Failure of a number of financial institutions and banks in Ghana over the past few years has rekindled fear among people relating to the financial system in this country. Although local crises have their own peculiarities, they are similar to global financial scandalous cases; in this case, the case of fake accounts at Wells Fargo that shook the United States in 2009-2016. The realization of such similarities has important lessons on how Ghana can consolidate its financial sector and avoid such ethical malpractices.
The Global Template: Wells Fargo’s Toxic Culture
Wells Fargo, which is one of the largest banks in America, opened more than 3.5 million bogus customer accounts in a period of seven years. They used unauthorized accounts, overbilled people with needless activities, and falsified books to prove unreachable sale quotas. It was not just some rogue employees at work in the scandal but a systemic failure, fueled by a pressurized sales culture, unrealistic quotas, and a leadership that cared more about profits than their morals.
The motivation at the bank through its Going for Gr-Eight strategy/initiative required that the employees sell eight financial products to each client. Where employees did not manage to achieve such targets in an honest way, they engaged in fraud. Individuals who raised their concerns were gagged, moved, or sacked. The message was apparent: you get results by any means necessary.
Challenges in Ghana’s Finance Sector
The recent financial sector cleanup in Ghana that led to the license cancellation of nine financial institutions and more than 400 microfinance institutions showed similar breaches when it comes to ethical lapses (Bank of Ghana, 2019). False records, underestimating capital guidelines, and systematic manipulation of financial health—findings of investigations by the Bank of Ghana reflect the major aspects of the Wells Fargo scandal.
Such local banks as Capital Bank, UT Bank, and Beige Bank failed because they were found guilty of committing crimes, such as the opening of fictional deposits and lending of money (Casely-Hayford, 2017). Capital Bank LTD was said to have acquired its license on false grounds, and GH¢ billion worth of noncollectable debts accumulated to Capital Bank and UT Bank, leading to their collapse. These collapses, though affecting the economy of Ghana seriously, have been the trend all over the world whereby financial institutions are focused on short-term positive outputs rather than focusing on sustainable values and the welfare of the customers.
The microfinance industry has been especially badly hit. Being under pressure to demonstrate quick growth and appeal to the investors, many institutions performed aggressive lending and performed dubious accounting procedures. The institutions contributing to financial inclusion betrayed the promise by focusing on expansion and unethical activities.
The Pressure Cooker Effect
The financial industry in Ghana has its own peculiarities that promote ethical compromises. Competitive dynamics have become very stiff due to the necessitated financial inclusion as institutions scramble to have more customers within the shortest possible time. This is quite comparable to the case of Wells Fargo, when the high-flying growth-directed incentive developed the environment of frauds.
Pressure to show quick growth and profitability by shareholders, regulators, and development partners usually leads to local banks and microfinance institutions operating under pressure in a bid to survive on their own. This causes branch managers to have targets in areas such as customer acquisition, loan disbursement, and deposit mobilization, which are at times unrealistic depending on the market and operational factors involved.
Another level of complexity comes with the fact that much of the Ghanaian economy is informal. Banks might as well resort to the temptations of skirting by the rules or other necessary technicalities of recordkeeping in order to accommodate unbanked populations, thus paving the way to situations of ethical compromises that culminate into institutional fraud.
Systemic and cultural contributor
Cultural aspects that facilitate compromises on morals only worsen the challenges affecting the financial sector in Ghana. Respect for authority in Ghanaian society may make junior employees leave all decision-making to the top management of the organization even when their decision looks doubtful.
Moreover, the financial sector in Ghana is relatively small, and this implies that players in the industry have a tendency of migrating among the financial institutions, and this could promulgate bad practices in the segment. Though as positive as this might be in most cases, it can also hasten unethical conduct distribution.
The regulatory environment has not been and in the present case is catching up relative to developed markets, which have had a stronger regulatory environment. This opens the doors of the institutions to indulge in activities that would be easily caught and punished in more advanced regulatory conditions.
In Ghana: The Human Cost
The failure of Ghana’s financial institutions has been disastrous to the common people. Depositors of failed banks lost their money, and others had to wait years before receiving back a few percentages of their money. The liquidity crisis in the smaller businesses that relied on these financial institutions ensued, and the employees lost their jobs and their pension savings.
The wider economic effect has been just as bad. The cleanup of the banking business burdened the government with billions of cedis that would have been utilized in developmental projects. The financial institutions have suffered seriously in the aspect of trust by the people, and the progress of financial inclusion may be delayed in years to come.
Communities in rural areas have been mainly hit since in many areas that lacked formal financial services providers, a good number of them have collapsed. This has only thrown back a number of Ghanaians into the hands of informal financial systems, and this could undo the years of financial inclusion.
What Ghana Can Learn from the Financial Sector
The Wells Fargo scandal has some important lessons for the Ghanaian financial sector. First, aggressive targets and growth targets should be coupled with ethical considerations as well as risk mitigation. Organizations that implement short-term productivity in favor of long-term sustainability are constructing on shaky ground.
Second, the importance of the corporate culture is enormous. The financial institutions should come up with an environment where employees are comfortable questioning any dubious activity. It does not only involve the adherence of policies and procedures, but also, real dedication of the top management to ethicalness.
Third, there has to be a vigorous and uniform regulation. The tightened regulatory framework that has been adopted in Ghana, comprising the minimum capitalization requirements and the supervision, is also an improvement but should also be implemented in a stringent and uniform manner across them.
Constructing Ethical Financial Institutions
This incident in the banking sector (Wells Fargo), as well as local failures in Ghana, can teach the individuals behind the Ghanaian finance sector to establish more ethical organizations. This needs a number of fundamental changes:
Balanced Incentive Systems: The performance indicators have to contain such things as ethical actions and customer satisfaction as well as mere financial outcomes. It is indeed important that employees are rewarded when they are able to establish true customer relations and not when they have achieved their sales quota.
Effective Internal Controls: Institutions are required to make improvements on mechanisms that identify and avert fraud. This consists of technology solutions as well as human check mechanisms.
Ethical Leadership: The top management should be admirable in their morals and also establish cultures that value morality among organizations and not the immediate profits. This has to deal with tough discussions regarding long-term sustainability as opposed to offensive expansion.
Stakeholder Engagement: The institutions must communicate with customers, staff members, and localities consistently and ascertain their needs and areas of concern. Such feedback can assist in determining the possible issues prior to their developing into crises.
The global context
The financial sector difficulties being experienced in Ghana are not peculiar. Such scandals are not isolated in any part of the world, including the collapse of microfinance institutions in India and banking crises in different countries of Africa. These international experiences indicate that the high growth in the financial sector, although desirable, should be well controlled to avert ethical lapses.
These lessons also need to be taken into account when carrying out international development initiatives towards financial inclusion. The programs that have a priority to grow very rapidly but do not pay enough attention to the institutional capacity and ethical frameworks could unintentionally generate conditions under which fraud and abuse can take place.
Moving Forward
The Wells Fargo scandal should be a reminder that institutions can also become corrupt in the developed markets once they begin putting profits ahead of people. This lesson applies especially to the financial industry of Ghana, where companies are trying to regain the trust of investors and establish sustainable behavior.
A way forward is to engage all stakeholders, including the regulators, financial institutions, and the customers. The tight control should be combined with moral leadership, and customers should be informed about their rights and be in a position to insist on accountability.
The financial industry in Ghana can reemerge bigger and more ethical after the difficulties that it has gone through. The sector can use the international scandals involving Wells Fargo and the local failures to come up with institutions that satisfy customers without compromising ethics.
The stable financial sector is not the end game but the financial sector that will efficiently serve the development needs of Ghana and that the people that it is dealing with will trust and believe in. It involves understanding that ethical conduct does not only seem morally correct, but it is the building block of longer-term financial prosperity.
References
Arnold, C. (2016), Ten tall theories: How an eclectic approach to teaching science has captured the imagination of the education world. Wells Fargo lays off 5,300 workers due to multiple fake accounts. NPR. The article was retrieved on https://www.npr.org/sections/thetwo-way/2016/09/08/493130449/wells-fargo-fires-5-300-employees-for-fake-accounts.
Bank of Ghana. (2019). Cleanup in the banking industry: Canceling licenses and individual regulations. Accra: Central Bank of Ghana.
S. Casely-Hayford, (2017). Ghana banking crisis: An evaluation of failed banks. Report of the financial sector. Accra: Group of Financial Analysts.
S. McGee, (2016). Going for the Gr-Eight strategy and the fake accounts scandal of Wells Fargo. Financial Times Banking Review, 15(3), 45-52.
U.S. Department of Justice. (2020). Wells Fargo consents to pay 3 billion dollars to settle criminal and civil investigations that were carried out regarding its sale procedures, which involved the opening of millions of accounts without consent. Press Release. New York: Dept. of Justice, Washington, DC
