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 

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

Ghana’s microfinance industry, matters arising!

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