Diasporan Savings Accounts

I am thinking of an option we could use to improve the flow of low-cost hard currency into Ghana to fund growth in agriculture and industry.

The Idea:

The Government of Ghana mandates local banks to create special US Dollar/Euro/Pound Sterling denominated accounts that allow;

·         Diaspora Ghanaians living overseas to setup and make deposits in whatever hard currency in which they are paid, with  

·         local banks who can pay interest rates that are between two to three times what is paid on savings/current accounts in the country/zone issuing the relevant currency, and

·         provide access to depositors via globally accepted credit and debit cards so that they can access their funds anywhere. 

Security of Deposits:

To be credible, the GoG must support these accounts with ironclad guarantees to never restrict or prohibit access to the forex deposited with local commercial banks in Ghana except where money laundering or some international legal obligation mandates otherwise.

Credibility:

In order to assure depositors that these would be used as advertised in the agricultural and manufacturing sectors, the policy/legal arrangements must stipulate private sector-only access and limit loans to entities involved in manufacturing and agriculture. 

Lending Policy:
The law must limit lending by local banks from their Diaspora Funds to funding only investments by agricultural and manufacturing entities in Ghana at a charge no more than double what that local bank pays as interest to its Diaspora depositors on the applicable currency unit.

For example, if the average US savings account pays 1%, a US-domiciled depositor cound earn 2%  to 3% in Ghana on a savings account under this policy. Agric and manufacturing sector borrowers in Ghana would then pay any local bank lending to them a maximum interest rate between 4% to 6%. 

Benefits:

Given the current state interest rates in the developed economies; the critical sectors for transformative growth would still gain access to a predictable and stable supply of investment funds at a relatively low(er)-cost than ever before. 

Consequently, Cedi deposits and locally generated forex would then be available to be used primarily for financing the services sector and GoG.  

In the short to medium term at least, Cedi denominated T-Bill rates and commercial lending interest rates should both fall as the concept would release more of Cedi deposits and  locally generated forex in the banking system for lending to GoG and services, and reduce any upward pressure on Cedi interest rates.

This may just could work to save the Cedi and fuel affordable credit for local investors.

AUTHOR

Michael Harry Yamson is the Chief Operating Officer of Ishmael Yamson & Associates; a strategy consulting and investor advisory firm that helps organizations improve their performance and profitability. He is a thought leader with interests in economics, governance and investment issues. To see more from Michael, visit Ishmael Yamson & Associates.