The number of microfinance institutions (MFIs) licensed by the Bank of Ghana (BoG) to operate in the country has increased from 394 in March 2014 to 518 as at the end of June, this year.
They are 447 microfinance companies, 63 money lending companies, and 8 financial NGOs, while another 117 institutions are waiting the fulfilment of final approval requirement.
The Head of Other Financial Institutions Supervision Department (OFSID) of the BoG, Raymond Amanfu has disclosed.
However, economists say looking at the size of the Ghana’s market, the figure 518 is too huge for 24 million people, while Nigeria with a population of 170 million has over 745 microfinance institutions this year.
These MFIs are competing with about 27 major commercial banks in Ghana for the same customers, they argued.
Mr Amanfu admitted that clearly the size of the microfinance industry has increased tremendously within a short spate of time.
As regulators, he revealed that the BoG is expanding his department by employing more people to effectively regulate and monitor the industry.
Regulation of MFIs
The regulation and supervision of MFIs, according to Mr Amanfu started in July, 2011 under a unit with the Banking Supervision Department of the BoG.
As the number of MFIs increased the BoG Management established the new department he is heading in August 2013 to regulate and supervise the operations of Rural and Community Banks, MFIs, and Forex Bureaus in the country.
He told journalists in Accra over the weekend that; “the Bank of Ghana recently increased the minimum paid up capital for microfinance companies and money lending companies from GHC50,000 and GHC300,000 respectively to GHC2 million”.
“The convergence of capital requirement for the microfinance companies and money lending companies is to avoid regulatory arbitrage”.
Also, Mr Amanfu explained the increase in capital was to position the institutions in better stead to carry out the needed financial intermediation. It is good to have reasonable number of well capitalised institutions which have the capacity to absorb risks than numerous weak institutions which could pose systemic risk, he stated.
The head of the OFSID emphasised that the capital required of any licensed institution including MFIs are not kept by the Central Bank but are used by the institution to meet the start-up cost, initial recurrent expenditure, among others.
“All existing MFIs have up to December 2018, while fresh entrants would require the GHC2 million prior to granting of final licence”. Failure to do so will lead to revocation of license, Mr Amanfu warned.
Performance of the microfinance industry
Figures from the BoG indicated that total assets of the microfinance sector hit GHC1.30 million as at the end of June, this year. This accounted for about 1.7 percent of the total assets for the country’s banking industry.
Of the total assets, loans and advances accounted for 45.5 percent or GHC587 million which is deployed to various sectors of the Ghanaian economy, while 7.7 percent or GHC99.3 million is invested in government listed securities, according to the Central Bank.
Mr Amanfu further disclosed: “As at 30th June, the MFIs had mobilised GHC946.9 million in deposits and this formed 73.4 percent of total assets of the MFI industry”.
The average capital adequacy ratio stood at 58 percent as the end of June this year compared with a statutory requirement of 10 percent. However, there are quite a number of MFIs which are non-compliant with the statutory level of 10 percent, he noted.
“With this modest growth levels MFIs have a role to play in bringing banking to the doorsteps of the populace and promote financial inclusion”.
Challenges
The proliferation of unlicensed institutions and fun clubs are threatening to destroy the MFIs. These, the BoG noted are mushrooming in the urban and rural areas of the Brong Ahafo, Western, Volta, Northern, Upper East, and Upper West regions.
Such institutions are promising unsustainable interest rates and other packages to lure people to deposit their hard-earned money with them.
Another challenge of the MFIs sector is poor loan recovery. As some MFIs in their quest to increase income or profit grant credit to customers without proper credit appraisal, adequate security and amounts higher than prudential limits. These had led to non-performing loans and thus, affecting their liquidity, Mr Amanfu indicated.
Expansion of operators: A number of MFIs seem to equate visibility with viability and had embarked on some branch expansion without the needed capital therefore, putting customers’ deposits at risk.
Weak corporate governance structures and inexperienced management had also resulted in weak management oversight with its concomitant mismanagement and fraud.
Furthermore, some shareholders, directors and management of MFIs continue to engage in insider lending and exposing themselves to related party transactions contrary to the Banking Act 2004, Act 673 as amended. Such related exposures are usually not repaid and interest under-stated.
Some MFIs have voluntarily closed and or are facing severe liquidity challenges but the Bank of Ghana has hinted that it would soon take drastic action on such MFIs.
Way forward
As a policy the BoG has increased the minimum paid up capital requirement to strengthen the financial base of these institutions, Mr Amanfu explained.
The licensing requirement has been reviewed and enhanced due diligence of shareholders, directors and management staff put in place, while the issue of ultimate beneficiaries and capital verification have been introduced.
African Eye News.com
