Banks risk increased litigation under new Banking Act 2015

Financial institutions in Ghana face increased class action and mass tort litigation if Clause 143 of the new Banks and Specialized Deposit-Taking Institutions Bill is not managed prudently.

That is the caution of Samuel Addo Otoo, Board Chairman of Yaa Asantewaa Rural Bank and Chief Executive Officer of Easy Investment Cooperative Credit Union.

The Bank of Ghana is expected to implement new policy documents to help regulate and instill discipline in the industry and to boost public confidence.

These include the recently passed Banks and Specialized Deposit-Taking Institutions Bill.

Clause 143 of the Bill “provides for the transfer of a current or savings account which has not been operated for a period of two years to a separate register of dormant accounts”. The dormant funds shall be transferred to a special account at the central bank.

According to Mr. Otoo, the implementation of the Clause could result legal battles if care is not taken.

“The central bank will have to look at it again,” he said. “If for a period of two years you’ve traveled and cannot access your accounts and the fund is transferred to the Central Bank, it will bring a lot of litigation between the banks and their clients and will not deepen the confidence of the people in the banking sector”.

He however believes the use of electronic payment system, where people can remotely access their accounts, is a means to ensure the banking public can make deposits and withdrawals without travelling to keep the accounts active.

“The introduction of E-Banking by the various banks and other deposit would help reduce the cost of banking services, improve customer service and boost e-commerce transactions,” said Mr. Otoo.

The Bank of Ghana, in partnership with the various banks and the telecommunication companies, is rolling out a roadmap to make Ghana a cashless society by 2019 to help reduce the amount of money that the central bank spends to print, manage and decommission cash. 

Mr. Otoo noted that “the promotion of a cashless economy is a collective responsibility of all stakeholders including banks, telecommunications companies, IT companies, subscriber and the general public”. 

Meanwhile, Easy Investment Cooperative Credit Union is introducing the “Easy Smart Save Online-Mobile Banking” platform which offers members greater flexibility, fast and convenient access to their accounts and transactions from anywhere right from their mobile phone or tablet.

By Kofi Adu Domfeh  

Ghana’s first Islamic Investment Fund launched in Kumasi

An Islamic Investment Fund has been launched in Kumasi with the objective of reviving economic activities within Muslim communities.

The Shari’a complaint financial system is to mobilize funds from the Muslim Ummah for development, whilst creating jobs for the teeming youth in need of jobs.

The Fund is initiated by the Ahlussunna WalJama’a Ashanti Regional Imam (ASWAJ) to offer “ethical investment” tools to investors seeking to invest in profitable “halal” business ventures which have minimal risk but good potential for growth.

“Usually our interest according to Islam is ‘halal’, our economy based on helping the poor not to take the little from the poor; we always want to help the poor,” noted Sheikh Dr. Ismail Saeed, ASWAJ Imam. “So here we are using it as a starter to pull all our resources together, and when they start getting something, then in future when it becomes a bank it will be an encouragement for them [to invest]”.

A Gh100,000 is to be raised in the initial public offering of 200 shares at a share value of Gh500 per share.

The Fund seeks a combination of capital appreciation and current income for shareholders.

The investment plan is established along three minimum risk areas: short term businesses – Cattle Rearing, Washing Bay and Cash-Crop Farming; medium term – Transportation and Commodity Trading; and long term – Real Estate Development, Islamic Microfinance, Project financing and Venture capital.

A 25-member Business Implementation Committee, Chaired by a banker, Issah Mallam Ahmed, was inaugurated at the IPO launch at Sawaba, a predominantly Muslim community in Kumasi.

Municipal Chief Executive for Asokore Mampong, Alhaji Nurudeen Hamidan, is among the first to invest in the Fund.

He is confident Ghana will soon have a number of Islamic Banks spread across the country because of the high profitability based on the “interest and cost sharing principle”.

“In Islamic Banking, the 100% profit is shared accordingly, as against the traditional banks that we have here where a percentage is given to you as profit or dividend on your investment and the bulk of the money is kept by the bank for their operations,” he observed.

Islamic Scholar, Sheikh Osman Bawa Hafiz Olando, is confident the Fund will empower Muslims and reduce crime rates in Muslim communities across the country.

“It is our responsibility as individuals, organizations, churches and mosques, associations to come up with those jobs for our children and grandchildren to have something to do so that they can uplift their lives and localities for a better Ghana,” he said.

Story by Kofi Adu Domfeh 

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 

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 

Banker fears challenging times for financial service industry

Rural banker, Siaka Baba Ahmed, is projecting “challenging times” for the financial service industry in Ghana for 2014.

According to the Chief Executive Officer of Odotobri Rural Bank, the rising operational cost, coupled with reduction in interest rate would put banks on in a tough position to stay profitable.

He observed hikes in prices of petroleum products, utility tariffs and increases in taxes as some areas banks would have to contend with in balancing the financial sheets.

The Kumasi Metropolitan Assembly, for instance, has increased rates for Business Operating Permit by 900 percent for GH¢1,000 to GH¢10,000 per annum, effective 2014.

“As a bank our main duty is either to invest in money market instruments or to lend; so when the money market instruments are coming down, automatically it will trigger the interest rates down. At the same time operating cost is also going up; fuel prices have gone up, taxes have been increased, now they are introducing VAT into financial services; so 2014 would be challenging,” expressed Mr. Ahmed.

Mr. Ahmed believes the key instrument to staying in business should be operational efficiency and effectiveness.

“We have to reduce the waste to the barest minimum and some of the cost would also have to be transferred to the client but we’ll make sure that it will not affect them unduly,” he stated.

Meanwhile, the Board of Odotobri Rural Bank has approved a scholarship package of Gh¢22,250 to 60 brilliant but needy students in some local communities in the Amansie Central District of Ashanti.

The bursary will help keep beneficiaries in school, from senior high to tertiary institutions.

Story by Kofi Adu Domfeh

Bayport Financial targets informal sector for success in next decade

Bayport Financial Services will be targeting the informal sector of the Ghanaian economy with its micro-finance product to achieve organizational success in the next ten years.

Board Chairman, Kwame Pianim, says the institution needs to aggressively implement its new micro-finance product to provide relevant and customer-friendly credit to the increasingly transforming informal sector.

This is part of the company’s three main success pillars going into the next decade – which include shifting from its core business of pay-roll deduction-based loans and value addition to shareholder interest and strengthening of the Bayport brand as a socially responsible service provider.

According to Mr. Pianim him, the development of the informal sector remains critical to grow Ghana’s middle income class.

He was speaking at the 10^th anniversary awards nights in Kumasi. Bayport started as Ghana Financial Services in Obuasi as a largely African-owned entity, but now operated 28 branches as part of the globally-owned Bayport Financial Services Group with headquarters in London.

The company introduced the micro-finance product in May this year.

“We realized that after ten years, we should branch into the informal sector for those who don’t have any kind of security at all but they have some viable business that we can support, that is why we have set up Bayport micro. We want our impact on Bayport micro to be better than the pay-roll back lending business that we are doing,” stated Kofi Adu-Mensah, Managing Director of Bayport Ghana.

 

The services are In Accra, Kumasi, Sunyani and Techiman with an additional ten more branches planned for 2014.

“We expect to be the company of choice, a financial services company of choice in Ghana in ten years time,” stated Mr. Adu-Mensah.

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