The upsurge of crippling nature of most financial institutions in Ghana lately is alarming. Quite recently there has been a negative downturn in the confidence exhibited by the populace in the banking sector. Scanning through media coverage of events that unfold in the financial sector, it’s evidently clear that there has been collapse of numerous financial firms. These firms cut across from the Non-Bank Financial institutions and to the main stream Banks.
It seems, there are a lot of lessons to be drawn by this negative nose dive in these sectors. Albeit this vivid evidence of financial crisis, week in and week out, there has been sprung up of new Micro Finance firms, Investment companies and new entrants to the main stream Banking sector.
From a careful appreciation of the happenings in the financial sector, one can squarely blame the regulator (Bank of Ghana) for failing in its duty and role of supervision and licensing operations of the Banking industry i.e the Microfinance Sector.
It’s becoming quite alarming the rate at which Microfinance Institutions fade out in the system (collapsed), without strong recourse to change in revise regulatory supervision from BOG. From the past 5 years, news of collapsed institutions and inability of depositors to access their funds from such institutions has become recurring and causing anxiety in the financial sector.
One may ask whether such institutions are special purpose vehicles created by owners to raise capital to invest into other subsidiaries or they operate within the remit of preamble which forms their existence and operations.
The over-reliance of the Bank of Ghana on the minimum capital requirement as a measure to curb this phenomenon is worrying. In 2013, the Bank set the minimum capital for tier 2 and 3 institutions at GHS500,000 and GHS300,000 respectively giving the institutions up to 30th June to raise the capital.
These have been increased to GHS 2,000,000 each bridging the two tiers on capital requirement because it “wants to protect depositors’ funds. How is the Central bank worried about depositors’ fund in tier 3 institutions – Institutions that it prohibits from taking deposits in the first place? Did the Central bank admit by this move that it could not monitor the institutions adequately to prevent them from flouting the regulation?
Hitherto, the main objectives of operation of such institutions are to provide services to the Non-Bank individuals and small scale organizations in the economy, provide credit facilities and make banking easily assessable (bringing banking to the doorsteps of clients).
From the trend in the market, owners of such institutions use the Micro Finance industry as cash cow (source of funds) to invest in other subsidiaries thereby failing to meet its core mandate of providing credit facilities for traders and small and medium enterprises.
Furthermore, the players in the industry do not follow strict adherence to laid down regulations, key among them is corporate Governance. Majority of MFI’s are owner Management without complete comprehension and appreciation to basic financial and managerial procedures. This has resulted in managerial inefficiency in the operations of such institutions, and in effect the collapses.
Another causative effect to the sector is Non performing loans, the question is whether the credit team of such institutions have the financial and analytical acumen to evaluate loans? Are there industry benchmarks in loan administration to follow to the letter? The cause of collapse of most MFI’s is the inability of such institutions to recover their loans, the result are loss of depositors’ and investors’ funds.
Going forward, there should be complete forensic audit of all MFI’s and those not in compliance with regulations should be face out in the system. Global standards of management ie corporate governance and preparing accounts with IFRS should be enforce to the later.
There should be strict enforcement of regulation and supervision of the Microfinance sector as the populace is losing faith in the system. BOG need to crack the whip and bring utmost sanity in the operations of such institutions.
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By: Yemoh Nii Mensah Benjamin