Financial analysts have warned that the Bank of Ghana (BoG) risks jeopardising the bright prospects of the country’s financial services sector if it continues to apply ad-hoc measures to issues relating to microfinance institutions (MFIs).
Recent media reports indicated that the BoG would close down over 100 microfinance companies who are illegally operating in the country. The BoG undertook a nationwide exercise in 2014 to sanitise the operations of microfinance companies after which it announced it would make public the names of 108 MFIs that were operating illegally.
The move by the BoG was part of measures to check the rising spate of MFIs absconding with depositors’ funds.
Ghana’s drive to mobilise deposits from the unbanked population and encourage the habit of saving has faced serious challenges from the activities of unscrupulous microfinance firms.
Hundreds of account holders in parts of the country have lost their savings to such institutions over the years.
Some of the microfinance firms have either been shut down by the regulator or collapsed as a result of poor risk and business management – some managers are facing prosecution, others have absconded.
The BoG’s efforts to sanitise the industry have, however, been met with mixed reactions.
Sidney Casely-Hayford, a financial consultant, who criticised the approach by the BoG to sanitise the operations of MFIs called on the Supervision Department of the BoG to “tighten up, be a lot more vigilant and insist that the right thing is being done.”
The financial consultant maintains that most MFIs are struggling to survive because they have strayed from their microfinance stead and are providing services which are supposed to be within the savings and loans category.
He says the BoG tends to go softly on a lot of microfinance companies who do not publish their financials at the end of the year and have taken deposits at huge levels which they are not supposed to do “because they (BoG) consider that they (MFIs) are serving the under privileged.”
Mr Casely-Hayford explains that the BoG by not implementing the rules to the latter is allowing the microfinance companies to stray away from regulatory market which is actually hurting the under privileged and the unbanked.
“If you look at the financial institutions arena, the insurance companies generally conform in terms of boursing their results and the banks also report at least 90 days after the financial year ends. Now the same should apply to microfinance, and savings and loans companies but it doesn’t,” Mr Casely-Hayford laments.
According to Nana Otuo Acheampong, a banking consultant, the news of publishing the list of illegal MFIs will only bring panic into the market.
The banking consultant maintains that because the announcement would put panic in the system, it is very likely that nobody would patronise any MFI no matter what their standing is. He is of the view that the BoG must as a matter of urgency publish the list of the 108 illegally-operating companies.
The BoG also announced that it would increase the minimum capital for new MFIs from the present GH¢500,000 to about GH¢1 million but Nana Acheampong disagrees saying, “these things are so arbitrary because even with rural banks the capital is GH¢300,000.”
He maintains that MFIs play a very important role in the economy because they have a niche market that other banks are not prepared to serve and as such should be allowed to grow.
Some aggrieved customers of microfinance firms have also questioned the intended action of the BoG to close down the MFIs arguing that this would not serve their interest. They called on the BoG to ensure that their deposits are refunded in full in the event that any illegal MFI is shut down.
Meanwhile, Head of other Financial Institutions Supervision Department at the BoG, Mr Raymond Amanfu, confirms that the BoG would not close down the illegal MFIs but will “announce to the public that these institutions are illegal, unlicensed and, therefore, the public should not deal with them.”
He said the BoG would later hand over the list to the appropriate security agencies to deal with the illegal firms.
Mr Amanfu, however, debunked fears that the announcement might create some panic in the market saying that BoG was just drawing the public’s attention to the fact that they should be careful with the MFIs they do business with.
“If we don’t tell people before hand and all of a sudden we publish the list, I think we would cause more harm,” he explains.
He urged the general public to demand to see the license of MFIs before doing business with them.
The increasing cost of doing business, including ensuring that systems meet new Information technology standards make it imperative for the regulator to demand that operators are financially sound enough to remain in business and for depositors to be protected.
Commenting on the issue of the minimum capital, Mr Amanfu says: “we are talking of the fact that there must be enough reserves to pay staff of the company for at least the first six months so definitely the capital will g up to at least GH¢1million.”
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