The Traditional/Informal Credit Delivery System in Ghana plays a vital role in financial inclusion, particularly for micro and small enterprises (MSEs), rural communities, and low-income individuals who are often underserved by formal financial intermediaries such as commercial banks and savings and loans companies. This system, encouraged by the Government of Ghana through policies like the Growth and Poverty Reduction Strategy (GPRS II) and alignment with the Bank of Ghana’s (BoG) microfinance framework, supplements formal channels by mobilizing savings and providing credit without stringent regulatory oversight. It operates outside the formal regulatory ambit of laws like the Banks and Specialized Deposit-Taking Institutions Act, 2016 (Act 930), relying instead on community trust, social networks, and self-regulation. Below, I discuss its structure, encompassing key components, operations, benefits, challenges, and integration with the broader financial system, drawing from practical examples in Ghanaian contexts such as market trading in Accra or rural farming in the Northern Region.

1. Key Components and Types of the Traditional/Informal Credit Delivery System

The structure is decentralized and community-based, comprising various informal mechanisms that facilitate savings mobilization and credit extension. These include:

• Susu Schemes: This is the most prominent traditional system, originating from Nigeria in the early 1900s and deeply embedded in Ghanaian culture. Susu involves mobile collectors who visit clients daily or weekly to collect small savings amounts (e.g., GH¢5-20 per day from market traders). At the end of a cycle (typically 30-31 days), the collector returns the accumulated sum minus a small commission (e.g., one day’s deposit). Sub-types include:
  • Individual Susu Collectors: Independent operators serving petty traders, artisans, and housewives, often providing short-term loans based on the saver’s deposit history.
  • Susu Clubs or Groups: Organized groups where members contribute fixed amounts, and funds are rotated or accumulated for lending, similar to Rotating Savings and Credit Associations (ROSCAs).
• Rotating Savings and Credit Associations (ROSCAs) and Accumulating Savings and Credit Associations (ASCAs): These are group-based systems where members (e.g., 5-20 people from the same community or workplace) contribute a fixed amount periodically (weekly or monthly). In ROSCAs, the pooled funds are disbursed to one member per cycle on a rotational basis, providing lump-sum access for business investments like buying inventory for a small shop. ASCAs accumulate funds for specific purposes, such as emergencies or investments, and may offer interest-bearing loans to members. Examples include “Adashi” groups among ethnic communities in northern Ghana.
• Money Lenders and Pawn Shops: Individual lenders, often called “moneylenders” or “shylocks,” provide instant credit at high interest rates (e.g., 20-50% per month) without collateral requirements, though some may demand pledges like jewelry or land titles. They target urgent needs, such as farming inputs during planting seasons, and operate on personal relationships to mitigate default risks.
• Friends, Family, and Kinship Networks: Informal lending among relatives or neighbors, often interest-free or at low rates, based on reciprocity and social enforcement. This includes remittances from urban migrants supporting rural family businesses, constituting a significant portion of working capital for MSEs (e.g., up to 68% in some studies).
• Trade Credit from Suppliers: Suppliers extend credit to buyers (e.g., wholesalers allowing retailers to pay after selling goods), common in agricultural value chains like cocoa farming, where farmers receive inputs on credit repayable post-harvest.

These components are non-institutionalized, meaning they lack formal registration with the BoG and do not adhere to capital adequacy requirements under the Capital Requirements Directive (CRD), making them flexible but vulnerable.

2. Operations and Mechanisms

The system relies on trust, social capital, and minimal documentation rather than formal contracts. Key operational features include:

• Savings Mobilization: Daily/weekly collections build discipline, with no minimum balances, unlike formal banks. For instance, a Susu collector in Kumasi might serve 200-300 clients, safeguarding funds in personal accounts or linking with formal banks like Access Bank Ghana for security.
• Credit Extension: Loans are disbursed based on “traditional KYC” – knowing the borrower’s character, business viability, and community ties – without collateral. Repayment is enforced through social pressure, such as group shaming in ROSCAs, reducing default rates.
• Fee Structure: Commissions (e.g., 3-5% of savings) or high interest on loans cover operational costs, with no overheads like branch maintenance.
• Risk Management: Ethnicity and kinship play roles in reciprocity, where lenders expect future favors, lowering default incentives. However, this can lead to segmentation, excluding outsiders.

In practice, during the 2017-2019 banking cleanup, when formal credit tightened due to recapitalization demands (e.g., BoG Notice No. BG/GOV/SEC/2023/05 post-DDEP), informal systems surged, providing buffers for MSEs affected by liquidity crunches.

3. Benefits and Role in Supplementing Formal Intermediaries

• Accessibility and Inclusion: Serves the unbanked (about 40-50% of Ghanaians as per FinScope surveys), empowering women traders and rural farmers excluded from formal loans due to lack of collateral or credit history.
• Economic Impact: Provides initial and working capital for MSEs, leading to employment growth (e.g., significant increases after 5 years of Susu participation) and poverty reduction, aligning with Sustainable Development Goals.
• Flexibility: Quick disbursement without bureaucracy, ideal for seasonal needs like planting in the Volta Region.
• Government Encouragement: The BoG promotes linkages, such as the 2005 Barclays (now Absa) microbanking scheme partnering with Susu collectors to channel formal loans, enhancing profitability while maintaining prudence.

4. Challenges and Limitations

• Lack of Regulation: Prone to fraud, as seen in past Susu collector defaults, with no deposit insurance under Act 930.
• High Costs and Risks: Exorbitant interest rates and irregular payments can trap borrowers in debt cycles, exacerbating vulnerabilities post-events like the 2022-2024 Domestic Debt Exchange Programme (DDEP).
• Limited Scale: Insufficient for large investments, limiting MSE growth to unorganized sectors; organized MSEs often need formal supplements.
• Integration Issues: While BoG’s Payment Systems and Services Act, 2019 (Act 987) encourages fintech linkages (e.g., mobile money for Susu), challenges like cyber risks persist.

In conclusion, Ghana’s Traditional/Informal Credit Delivery System is structured around community-driven, trust-based mechanisms like Susu and ROSCAs, effectively supplementing formal intermediaries by bridging access gaps. To enhance resilience, the government and BoG should pursue regulated integration, such as mandatory registration for large collectors and training under the Corporate Governance Directive 2018, ensuring ethical practices while preserving its grassroots appeal. This approach, informed by historical successes like early credit unions, positions the system as a cornerstone for inclusive growth in a post-DDEP recovery era.