The informal sector is highly significant to the Ghanaian economy, yet it has not been properly structured.
For instance, the majority of those engaged in the informal sector are not captured on the list of the Social Security and National Trust (SSNIT), the mandated government agency responsible for their social security, and therefore, their pension contributions.
Several problems account for this phenomenon. Some analysts claim that it is because as per the law establishing the Trust, it is not mandatory for the informal sector to contribute towards their future through the Trust. However, they are allowed to do so, and the fact that most of them have not taken advantage of the opportunity is worrying.
Since the establishment of SSNIT some 42 years ago, only about 1.3 million people, mainly from the formal sector have registered with the pension scheme.
In its quest to capture the informal sector, the Trust undertook comprehensive a survey to find ways of roping in the informal sector.
Against this background, the SSNIT Informal Sector (SIS) Fund to expand the social security coverage to the vast majority of the working population in Ghana and thereby fulfil the mandate of SSNIT as enshrined in the Social Security Law, PNDC Law 247 of 1991 has been developed.
The SIS Fund
The informal sector scheme was introduced by SSNIT on a pilot basis in May 2005. It was administered by a specialized department within the operations division of the Trust. Based on the positive evaluation of the pilot programme, the management of SSNIT decided to establish the SIS Fund in February 2008 to take over the administration of the informal sector scheme.
It is a voluntary contributory pension scheme designed principally for the workers in the informal sector which provides members with benefits that are based exclusively on their contributions.
It is open to self-employed Ghanaians who are aged between 15 and 59 years. However, workers in the formal sector as well as Ghanaians living abroad are permitted to join the scheme.
Unlike the formal sector scheme, this has no fixed rate contributions but it is based on members’ preference and ability. Contributions by members are divided into two equal parts and credited to two individual member sub-accounts, that is the Occupational Scheme Account (50% contribution) and Retirement Account (50% contribution) after Life Insurance premium has been deducted.
Again a member is permitted to make periodic withdrawals from the Occupational Scheme account after five months of initial contributions provided the account has a credit balance. A member can withdraw from the Retirement Account only when any of the following contingencies occur: old age, disability or death. A member can use his or her contributions as partial collateral to secure credit from other regular financial institutions.
A member of the scheme is also entitled to any of the following benefits;
a) Old age pension/lump sum
b) Disability benefit and,
c) Survivor’s benefit.
The Fund presently operates through a network of four branch offices and 10 contact offices which are located in four geographical regions of the country, namely; Greater Accra, Western and Eastern. There are plans to open branch and contact offices in other regions.
The current agreement
To make the scheme solid and more attractive to achieve its aim, the Trust, represented by the SIS Fund on one side and the HFC Bank and Boafo Microfinance, a subsidiary of the bank, signed an agreement to provide microfinance to members on the scheme.
There is a credit scheme set up for members of the fund which shall be called Occupational Pension Loan Scheme. This will provide two loan products to members of the Fund.
Unlike many loan schemes on the market for the informal sector, this scheme will provide business development loans to those who want to set up their own businesses and they can access loans between GH₵500 and GH₵10,000 for business start-ups and what has been dubbed as the Home Improvement Loan for those who want to buy plots of land, acquire their own homes or solicit for funds to complete their building projects.
The marked difference in the scheme
Under many such schemes targeted at the informal sector players, collateral is demanded as a way of reducing the risk in case of default. There are many other schemes in the country but not all are favourable to people in the informal sector. Some commentators cite the draconian manner in which some borrowers lose their property which have been used as collateral for loans as a disincentive to the informal sector in the country. For instance, some loan and credit providers are able to process loans within two days but demand collateral which is often out of the reach of the borrowers. However, this scheme does not but instead, uses the members’ contributions as a guarantee. By being on the scheme, one is also able to secure a pension at the end of the cycle.
Members of the fund may be permitted to borrow up to four times the outstanding balance on the member’s occupational scheme account.
In short, SSNIT will address the old age financial needs of its members while the HFC Boafo Microfinance Services will address the current business and personal financial needs of the members of the scheme.
“At HFC we believe that the micro businesses today will be SMEs of tomorrow,” says the Managing Director of HFC Bank. He is of the view that Ghana has a large informal sector that has to be developed further to improve the whole economy.
“It is quite obvious that the business of providing social protection to the Ghanaian worker has assumed a different dimension through this creative and innovative approach”, says Dr. Francis Sapara-Grant.
The SIS scheme, he agrees shall become the obvious choice as a model for providing social security protection to workers in the informal sector.
Those in the informal sector have yearned for access to credit facilities to grow their businesses and to increase household income. They also want to own their homes, for example, through access to well structured and flexible home improvement loan and financial products.
Again the informal sector has lacked financial sustainability and economic security, as a result of which the scheme, if successful, would significantly transform the sector.
Analysts have argued that since the formal sector is small, the growth of thy economy will be dependent on the informal sector.
It is against this background that the moves initiated to make those in the informal sector comfortable to contribute their quota in a more positive way is refreshing.
It is expected that the present 21,000 people on the scheme will increase to the projected two million by the close of 2013 and subsequently to five million by 2015.
This development will most likely improve the economic circumstances of the informal sector.
Credit: Charles Benoni Okine