Mutual Funding: Impact on the Ghanaian Economy” (a Case Study of Selected Mutual Fund Companies in Ghana)

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CHAPTER ONE
GENERAL OVERVIEW OF THE STUDY

1.1 BACKGROUND TO THE STUDY
Over the years in Ghana, the private sector has had it difficult raising capital and adequate funds for investment and other business activities; this led to the undertaking of a number of financial sector reforms by the government. The emergence of mutual funds into the Ghanaian financial sector has been as a result of these reforms. This is to facilitate capital generation and savings mobilization for the private sector to help them accomplish their organizational objectives. It has become evidently clear that, to achieve development in the economy in terms of high gross domestic product (GDP), a better per capita income, less unemployment and reduction in inflation, the private sector of the economy should be encouraged to lead in the generation of wealth.

Capital for investment in this country (Ghana) is either sought for internally or externally but the Ghanaian government like its’ counterparts in other African countries have been relying heavily on external funds from developed economies and donor communities to be able to implement public sector development policies. This has not been so easy in recent years due to the diversification of these funds to countries such as China and other Asian countries that are now better investment destinations. Due to the shortfalls in the inflows of expected capital from external sources, government has been competing with the private sector over the limited funds generated internally and this tends to virtually crowd out the private sector. The former governor of the Bank of Ghana in his address titled; Liberation of Ghana’s Financial Service Sector: The role of overseas banks, 2003, stated among other things, that the heavy domestic borrowing by the government to finance deficit has crowded out the private sector finance. The bulk of resource from the banks is absorbed by the public sector. Government in an attempt to mop-up the excess funds in the economy to try and address the problem of inadequate funds for the private sector came up with a number of financial reforms among which are collective investment schemes (including mutual funds and unit trusts) that mobilizes excess liquid capital in the economy in the form of saving and creates capital for the private sector by investing these funds on either the capital market or money market. The emergence of Mutual fund companies has been a very good initiative and welcomed development. It sought to address the problem of inadequate capital as stated above and this has helped the private sector have access to funds for their business and other investment opportunities.

Mutual funds are quiet new as compared to other financial institutions in the country, so people are not much informed and have little knowledge about their operations. When in the 1924, three Boston securities executives brought their money together to establish the first Mutual Fund, little did they foresee how popular their idea will become in years to come. Massachusetts Investors Trust (now MFS Investment Management) was founded on March 21st, 1924, and after just a year had 200 shareholders and an asset base worth $392,000. (www.wikipedia.org/mutual funds).The main operations of mutual fund companies are the mobilization of people’s savings, which they then invest in the money and capital markets. It is important to find out how well Mutual Funds have succeeded in mobilizing people’s savings and how well they have invested such savings. 1.2 PROBLEM STATEMENT

According to some analyst like Acquah, 2003, capital for investment in the private sector is still low, also investment funds from external sources have also not been encouraging, as a result of more attractive investment destinations elsewhere, Asia and North America in particular. Consequently the importance of mobilizing all available domestic savings for economic development has become very necessary. The introduction...
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