The Impact of Rural Banking on Credit Creation, Using Securitization Model in Ghana

Abstract

This study aimed to analyze the impact of rural banking on credit creation, using securitization in Ghana. The rural banking concept was fantastic, but most of these banks faced liquidity challenges which could be traced back to the period of the rapid and uncontrolled credit expansion which resulted in the closure of 18 rural banks in 1992. Excessive liquidity problems are thus an indication of deeper-lying problems and are usually preceded by excessive risks taken by the bank, i.e. interest rate risk and credit risk (Koch 1995). The study, therefore, wanted to explore securitization as an alternative means of raising immediate cash.  The study made use of descriptive statistics, regression analysis, and correlation coefficient to analyse data and test the hypotheses set for the study. The study used data on rural banks' assets that span from 2011 to 2014. The study also used the case study approach to creating scenarios to demonstrate the application of securitization to increasing the liquidity of three selected rural banks for credit expansion. At the end of it all, the study revealed that there was a strong positive relationship between securitization and bank liquidity. The study, therefore, recommended government through the central bank and parliament to enact appropriate laws to govern the use of securitization as an alternative means of raising funds. Securitization has many benefits, and it is up to Ghanaian banks and other non-banks to appreciate these advantages by embracing securitization.

JEL classification: G21, G23