Surviving the storm: Building resilient community banks for financial inclusion in West Africa

By Victor AGBEVE

On the dusty streets of Tamale in northern Ghana, Hajia Mariam’s small kente weaving company was dying. During the 2020 pandemic markets were closed, customers were gone and with it all demand, as well as her capital.

She could no longer find the funds to provide food for the twelve workers in her workshop. Traditional banks would not lend to her; too much risk, too small, too informal. But then like an oasis in the desert, the Northern Rural Bank came to the rescue (or at least offered an opportunity) with a micro-loan project to support women entrepreneurs in the informal economy. Today, the workshop is busy, the workers are back, and she is expanding into three neighbouring communities.

This story is not unique. Community banks are emerging as the bridge for financial inclusion in West Africa, serving as the informal economy’s intermediary between ordinary citizens and traditional banking in countries where people are suddenly recognizing Paul Herscu’s model: that it is informal finances that define economic growth.

As Africa increasingly faces rising economic pressures from climate change, political instability, and the path of recovery from the pandemic, these smaller institutions are teaching us that the best solutions can sometimes take the smallest forms.

The Financial Inclusion Revolution in West Africa

Currently, West Africa is at a turning point for financial transformation. A recent analysis by the World Bank has shown how mobile money accounts are helping to bridge a financial gap in a number of nations in Sub-Saharan Africa and that mobile money adoption is being credited with significantly closing the gender gap in financial inclusion.

Yet in the midst of this growing digitization, millions remain excluded from formal financial services, primarily rural communities where inadequate infrastructure and low trust in traditional banking institutions is commonplace. Community banks have become an indispensable bridge across the divide.

In the example of Ghana, there are 147 rural and community banks, up from 144 in 2022. Community banks offer a valuable financial opportunity to communities that most large commercial banks ignore, providing everything from simple savings accounts to agricultural loans to business financing for micro-entrepreneurs.

While numbers inform us about the important landscape community banks operate in, true growth should stem from an appropriate financial model that is contextually relevant to the needs of African communities so that real financial inclusion can be promoted and economic growth nurtured. Community banks represent this model, a financial service that is designed for local contexts, cultural norms and economic realities.

Storm Clouds Gathering

Things, however, have turned challenging for community banks in West Africa and their sustainability is now endangered by unprecedented challenges that have the potential to undermine their efficacy. The economic turbulence of the last several years has created a perfect storm of challenges for community banks as they attempt to both survive and flourish within this ecosystem.

Economic Volatility, Currency Instability

Community banks operate within a substantial economic climate of uncertainty within West Africa. In Nigeria for example, extreme inflation and ongoing currency volatility have increased pressures for these institutions to be effective and reliable digital banking institutions. This macroeconomic uncertainty has led to a series of complex pressures that community banks have to deal with, from managing foreign exchange risk to managing liquidity in volatile markets.

Currency devaluations can have devastating impacts for these small institutions. Unlike their larger counterparts, community banks are often inadequately equipped with limited treasury management systems and hedging instruments to guard against currency risks. This leads them to be more risk-averse in their lending activities, which can lead to even greater difficulties in serving their communities.

Regulatory Compliance Pressures

The rapid growth in banking regulation and compliance in West Africa is a constant challenge with Central Banks throughout the region setting stricter requirements for financial institutions in order to strengthen the banking sector as a whole. While this might seem straight forward, the main disadvantage of operating as a small community bank is that they are smaller banks and have fewer resources to leverage when complying with some of the more stringent regulatory requirements.

The compliance obligations go beyond simply anti-money laundering and capital requirements, they require the community banks to become familiar with a complex variety of compliance obligations which can eat away at the resources of a community bank. Too often, the costs of compliance restrict community banks from lending money for community developments in order to satisfy compliance requirements.

Digital Transformation Pressures

Digitalization continues to trend upwards. Although it represents exciting possibilities for community banks in terms of reaching those communities that have limited financial service access and reducing the cost of operations, the initial capital financing for the digital infrastructure is very prohibitive for smaller institutions.

In general, COVID-19 has hastened the adoption of digital innovations throughout the region, but it has also exposed the digital divide between the large commercial banks and smaller community banks. More limited digital banking options exist today for customers and many community banks can no longer provide the services customers expect without sacrificing the community relationship-based banking model.

Emerging Climate-related Risks

Climate change will represent an emerging risk for community banks across West Africa with the weather related shocks resulting in greater frequency and severity of droughts and floods for agricultural communities and greater vulnerability of community banks’ loan portfolios to defaults on agricultural loans. Many community banks support agricultural communities who rely on rain-fed agriculture and are likely to be more adversely affected through economic losses from climate-induced shocks to local economies.

Pillars of Resilience

Notwithstanding these challenges, some successful community banks across West Africa are developing successful and innovative approaches to bolster their resilience and continue making a difference within their communities.

Diversification and Innovation of Service Offerings

Leading community banks are diversifying the nature of their banking services beyond traditional deposit-taking and lending. Some banks offer insurance products which help mitigate agricultural risk, others provide remittance services for their citizens who have settled abroad and still others have developed financial literacy programs to help teach customers how best to manage their finances.

Ghana has seen several rural banks work with fintech companies to offer mobile banking services with limited investment in wholesale infrastructure. Partnerships with fintech companies allow community banks to remain local while also accessing a technology service, without requiring investment in new staff or building expensive technological infrastructure, to offer digital services to their customers.

Strengthening Risk Management Framework

Successful community banks will continue investing in risk management systems despite limited budgets. They have improved their risk management framework by enhancing their credit scoring systems, developing early warning systems for loan defaults and developing contingency funds to deal with economic shocks.

Some community banks are developing innovative risk management approaches to assess and understand risk through combining traditional assessment approaches with local knowledge and assessing alternative data sources to determine a probability of loan approval. For example, community banks may assess farmers’ creditworthiness by comparing their data on mobile phone usage with agricultural weather data that they regularly review for decision-making.

Forming strategic partnerships

In today’s challenging financial environment, community banks realize the value of working together and collaborating with others to promote their survival. Together with larger banks, fintech companies or development partners, strategic partnerships provide the bank, and its employees, access to resources, technology, and knowledge assets that they likely would never develop on their own.

Strategic partnerships can take many forms, such as correspondent banking partnerships that provide access to larger payment networks, to technology-sharing agreements that allow for the provision of digital services. In some cases, community banks are forming consortiums to jointly share and pool fees for regulatory compliance and technology upgrades. This allows community banks to leverage economies of scale while maintaining their own independent banking institutions.

Strategically implementing Digital Solutions

Rather than attempting to compete with larger banks for digital sophistication, successful community banks are strategically implementing digital solutions for only those technologies that either build upon their core strengths and do not entirely replace them.

This means adopting specific aspects of customer service and operational efficiency digitized for customer service, while still ensuring that the relationship with the customer remains fundamentally personal. This might also mean implementing mobile banking that allows customers to access basic banking services digitally, while providing timely and frequent messaging to customers about visiting the bank for complex financial needs.

Moving Forward: policy recommendations

In order for the community banking sector in West Africa to become more resilient, there needs to be action from multiple actors including policy-makers, regulators, development partners and banks.

Regulatory reform and support

Regulatory authorities in the region could begin considering creating a tiered-type regulation that will recognize the risk profile and business model of community banks as different from other larger commercial banks. This could include easier reporting requirements for smaller institutions and longer phase-in periods to comply with new regulations that require major system changes.

Technology infrastructure development

Both governments and development partners can focus their investments on enhancing digital infrastructure that ultimately benefits smaller financial institutions. This could include better access to internet connectivity across rural communities, improvements in interoperable payment systems, and technology incubators that focus on fintech solutions for community banks.

Capacity building and technical assistance

International development organizations should increase support for capacity building initiatives for community bank managers and staff training. Training should include areas of digital banking and operations, risk management, regulatory requirements, as well as general business management skills.

Drawing lessons from the many success stories

Several community banks throughout West Africa have already displayed exceptional resilience and innovation and have many lessons to share with the rest of the banking sector.

Nigeria’s microfinance banking industry has displayed agility during more than one recent economic challenge. After Nigeria’s cash shortfall crisis in 2023, a number of microfinance banks quickly transitioned to digital service delivery. Much of this transition required microfinance banks to use fintech companies to deliver mobile banking to their clients.

Ghana’s rural and community banks have consistently shown performance stability during periods of regional banking sector distress. Ghana’s experience has shown that these community banks tend to have deep community connections, take a conservative approach to risk management and take a modest but purposeful approach to adopting digital technology.

Senegal’s network of cooperative banks and credit unions has demonstrated how community ownership and democratic structures can ensure remarkable resilience of the community–owned financial institutions. By taking advantage of these structures and member ownership, Senegalese institutions weathered the 2020 economic crisis more effectively than other, larger commercial banks.

Climate resilience and sustainable banking

Climate change is one of the major long-term threats to community banks in West Africa, but it is also an opportunity for innovation and leadership in sustainable finance.

Innovative community banks are starting to integrate climate risk assessment into their lending decisions not only as a risk management tool but also to assist their communities’ adaptation to climate change through their lending decisions. In this regard, it is possible to develop loan products specifically aimed at climate-resilient agriculture, renewable energy projects, and climate-resistant infrastructure.

Conclusion: Weathering the storm together

Hajia Mariam’s flourishing kente business is a sign of the potential that community banks represent as pivotal catalysts for economic transformation and resilience in West Africa. It will not happen by itself and will take the efforts of a variety of stakeholders working collectively to create enabling conditions for these institutions to serve their communities.

There are big challenges ahead for community banks in West Africa from economic uncertainty, regulatory pressures, climate change, and demands of digital transformation, but innovations and adaptive responses to these challenges have demonstrated a vibrant community banking sector that, with the right support, will be able to continue to fulfill its crucial role in advancing financial inclusion across the region.

The forward trajectory needs collective effort and commitment from stakeholders to see community banks as more than just commercial companies, but as essential infrastructure for economic development and social progress. Together we can ensure these institutions continue to provide the financial services needed by millions of West Africans who rely on them for their livelihood and aspirations.

Ultimately, the resilience of community banks in West Africa is a reflection of the resilience of the communities they serve. As these institutions evolve and innovate in response to new challenges, they represent the same determination and ingenuity that drives small enterprises, such as Hajia Mariam’s workshop, to break boundaries to create wealth and prosperity for people in need.

Bibliography

KPMG Nigeria. (2024). 2024 West Africa Banking Industry Customer Experience Survey. Retrieved from https://kpmg.com/ng/en/home/insights/2024/12/2024-kpmg-nigeria-banking-industry-customer-experience-survey.html

KPMG Ghana. (2025). 2024 KPMG West Africa Banking Industry Customer Experience Survey. Retrieved from https://kpmg.com/gh/en/home/insights/2024/12/2024-banking-industry-customer-experience-survey.html

McKinsey & Company. (2020). Nigeria’s banking sector: Thriving in the face of crisis. Retrieved from https://www.mckinsey.com/featured-insights/middle-east-and-africa/nigerias-banking-sector-thriving-in-the-face-of-crisis

Oxford Business Group. (2024). Ghana expanding financial inclusion and technology adoption. Africa 2024 Report. Retrieved from https://oxfordbusinessgroup.com/reports/ghana/2024-report/financial-services/

World Bank. (2022). Ghana Can Turn Climate Challenges into Opportunities for Resilient and Sustainable Growth. Press Release. Retrieved from https://www.worldbank.org/en/news/press-release/2022/11/01/ghana-can-turn-climate-challenges-into-opportunities-for-resilient-and-sustainable-growth-says-new-world-bank-group-report

World Bank. (2024). Financial Inclusion Overview. Retrieved from https://www.worldbank.org/en/topic/financialinclusion/overview

World Bank. (2025). Financial Inclusion in Sub-Saharan Africa. Retrieved from https://www.worldbank.org/en/publication/globalfindex/brief/financial-inclusion-in-sub-saharan-africa-overview

World Economic Forum. (2023). Africa is the world leader in digital and mobile banking. Retrieved from https://www.weforum.org/stories/2023/11/africa-digital-mobile-banking-financial-inclusion/

World Economic Forum. (2024). Financial inclusion: An African approach to financing models. Retrieved from https://www.weforum.org/stories/2024/10/financial-inclusion-african-financing-models/

Victor is a Former Banker | Graduate Research Fellow, W. P. Carey School of Business, Arizona State University

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