Cost of credit for financial institutions

The report analyzes the cost of credit for seven financial institutions in Ghana and Zambia, identifying that operational costs are the primary driver of high credit costs. It finds that economies of scale and product portfolio composition significantly influence efficiency, while external factors like regulatory reforms in Ghana and economic slowdowns in Zambia impact the cost of risk. The study concludes that high input costs often make lending loss-making, pushing institutions toward safer government securities.

• The overall cost of providing credit is high in both countries, with 2018 ratios relative to average portfolios ranging from 26% to 103% for Ghanaian institutions and 53% to 80% for Zambian institutions.
• Operational costs are the most significant component of the cost of credit, varying between 37% and 80% across the studied institutions.
• Staff expenses are the dominant part of operational costs, averaging 52% of the total operational cost across all case studies.
• Financial institutions in Zambia face higher costs of funds (18% to 27%) compared to those in Ghana (5% to 12%), primarily due to a higher reliance on external creditors over customer deposits.
• The cost of risk varies significantly, ranging from 1.1% to 10.3% in Zambia and 7.1% to 10.9% in Ghana, driven by economic slowdowns in Zambia and regulatory reforms in Ghana.
• High credit costs and regulatory tightening in Ghana led institutions to shift assets toward government securities, with some investing up to 82% of assets in these instruments.
• All seven analyzed institutions recorded a loss on their lending activity, with net profit margins ranging from -60% to -1.5% in Ghana and -17.4% to -5.5% in Zambia.

APA

Cazacu, D., & Abdraimov, K. (2020). Cost of credit for financial institutions. FSD Africa. https://fsdafrica.org/wp-content/uploads/2025/05/Advision-report-24.07.20-2.pdf

Chicago

Cazacu, Diana, and Kubanych Abdraimov. Cost of credit for financial institutions. FSD Africa, 2020. https://fsdafrica.org/wp-content/uploads/2025/05/Advision-report-24.07.20-2.pdf.

Wikipedia

{{cite report |last1=Cazacu |first1=Diana |last2=Abdraimov |first2=Kubanych |title=Cost of credit for financial institutions |publisher=FSD Africa |date=July 2020 |url=https://fsdafrica.org/wp-content/uploads/2025/05/Advision-report-24.07.20-2.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{cazacu2020cost, author = {Cazacu, Diana and Abdraimov, Kubanych}, title = {{Cost of credit for financial institutions}}, institution = {FSD Africa}, year = {2020}, month = jul, url = {https://fsdafrica.org/wp-content/uploads/2025/05/Advision-report-24.07.20-2.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }