Impact of Rural Infrastructure in BangladeshIFPRI research report 83, International Food Policy Research Institute, Washington D.C.compared microfinance and other development programs. They found that Microfinance benefits its customers. However, microfinance treats only those people who self-select as a consequence of innate entrepreneurial skills. Not all individuals possess such skills. To meet the needs of poor people with different abilities, both self-employment programs and wage employment programs should be offered. Moreover, we saw that savings amounts were important in determining participation in microfinance. Their findings support the view that microfinance does not serve the ultrapoor but rather the asset-possessing poor with. The former are more likely to use public works programs than credit-based interventions. Microfinance can only complement infrastructure development programs. 4. FINDINGS OF THE ECONOMIC ANALYSIS: In a nutshell the SCBA revealed that: 1. In an individual level: The poor in micro financed villages may be systematically better than the poor in non-micro financed villages in a number of ways. Microfinance has a positive impact on participantss income (participants spend on average 3% more than non participants), supply of labor and, Male/female school enrolment. Microfinance does have a number of other positive impacts not
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evaluated here. It empowers women who formerly were restricted by social custom from working outside the home, promotes self-sufficiency and enhances education by providing training. However, microfinance might also has numerous but negligible indirect effects. 2. Microfinance as a tool of development: From a purely financial cost-social benefit approach Microfinance does not generate enough benefits to compensate for its losses once its profits are corrected by the amount of subsidy. However MF can be a win-win policy in the sense that it could achieve development goals and financial sustainability as well. 3. Microfinance and Other Development Tool: Both MF and development programs have positif impact on poverty alleviation and for that matter for better development they should be implemented together as complementary tool.

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CHAPTER 6:

SUMMARY

CONCLUSIONS AND RECOMMENDATIONS

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This chapter presents the summary of findings, conclusions and recommendations of the study of the profitability of the e-Susu service.
I. SUMMARY OF THE FINDINDS:

1. MARKET ANALYSIS: The market survey revealed the following: a. 65% of the respondents are women b. 49% are engaged in Agricultural activities c. 48% did not receive Secondary education d. 82% are practicing Susu e. 72% of those practicing Susu are saving with traditional Susu collectors The Characterization of the market showed that the microfinance sector in Ghana is young because of its relatively short tenure outreach has been limited in terms of the number of the poor people served. Despite its relatively limited impact to date, the initial results are promising.and there is a huge demand for financial services. Ghanaian in general have good savings habits 40% of them have been practicing Susu for more than 5 years 2. TECHNICAL ANALYSIS: The E-ZWICH electronic payment system through which Advans Ghana wants to operate its mobile cash collection is an appropriate technology. It enables fast, secure and convenient financial transactions. 3. FINANCIAL ANALYSIS:

The project of implementing the e-Susu service is financially viable because its calculated IRR is 15.37% with a cost of capital of 12%. 4. ECONOMIC ANALYSIS:

In our economic analysis we found that Microfinance has undoubtedly impacted positively lives of poor people over the years in LCDs. The e-Susu
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service as a MF service once implemented would benefit the target clients of Advans Ghana by offering them an innovative and secure way of savings and the service is also expected to fill the existing product line of Advans Ghana. The service would bring both returns on investment and social development. It is therefore economically viable.
II. CONCLUSIONS:

This research was carried out to reach the objectives stated in Chapter 2 of Part 2 namely to find out the profitability of the e-Susu service of Advans Ghana. The emphasis was put on traditional methods of project analysis namely market analysis, technical analysis, financial analysis and economic analysis. All these studies agreed on the profitability of the service.
III. RECOMMENDATIONS:

The recommendations emerging from this study: 1. Advans Ghana should adopt E-Zwich technology: GhIPSS IS offering the E-Zwich technology to all banks and financial institutions in Ghana. The technology offers many others benefits as cheques clearing, real time gross settlement system 2. Launch the e-Susu service as a pilot in Newtown branch: In the light of the different analysis the e-Susu appeared to be profitable. Therefore implementation can be done gradually as a pilot in one branch ideally Newtown which has the highest number of clients. 3. Verify acceptance by clients of : a. E-Zwich technology: If necessary organize training on the technology for target group of clients. b. Product features: Minimum deposit, monthly deposit frequency, withdrawal possibilities should be adapted to clients needs.
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4. Monitor competition: Competitors like Procredit and Women World Bank can also adopt E-Zwich since it is open to all banks and financial institutions. Closely monitor them and react accordingly.

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PART 3 REFERENCES

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I.

BIBLOGRAPHY: 1. Financial Institutions with A Double-Bottom Line: Implications For The Future Of Microfinance CGAP Occasional Paper, July 2004, Robert Peck CHRISTEN, Richard ROSENBERG and Veena JAYADEVA

2. Microcredit: Sound Business or Development Instrument? Oikocredit, 2004 Gert van MAANEN

3. Microfinance Revolution: Sustainable Finance for the Poor, Marguerite ROBINSON

4. The Poor and Their Money Stuart RUTHERFORD

5. Rural Development in East Pakistan, Speeches By Akhtar Hameed KHAN. Asian Studies Center, Michigan State University. 6. BHATT, E. R. (2006). We are poor but so many: the story of selfemployed women in India. Oxford, Oxford University Press

7. Milford BATEMAN Why Doesn't Microfinance Work?

8. MURDOCH, J. [1998], .Does Microfinance Really Help the Poor? New Evidence from Flagship Programs in Bangladesh. Department of Economics and HIID, Harvard University, June.

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9. MURDOCH, J. [1999] The Role of Subsidies in Microfinance: Evidence from the Grameen Bank. Journal of Development Economics, Vol. 60

10.Ahmed, R., and Hossain, M., [1990] Development Impact of Rural Infrastructure in Bangladesh., IFPRI research report 83, International Food Policy Research Institute, Washington, D.C 11.Barnes Carolyn and Erica Keogh March 1999: An Assessment of the impact of Zambukos Microenterprise program in Zimbabwe 12.Ghana Financial Sector Assessment by The United Nations Advisors Group on Inclusive financial Sectors Private Sector Working Group Edition 2010. 13.Wikipedia.org

14.www.scribd.com

15.www.advansghana.com

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II.

NOTES:

[1] Wikipedia.org [2] Microfinance Revolution: Sustainable Finance for the Poor Marguerite ROBINSON [3] Microfinance Information Exchange, Inc. (2007-08-01). Micro Banking Bulletin Issue #15, autumn, 2007 [4] The Illusion of Poverty Reduction red pepper magazine [5] Brigit HELMS. Access for All: Building Inclusive Financial Systems. CGAP/World Bank, Washington, 2006, p. 97 [6]Farooque CHOWDHURY. The metamorphosis of the micro-credit debtor New Age, June 24, 2007 [7]Epstein, Keith (2007-12-13).The Ugly Side of Micro lending [8] India's Micro-Finance Suicide Epidemic BBC News 2010-12-16. [9]Grameen Bank Secret Documents : Dr Yunus accused of diverting US$ 100 Million aid [10]Robert Peck Christen, Richard Rosenberg & Veena Jayadeva. Financial institutions with a double-bottom line: implications for the future of microfinance. CGAP Occasional Paper, July 2004 [11]http://www.themix.org/microbanking-bulletin/mbb-issue-no-19december-2009 [12] (Ghana Statistical Services 2010) [13] Bank of Ghana [14] Wikipedia.org

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