Reasearch on Rural Banks

CHAPTER ONE

1.1 INTRODUCTION

BACKGROUND

Generally, rural banks are financial institutions responsible for mobilizing and channeling rural savings for economic development within the specific communities in which they are commercial banks to provide adequate financial support for the rural economies.

The establishment was justified from the view point that, Ghana is an agrarian country with the agricultural sector contributing over 40% of the Gross Domestic Product (GDP) and small scale farmers making up 60% of the farming population and producing basically about 90% of food stuffs. In spite of the important role played by the rural/agricultural sector of the economy the performance of the rural financial market has been grossly poor in relation to the financial services available to these rural entrepreneurs and peasant farmers. Thus to improve the situation and also to bridge the gap created between rural and formal banking, the Bank of Ghana implemented the rural system in 1976 with the objective of creating a formal financial system and to help promote accelerated growth of the rural economy as well as raise their living standards. “Rural banks are established to have power to engage in the business of banking law 1989 (Decree 225) and in the guidelines issued by the Bank of Ghana”. Thus, rural banks are governed and supervised by Bank of Ghana.

Over the years, rural banks have gained increasing roles in their respective communities as well as gained an upper hand especially in the area of micro financing. Some of the reasons for their successes are as follow:

Their locations promote higher propensity to serve clients with low asset base: education and/or collateral

Dynamic linkages with other institutions such as Non Governmental Organisation (NGOs), the formal financial sector and other donor programmes;

Forced savings used as a means of mobilizing financial resources as well as security.

Decision taken...