Ghana’s
drive to mobilize deposits from the unbanked population and encourage savings
habits 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 within the past couple of 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 mangers are facing prosecution,
others have absconded.
This
has led to widespread public apathy in depositing funds with microfinance
institutions, especially with the traditional ‘susu’ societies.
Enquiries
suggest that most victims of financial scams are enticed with micro-lending
facilities. They also lack access to information on the credibility of operators.
Some
aggrieved financial service’ consumers have also questioned the proactive
stance of the Bank of Ghana to protect depositors when the erring firms are
being shut down.
To
ensure stability and sanity in the industry, the Central Bank came out with new
rules and guidelines to regulate the financial sub-sector, effective January
2012.
Regulated
activities under the Non-bank Financial Institutions Act 2008, increased from a
single tier to four tiers, to include Susu companies, Susu collectors, money
lenders and Financial NGOs.
Regulation
under the first tier, including rural and community banks, savings and loans
companies and other financial intermediaries already regulated under the
Banking Act, remained unchanged.
‘Susu’
companies taking deposits and making profits are now operating under the second
tier of regulated regime, and such companies hold an initial minimum paid-up
capital of not less than Gh¢100,000.00 for one unit office.
Operators
under this category are also required to amend their company names to take on
the word ‘microfinance’ as a distinctive identification from other susu
operators.
Credit
unions also fall under the second tier but the Bank of Ghana has yet to pass a
Legislative Instrument to regulate activities in the sector.
The
third tier of money lenders and non-deposit taking financial NGOs shall
maintain a minimum paid-up capital of Gh¢60,000.00, whilst activities under the
fourth tier include the operations of individual susu collectors, susu
enterprises, individual money lenders and money lending enterprises.
The
Ghana Association of Microfinance Companies (GAMC) is recognized by the Bank of
Ghana as an umbrella professional association to help promote best practices in
the microfinance industry.
In
a bid to clean up the system, the Association has been building the capacity of
members to successful sail through operational processes under the BoG’s new
rules and guidelines.
“Regulation
is not easy but a society that is not regulated does not function, so it’s
something that we don’t have a choice. It’s something that we needed it long
and I think we welcome it. We just have to do everything we can to get
ourselves regularized so that we can help the economy grow in the area of
poverty alleviation and also job creation and be able to give micro-credit to
people to expand their businesses, to pay tuition, to rent houses”, stated Nicolas
Osei, Northern Sector Vice-President for the GAMC.
The
new guidelines are restoring hope to both the public and industry players but the
licensing has not slowed the proliferation of firms taking deposits and lending
to the public.
Ghana’s
major cities of Accra, Kumasi and Takoradi continue to experience an upsurge in
the number of microfinance establishments.
Today,
over three thousand microfinance firms are estimated to be operating in the
country – as at end of 2012, the Bank of Ghana had issued 77 full licenses and
about 400 provisional licenses, with an additional 500 new applications still
in the process.
But
the Central Bank’s process of licensing microfinance companies under the new
regulatory guidelines has been a worry to the GAMC.
It’s
National President, Collins Amponsah-Mensah has observed a number of firms are
venturing the sector without due consideration to the regulation.
He
therefore wants the regulator to tighten entrance for new businesses in the
sector until it completes the licensing and regularization of those already in
operation.
“As
it is now, as they [Bank of Ghana] try to process those who are already in
operations, others are coming in and so the number gradually becomes
overwhelming and that makes it very difficult for the regulator to work on”, he
observed.
Mr.
Amponsah-Mensah has also charged the Central bank to be bold in closing down
firms flouting the regulatory guidelines early enough to protect public
interest and image of the sector.
He
suggested that commencement of operations should be suspended temporarily after
business incorporation at the Registrar General’s Department.
There
has neither been an improvement in the quality in financial services in the
local economy and the proliferation has not necessarily resulted in poverty
alleviation.
Microfinance
institutions should be more committed to establishing networks in rural
communities to holistically develop the national economy, said Sampson Ahmed,
Chief Executive Officer of Mighty Microfinance Company.
According
to him, the increase is the number of financial service providers should not be
to the neglect of rural economic players, who are constrained in credit
accessibility to transform their subsistent operations.
“Most
firms are based in the cities, not realizing that there are some rural areas
that we have to serve”, he observed. “I want to tell my colleagues to focus on
the rural areas to help people with loans and advise; they should come to the
needs of the farmers and support the rural areas to develop”.
Mr.
Amponsah-Mensah believes the country needs more microfinance companies and he expects
the regulator to ensure policy encourages operators to establish in deprived regions
of the country.
The
GAMC Directors’ forum held under the auspices of the GIZ and the Responsible
Finance Project, aims at improving financial inclusion by ensuring sustainable
access to financial services.
“We
expect that the directors and their companies will be responsible in their
dealings with the client in the sense that they’ll be transparent and they’ll
provide all the necessary information that is required to their client”, noted
Matthew Affram, National Expert, Banking Supervision under the GIZ project.
Ghana’s
microfinance industry is said to be a path of reformation; but industry watcher
are of the view that sustaining sanity to instill public confidence would much
depend on the policy direction of the regulator, the Bank of Ghana.
Story
by Kofi Adu Domfeh