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Purpose of paper – Rural Banks (RBs) are unit banks owned by members of the rural community through the purchase of shares and are licensed to provide financial…
Purpose of paper – Rural Banks (RBs) are unit banks owned by members of the rural community through the purchase of shares and are licensed to provide financial intermediation in rural areas of Ghana. This paper reports on the external and internal mechanisms through which corporate governance is maintained in these banks.
Design/methodology/approach – The findings reported in the paper are based on evidence obtained from a review of relevant documents and interviews with the managers of selected RBs.
Findings – The corporate governance system in the RBs is mainly a rational western model recommended by the World Bank and implemented by the Central bank of Ghana. Under this model corporate governance is expected to be maintained externally through regulatory agencies (the Central Bank of Ghana and the Association of Rural Banks) and internally through the respective Boards of Directors. However, we observe that because of the locations and ownerships of these banks, board appointments and decisions are often embedded in local political and social relations. This affects the independence of the boards and impacts on their role in maintaining corporate governance.
Research limitations/implications – We argue that any attempt to design corporate governance systems in these banks without taking these social and political factors into consideration is likely to lead to failure. This is particularly important given that the World Bank and other international donors are continuously proposing rational western models of governance to institutions in the developing world, such as the RBs. Given that these organizations operate under different sets of environmental conditions, there is likely to be differences between the actual and the idealized corporate governance systems.
Originality/value of paper – The study is important because of the role the rural banks play in the socio-economic development of Ghana. Several other developing countries have established similar institutions to support the development of the informal sector through the provision of microcredit. The research will contribute to the design of appropriate corporate governance systems so as to improve the overall contributions of these institutions.