Microfinance industry recapitalization will call for mergers – GAMC

The Ghana Association of Microfinance Companies (GAMC) has welcomed the Bank of Ghana’s directive for the recapitalization of the industry.

The BoG wants to quadruple the minimum capital requirement of microfinance institutions and rural banks. According to the directive, microfinance firms will have to increase the present capital of ₵100,000 to ₵2million by 2018.

National Chairman of GAMC, Collins Amponsah Mensah, says the additional capital injection should make the institutions stronger and improve their operations.

“Government wants them to increase their capital to make them stronger to be able to protect depositors’ funds and protect it very well, which we’re all looking up to,” he noted.

The GAMC Chair, however, has concerns about the ability of the companies to raise the capital as, he says, most of them are presently not making profit.

“I think that it’s going to help the institutions but as to how they are going to raise it [the capital] is another question,” he observed. The [microfinance] market is reserved for Ghanaians, so as it is, you can’t go for equity from outside and if you borrow, which is debt, it’s rather increasing your debt stock. But there is only one source that institutions can increase their capital, that is making more profit but these institutions are not making the profits that they expect,” said Mr. Amponsah Mensah.

 

The burst of the microfinance industry boom has left a good number of firms collapsing in the past couple of years. In the Ashanti region, only 58 of the over 150 firms are presently in operations.

Though Mr. Amponsah Mensah says there is stability in the industry, there are fears of further fold ups when the new capitalization takes effect.

The GAMC expects the industry regulator and the government to support the MFIs to capitalize whilst members are enjoined to explore strategies to survive.

“We are advising our members not to look at collapse but to look at consolidation; if ten of the institutions can come together and can raise that and become one institution stronger, it’s better than the individuals existing on their own and unable to raise the required capital,” stated Mr. Amponsah Mensah.

Story by Kofi Adu Domfeh 

Academia adopt gKudi banking software for training

Ghanaian IT solution provider, Logiciel Limited, has signed a partnership agreement with the Kumasi Polytechnic to offer qualitative training in local banking software solution.

The intent is to build the requisite human resource capacity to support Ghana’s microfinance institutions and others in the financial services industry.

Kumasi Polytechnic, together with five other affiliates – Bolga, Tamale, Takoradi, Cape Coast and Sunyani Polytechnics – is signing onto the gKudi software as a training course in addition to its existing applications.

“They are now starting with close to 600 students for the initial pilot phase and we hope it will extend to other polytechnics, so that officially this software will be taught in schools and by the time they leave school, they already know how to use the solution and they’ll be adapted into the microfinance space,” stated Derrick Dankyi, CEO of Logiciel Limited.

The gKudi platform is a relatively low-cost real time integrated web/cloud based micro-banking platform which enables microfinance companies and other financial institutions to manage their client’s information and back office operations while providing a critical source of aggregate financial data on the informal sector.

 

In 2013, Logiciel signed an agreement with the Ghana Association of Microfinance Companies (GAMC) to provide mobile and cloud software solution to MFIs in the country.

Over 200 firms – representing about two-third of microfinance companies – are currently on the gKudi platform.

Collins Amponsah Mensah, National Chairman of GAMC, is enthused at the ability of MFIs on the platform to keep proper records of customers and improve accountability in fund mobilization.

“Most of us were using different solutions but we realized that we were not getting the needed results that we required from those solutions; we also realized that there was the need to start standardizing our operations,” he explained the reason for hooking unto the gKudi platform.

Mr. Amponsah Mensah is hoping more members will subscribe to the solution, emphasizing that “it’s going to help the industry because we have to send data to government and most especially ease submission of Prudential Returns to the Bank of Ghana”.

The Association has endorsed the Logiciel-Kumasi Poly collaboration as important to provide the needed support to the industry.

“I believe that with this partnership, we are going to have readily developed young men and women who will be the backbone of the industry to provide that technical and managerial support,” said the GAMC Chair.

K-Poly and affiliates currently run Diploma programmes in Computerized Accounting, Banking Technology, HND Accounting with Computing and B-Tech.

 

The banking applications are critical to deliver essential training to the students.

Rector of the Polytechnic, Prof. Nicholas Nsowah Nuamah, has described the partnership with Logiciel as a win-win for the polytechnic and the IT firm.

Story by Kofi Adu Domfeh 

Microfinance companies to be hit by mergers and acquisitions

Ghana’s microfinance industry is expected to be hit by mergers and acquisitions as the regulator demands recapitalization of companies in the sector.

The Bank of Ghana wants to microfinance firms to increase their capitalization from the current Gh100,000 to Gh250,000 by June 2015 – this should further go up to Gh500,000 or more in 2016.

There are concerns some companies may be challenged in meeting the requirement and the deadline.

Businesses operating in the sector would have to explore available options if they are to survive.

The Ghana Association of Microfinance Companies (GAMC) says there are arrangements to engage the regulator in managing the process.

National Chairman, Collins Amponsah Mensah however acknowledged the directive would help build stronger institutions, whilst instilling discipline and sanity in the industry.

According to him, members are encouraged to open up for mergers and acquisitions.

“I’m very hopeful that as we go forward, a lot more of our members will be coming together to form stronger institutions and in that case be able to raise the capital that is expected to be able to run this kind of business,” said the GAMC Chair.

Mr. Amponsah Mensah also believes there are opportunities for the public in invest in the industry.

“People who want to even start new microfinance institution should rather be looking at the possibility of acquiring equity in existing ones or even acquisition,” he noted.

The Bank of Ghana has also initiated action to flush out firms operating without license – names of companies which are not under regulation have been published in the dailies.

Mr. Amponsah Mensah has endorsed the exercise, stating that the savings public is getting increasingly discerning in entrusting their funds with an institution.

Story by Kofi Adu Domfeh 

Microfinance industry to consolidate recovery process in 2015

There is stability in Ghana’s microfinance industry, according to the sector Association.

Operational and liquidity challenges, over the past three years, led to the collapse of some companies and depositors losing their funds.

The Ghana Association of Microfinance Companies (GAMC) however says there is stability in the microfinance industry, though the storm has not finally settled.

“In our records 2014, we wouldn’t say we even lost a company and so we can say that we closed the year very well,” observed Collins Amponsah-Mensah, National Chairman of GAMC.

The turbulent period of 2012 and 2013 left over 60 firms collapsing.

GAMC has therefore been working with the Bank of Ghana to facilitate a recovery process.

Mr. Amponsah-Mensah told LuvBiz that 2015 will be a year of consolidation in training and capacity building, strengthening of institutional structures as well as encouraging share floatation, mergers and acquisitions.

The proposed establishment of a deposit security insurance scheme is also expected to protect the saving public against losing their funds in times when financial intermediaries go into distress.

Story by Kofi Adu Domfeh 

Microfinance companies in Ghana confident operational storm over

The Bank of Ghana made no mistake in licensing microfinance companies to operate in Ghana’s financial service space, says the Ghana Association of Microfinance Companies (GAMC).

Members are not enthused at recent comments by Managing Director of HFC Bank, Asare Akoffo, that the licensing of microfinance companies was a ‘mistake’, as he alluded to operational challenges within the microfinance sub-sector.

According to Mr. Akuffo, the regulator could have been more prudent in its decision by restricting microfinance authorization to traditional financial institutions such as the universal banks, savings and loans companies and rural banks.

 

National Chairman of the GAMC, Collins Amponsah-Mensah describes the comment as ‘unfortunate’, stating that the financial space of Ghana is still ‘virgin’ with high number of unbanked population.

“What are we fighting for?” he queried. “Microfinance is more of a social activity first before profit and every business person would want to access the profitability first before they go in; so for a lot of the banks it’s not an attractive area… so I think that Bank of Ghana didn’t make any mistake coming out with the regulation.”

Mr. Amponsah-Mensah says it behooves on industry players to ensure the sector develops in the interest of businesses and individuals at the micro level of the economy.

“If there are challenges, let us all propound solutions to it so that we can work together as a team and ensure that nobody is left out of the financial service space because you’ll grant a loan to a corporate entity to do business, I will grant a loan to a petty trader because the person also needs it to do business. At the end of the day, we all contribute to the economic performance of the country,” he opined.

The microfinance companies in the northern sector of Ghana have been taking stock of their performance in 2013.

They admit last year was a turbulent year for the financial sub-sector, with a good number of them going into liquidity challenges and others folding up, whilst clients of such firms lost money within the period.

According to the microfinance institutions, most of the challenges were self-inflicted, especially on the issue multi-branching which Franklin Belnye, BoG’s Head of Banking Supervision has described as “visibility not being viable”.

The MFIs failed to apply best practices in operations, whilst the Association could not adequately instill discipline in members, observed Mr. Amponsah Mensah.

He however believes the storm of distress and panic withdrawal is over, stating that 2014 looks favourable for the microfinance sub-sector.

“In the years ahead, people are going to be very careful in the way they do this business,” he said. “In the past, most of us felt that growing in numbers was equivalent to growing in branches and so there was that competition to just expand by opening branches here and there, but from what we went through last year, the lessons we’ve learnt is that growth doesn’t mean having several branches; you can stay in one branch and still grow.”

The industry regulator has licensed over 400 firms since the new regulation came into force.

Mr. Amponsah-Mensah expects the Bank of Ghana push a lot more attention to supervision to instill discipline in the industry.

“Let’s put in proper supervisory structures; let’s engage the Association, let’s charge them with some of the responsibilities so that they can also play a role to support with the supervision,” he suggested.

Story by Kofi Adu Domfeh

Bank of Ghana asked to allow FDIs into microfinance industry

Kumasi-based policy think-tank, Ghana Institute of Governance and Security (GIGS), is asking the Bank of Ghana to relax regulations that bar foreigners from investing in Ghana’s microfinance industry.

It says Foreign Direct Investment (FDI) is critical to sustain the operations and increase opportunities in the sector.

“The concept is a brilliant one but you realize that there are a lot of things that need to be done to strengthen the microfinance sector… so we are saying that they should not allow foreigners to come and establish new ones, but buy shares in existing ones to strengthen it,” stated David Agbee, Executive Director of GIGS.

The emerging microfinance industry has the potential to support individuals and small and medium enterprises to grow their businesses.

However, sustainability of the sector has been threatened by liquidity challenges and inadequate managerial capacity.

Mr. Agbee says the FDIs will help inject capital, fresh knowledge and technology to help save the sector from collapse.

“Beyond the strictly economic and social improvement and benefits of Foreign Direct Investment, we strongly believe it will bring hope and confidence for the sustainability of the microfinance industry and speed up the acquisition of thoroughly knowledge and technology transferring into microfinance industry,” he said.

 

The Ghana Association of Microfinance Companies (GAMC) has endorsed the proposal.

National Board Chairman, Collins Amponsah-Mensah, says the Association is already in the process of tabling the proposal before the Bank of Ghana.

“I believe that the intention of government to secure that financial sector for only Ghanaians was a very good thing but you realize that Ghanaians in themselves are not interested in equity stake in the microfinance sector. So if Ghanaians are not interested and the companies need capitalization, why not look at foreign participation”, he suggested.

 

Mr. Amponsah-Mensah however noted that any foreign participation should ensure Ghanaians hold majority shares in the business.

Story by Kofi Adu Domfeh

Microfinance regulation in Ghana revised with increased liquidity

The Ghana Association of Microfinance Companies (GAMC) has welcomed the increase in minimum capital requirement for operators in the industry.

National Chairman, Collins Amponsah-Mensah, says raiding the liquidity requirement for Non-bank Financial Institutions is in the interest of the business and customers.

“What this means is that operators will have enough to set up their office and then [have] enough working capital, so that the over-reliance on public funds, which currently is the problem of our members, will be reduced; we’ll have enough capital to give out as loans” he told Luv Biz Report.

The revised Bank of Ghana operating rules and guidelines for microfinance institutions categorized the sector into two – Tier 2 of deposit-taking and Tier 3 of non-deposit taking institutions.

Effective August 30, 2013, new entrants applying to operate as non-deposit taking firms would require a minimum paid-up capital of GH¢300,000 whilst deposit-taking institutions require a minimum of GH¢500,000.

 

Existing microfinance companies have to 30th June, 2016 to meet the new requirements.

Institutions with 1-5 branches attract an additional paid-up capital of GH¢100,000 for each branch, whilst those with more than 5 branches attract an additional GH¢200,000 for each branch.

“Not more than 25% of initial paid-up capital or additional capital for branches shall be spent on property, plant and equipment (capital expenditure). That is, at least 75% of all initial paid-up capital and/or additional capital shall be in liquid cash resources to support operations”, read the guideline.

 

The Ghanaian microfinance industry has faced managerial and liquidity challenges, resulting in client’ apathy is parts of the market.

There have been calls for strict monitoring of operators to protect depositors’ savings and to prevent the industry from collapse. http://kadafricana.blogspot.com/2013/05/the-imminent-bubble-of-ghanas-booming.html

Mr. Amponsah Mensah believes this will also require collective public responsibility to ensure the microfinance industry thrive effectively and efficiently.

“I see it as a national responsibility to support these companies to be able to stay in business so that they can continue to provide financial services to our people”, he stated.

Meanwhile, Fidelity Bank is partnering the GAMC to build the capacity of microfinance institutions, in order to deepen financial inclusion at the grassroots level.

 

Director for Consumer Banking, Selom Cofie Atta, regards the MFIs as important in serving the financial needs of the mass market.

Fidelity has the focus of engaging the MFIs to reach out to micro enterprises with qualitative financing in line with its commitment to general economic growth, she said.

Story by Kofi Adu Domfeh

High savings withdrawal hits microfinance firms

Microfinance firms in Kumasi are recording high withdrawal rates as clients take precautionary measures to protect their savings.

This has been necessitated by liquidity challenges faced by some multi-branch firms in the past few weeks.

“We’ve seen huge withdrawals in member companies and this can’t continue; there should be a way out… We keep prompting ourselves that the more you branch the riskier it becomes and you also lose hold of control over your operations”, noted Collins Amponsah Mensah, National Chairman of the Ghana Association of Microfinance Companies (GAMC).

The public apathy has been attributed to the lack of safety nets to protect depositors when firms collapse or are shut by the regulator, the Bank of Ghana.

Abdulai Rabi, for instance, was promised a 10% interest rate on a three month fixed deposit product with Royal Winners Financial Services, one of the firms in distress.

He now fears losing his Gh₵25,800 investment. Abdulai has petitioned the Bank of Ghana as efforts to get a refund of his deposit have been futile.

The GAMC is looking forward to signing Memoranda of Understanding with the Bank of Ghana “where the regulator will assign responsibilities to us, so that we can play part of their supervisory and oversight role for them and they also support us to put in the right structures and systems to be able to support that assigned role and responsibility”.

Mr. Amponsah Mensah says such mandate would empower the GAMC to aid the regulator to inject disciple and sanity in the microfinance industry.

Story by Kofi Adu Domfeh

The imminent bubble of Ghana’s booming microfinance industry

Microfinance companies, under the Bank of Ghana’s new regulated licensing regime, offer both lending and deposit products to their clients.

In the past year, about 100 firms have received full operational license. Over 400 others have provisional license to serve the needs of the unbanked population, with some 3,000 others in also yet to come under regulation.

Players in the sector are upbeat about prospects to create jobs and provide financial intermediation in poverty alleviation. But all is not well in the fast-growing industry.

Petty trader, Umar Moro Abubakari opened a savings account in the ‘Daakye’ (future) product of Graford Microfinance Limited in Kumasi, in his bid to save to pursue higher learning.

Trusting in the firm’s provisional license, he managed to save Gh₵810 over an eight month period. But he’s losing all his money.  

 

“I went to my bank to withdraw my money but I didn’t get my money; they’ve closed the bank and I don’t know why”, Umar Moro complained. “I’m worried because I want to go to IPMC, so I was thinking that I’ll use that money to pay for my bills”.

Like Umar Moro, frustrated clients of microfinance firms in distress have been frequenting police stations, media houses and other places to seek help in accessing their savings.

Incidents of firms closing down and bolting with depositors savings have been reported in most parts of the country, including the Ashanti, Brong Ahafo, Western and Volta regions.

“We are in crisis but does not mean that we’ve collapsed and this is not new in the banking system”, admitted a manager of one of the firms, in response to the fate of his clients in getting their money.

Checks indicate some of the big microfinance firms are struggling to stay in business.

“We started with some companies that are no more with us; some have gone through assessment by the regulator, some have even received their provisional licenses but you see them collapsing”, observed Collins Amponsah Mensah, National Chairman of the Ghana Association of Microfinance Companies (GAMC).

Greed, irresponsible and reckless operations as well as poor management of depositors’ funds have been identified as the bane of the microfinance industry.

Sources say some of the seemingly booming firms use multi-branching as a deceptive ploy to attract clients and investors with a credible imaging. In some instance, the firms have managed to open more than 10 branches in less than one year.

When faced challenges in managing their growing branches, the companies go into liquidity distress. One firm in the Ashanti region is reported to be indebted to the tune of over Gh₵10 billion.

In these instances, the monitoring role of the Central Bank has been questioned. “Why should the Bank of Ghana allow the unbridled opening of additional branches?” queried one industry operator, who expects the regulator to be bold in ensuring firms with additional branches recapitalize.

There is also the trend of microfinance operators venturing vehicle hire purchase schemes, with the attendant problems of their inability to sustain the vehicle distribution to customers who have deposited huge sums of money.

Kwame Sarpong Osei-Bonsu of the Banking Supervision Department of the Bank of Ghana acknowledged the Bank has had several complaints, which he says are under investigation.

Unfortunately, depositors with these financial institutions have no safety nets when such businesses collapse.

“There have been talks of bringing in Deposit Insurance Scheme as we have in other countries like US and UK and even Nigeria; once you’re a regulated entity, then you go into that scheme and that guarantees a person that if something goes wrong they’ll get their money back”, noted banking consultant, Nana Otuo Acheampong.

The GAMC is already thinking in that direction, in addition to establishing a Deposit Security Fund to serve as secondary reserve for members.

Whilst financial consumers are protected with the deposit insurance, the Fund, as a liquidity buffer, will aid in the management of deposit liabilities of industry players, explained Mr. Amponsah-Mensah.

“We’re going to mandate our members to deposit an amount each day out of their mobilization into that account; it will be invested, then anytime that there is pressure on them, they can fall on that deposit to free themselves from the pressure”, he said.

Presently, the credible microfinance firms are experiencing high withdrawal rate as clients take precautionary measures to protect their savings.

This is a worry to the GAMC. Mr. Amponsah-Mensah is therefore prevailing on the Bank of Ghana to empower the Association to play a key role in regulation, if the industry is to avoid a bubble.

“If the regulator is unable to enforce the rules and regulation that goes with the regulation itself, our hands will just be tied behind us. So that is why we’re working together with the regulator to ensure that whatever we say should be done under the regulation, operators are complying”, stated the GAMC Chair. “If we take away non-compliance, we should expect the system to collapse one of these days”.

Story by Kofi Adu Domfeh