Credit Card Adoption Depends on Economic Strength, Not Force – US-Based Prof. Obi

A credit card culture cannot be forced on Ghana if the economy and financial system are not strong enough to support it, according to Professor of Finance Pat Obi from Purdue University, Northwest. He stressed in an interview with Accra Street Journal, that credit systems, such as the use of credit cards, naturally evolve in economies with strong financial structures and large middle-class populations.

As of December 2024, only 68,000 credit cards had been issued by financial institutions in Ghana, according to the Bank of Ghana. This figure represents less than 1% of total cards in circulation and only about 1% (1.07%) of the 6.3 million debit cards issued during the same period. In contrast, credit card usage is far more prevalent in advanced economies, with 68% of adults in the UK, 82% in the US, and 28% in South Africa using credit cards.

Prof. Obi explained that credit goes to individuals who have the capacity to sustain revolving credit, and this depends heavily on the strength of the economy and financial system. He emphasized that a large middle class is essential for a robust credit card culture, noting that it will develop naturally as the Ghanaian economy becomes stronger and more stable.

Despite Ghana’s 5.7% economic growth last year, the country’s per capita income is still around $2,300, far lower than the $83,000 in the US, $50,000 in the UK or even the $6,000 in South Africa. Ghana is also battling high inflation of about 23%. Prof. Obi pointed out that when inflation is in double digits and infrastructure is poor, credit card systems struggle to work effectively.

He also highlighted Ghana’s poor address system and lack of a proper customer database in banks as significant challenges to the growth of a credit culture. Without reliable information about customers’ income and locations, financial institutions cannot confidently extend credit, he added.

Consumer credit, including credit cards, is a type of loan extended for personal, family, or household purposes. It helps individuals finance everyday expenses, such as education, cars, or homes, and contributes to consumption spending, which drives economic growth. In the US, consumer spending accounts for 70% of GDP, with a substantial portion driven by credit use.

Prof. Obi, who is a regular visiting professor to universities in Ghana, emphasized that while consumer credit boosts spending and provides revenue for financial institutions and governments, there is a downside: the risk of defaults. Rising delinquencies can lead to poverty for households and financial distress for lending institutions, as seen during the 2007–2008 financial crisis in the US, where mortgage delinquencies caused widespread economic problems. Although the crisis was concentrated in one sector, the broader financial impact was the same, he explained.

Ultimately, Prof. Obi suggested that Ghana’s credit culture will evolve as the economy strengthens, but forcing it prematurely in a weak financial system will not yield sustainable results.