By Sam Mensah, Ph.D Presented at: The International Programme on Capital Markets and Portfolio Management Indian Institute of Management September 8-20, 1997
This paper reviews Ghana’s experience with the development of financial markets and institutions. The review uses a framework which reviews various stages of financial development against three basic attributes of an effective financial system: a monetary system, the savings-investment process and a claims-to-wealth structure. The paper makes the observation that the financial system which was inherited at independence only satisfied the attribute of a monetary system. The recognition that there was a need for a more effective financial system in the immediate post-independence era led to an extreme solution under which the entire economy and the financial system was brought under a planned economy. By the early 1980s, the planned financial system had ceased to function because of macroeconomic instability and severe financial repression. The transition and reform period was ushered in by the Financial Sector Adjustment Program (FINSAP) in 1988. The program is a farreaching effort to restructure the baking sector, encourage the growth of nonbank financial institutions and to liberalize markets. The FINSAP process has been underway for close to a decade. It is, however, recognized that financial system development is a dialectical process whereby new structures emerge as a result of a dialectical confrontation between an initial set of conditions and an antitheses which renders the initial conditions untenable. In the Ghanaian context, FINSAP has represented the new synthesis after the financial repression period which followed the planned economy period. By the same logic, the financial system will continue to evolve in response to the new set of conditions which were ushered in by FINSAP.
Financial Markets and Institutions: Ghana’s