Effects of financial innovation on growth of rural banks in Ghana

Abstract

The arrival of internet and spread of mobile telecommunication companies within the Ghanaian economy has offered both opportunities and tests for the banking sector in Ghana particularly rural banks. The research sought to investigate the effect of financial innovation, particularly product and process innovation on the financial growth of rural banks in Ghana. Product innovation was measured using alternate delivery channel service points, the use of roving staff in rural banking, automated teller machines and merchant point of sales system. Financial growth on the other hand was measured using net operating profit. The research selected thirty-eight registered rural banks. Data on these rural banks were retrieved from the World Bank website. The research made use of explanatory research design and used SPSS to process the data. Data was analysed quantitatively through the use of inferential statistics namely correlation and regression analysis. The study revealed that the introduction of financial innovations does not necessarily translate to reduction in operational cost or increase in profit levels resulting in financial growth of rural banks. It was further revealed that although the use of alternate delivery channel service points, automated teller machines, and merchant point of sale service does not lead to financial growth among rural banks in Ghana, the use of roving staff does. The study therefore recommends that rural banks must focus on those financial innovations that positively impact on their performance in order to benefit from their use as other banks or telecommunication companies are doing.