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 

Storm in Ghana’s microfinance industry settling

Ghana’s microfinance industry has within the past two years experienced a storm that left over 60 companies collapsing and others going into financial distress.

The burst of the once bubbling industry left most clients losing their savings and investments as some workers also lost their jobs.

“I wouldn’t say the storm is over but it is settling and so it calls for a lot of work, attention and also caution,” stated Collins Amponsah-Mensah, National Chairman of the Ghana Association of Microfinance Companies (GAMC).

A study conducted by the Association indicates most operators failed to apply the principles of financial intermediation.

“Some will take money from the public and instead of lending it, they thought it was risky and so invested in other ventures without taking into consideration maturity, and so in some cases you see [firms] borrowing short term and then investing long term in other projects that had gestations that were long term,” observed Mr. Amponsah-Mensah.

This, he noted, created liquidity gaps which rendered some firms unable to honor payment of funds to depositors upon maturity.

Rising cost of operations without corresponding increase in revenue base also affected the microfinance companies’ ability to stay in business.

The GAMC Chair added that effective regulation and supervision of the sector was also a factor for the burst – as some firms attempted to beat restrictions on multi-branching.

 

“But now since the regulation requires that you have an active Board. We are encouraging members to make sure that they have their Boards in place – people who can help them to drive the process,” said Mr. Amponsah-Mensah.

One of the major hurdles to overcome is restoring public confidence in the industry.

A number of traders and account holders lost their savings during the distress period. “It is very difficult for us to trust them again,” said an aggrieved trader at the Kumasi Central Market.

Mr. Amponsah-Mensah has acknowledged a lot of things went wrong because of inexperience. He however says the industry is turning over a new leaf as managers and other staff are exposed to new knowledge in banking and microfinance.

“Anytime there is a storm, then the ground also becomes slippery when the storm is over; so it has to be managed. We are managing this through education, sharing experience of the past and then seeing how we mitigate some of the things that we could have managed before 2013,” he said.

He has appealed to the public to build trust and confidence in the companies because “for the 70% that is unbanked, it’s the microfinance companies that can provide financial services to them.”

The GAMC also wants the government to create a Microfinance Fund to support for the sector to surmount its liquidity challenges.

Story by Kofi Adu Domfeh 

Listen to audio link...

https://soundcloud.com/kofi-adu-domfeh/storm-in-ghanas-microfinance-industry-not-over-but-settling

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

Visibility is not viability – Bank of Ghana tells microfinance firms

The Bank of Ghana has acknowledged the need to have an apex body to deepen supervision of microfinance operations, but says it is early days yet to establish such a body.

Over 280 firms have been registered to take deposits and advance loans since the new regulation of the non-bank financial institutions came into effect in 2011.

However, the microfinance sector has been dogged with liquidity and operational challenges, with some firms going into distress, especially in the Ashanti region.

According to the Head of Banking Supervision at the Bank of Ghana, Franklin Belnye, the problems keep recurring because some of the operators do not have the right models and also over-branching.

He shared the experience of microfinance firms that used mobilized deposits to build schools and toilet facilities.

“That is not microfinance,” said Mr. Belnye. “Microfinance is mobilizing small savings and making small credit and helping people with little little loans to manage their lives. Some of the microfinance companies are behaving like banks but that’s wrong because your capital is small, your deposits are small scale and they are payable on demand and so if you give big loans you’ll run into problems.”

He also observed that it is a wrong model from microfinance companies to have presence everywhere because “visibility is not viability” when the firms would have to use depositors’ funds to put up those branch networks.

“Through regular interaction with them and educating them, we hope that we’ll be able to deal with most of these problems,” Governor of the Central Bank, Dr. Kofi Wampah told Luv Fm in Kumasi, stating that lack of experience as the major bane of the industry.

He is hopeful the new microfinance department under the Bank of Ghana should lead in sanitizing the industry.

The Ghana Association of Microfinance Companies (GAMC) has been engaging the Central Bank to cede some of its powers to the Association to instill discipline in the industry.

Mr. Belnye tells Luv Biz the arrangement, as it pertains in the rural banking industry, could be extended to microfinance in the future.

“Apex bank in not a regulation institution; their role is more administrative and support for rural banks. We may need to do that for microfinance but now it’s too early; we need to ensure we’ve put in place a number of well functioning microfinance institutions to be able to stand on their own and if they then want to have an umbrella body to hold them together that can be than,” he stated.

Clients of microfinance companies have had to lose savings when firms are shut or go into liquidity challenges.

Dr. Wampah says a reserve account for financial institutions will ensure depositors are protected.

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