Ghana crackdown targets finance industry tricksters

fly by night lendersfrom MASAHUDU KUNATEH in Accra, Ghana

ACCRA, (CAJ News) – THE future looks gloomy for Ghana’s microfinance institutions as the country’s central bank cracks the whip on fly-night lenders that have mushroomed across the country.

However, such moves could also have an impact on genuine leaders who are already bearing the brunt of members of the public tarring the sector with the same brush.

Among plans to eliminate illicit lenders, the Bank of Governor (BoG) has hiked the minimum paid up capital for microfinance companies and money lending companies from over US$130 000 (GH500 000) and $78 900 respectively to US$800 000.

There are concerns the hike is too much considering the country’s precarious economic performance.

All microfinance institutions have up to December 2018 to meet the capital requirements.

“Failure to do so will lead to revocation of license,” First Deputy Governor of Bank of Ghana, Milison Narh, warned.

Fresh entrants would require the GHC 2 million prior to granting of final license and that the convergence of capital requirement for microfinance companies and money lending companies is to avoid regulatory arbitrage.

Narh said the increase in capital was to reposition a sector which had been infiltrated by illegitimate operators.

“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 moves by the central bank follow the proliferation of unlicensed microfinance institutions (MFIs), millionaire fun clubs, and non-compliance of regulations by registered operators.

These, BoG said, were mushrooming in such areas as Brong Ahafo, Western, Volta, Northern, Upper East, and Upper West.

Such institutions promise unsustainable interest rates and other packages to lure clients to deposit their money only to unfold after months of operations.

“These unlicensed institutions attract their clients by offering very high and unsustainable interest rates but fold up within a short time due to their inability to meet depositors’ demands,” BoG stated.

The outgoing Head of Other Financial Institutions Supervision Department at BoG, Raymond Amanfu, said these institutions charged unsustainable interest rates as high as 30 percent to 55 percent.

“Such institutions collapse in no time and rather create the impression BoG has placed moratorium on the operations. As such, customers should come to the BoG for deposits,” Amanfu said.

BoG was collaborating with the Financial Intelligence Centre, and security agencies to crack down, arrest and prosecute directors, shareholders and management of unlicensed institutions in the country.

Amanfu noted the media would not be spared the probe.

“These cheats are well encouraged by some media houses who carry wide publicity on unlicensed companies and their activities. We may have to include media houses that advertise these illegal institutions such as Fun Clubs and associations for abetment of crime,” he said.

The clampdown comes amid criticism BoG was not proactive enough against unlicensed MFIs and non-compliant operators.

It has already indicated plans to review the licensing process after revoking some 70 microfinance and money lending companies in the country recently as part of its efforts to deal with the situation.

The BoG argued that the action was influenced by expiration of the provisional license of these companies.

Currently, persons interested in conducting banking business or microfinance are often given a provisional license before full operations.

They have up to six months to meet all requirements before they open their doors to the public.

The BoG said it could not assist depositors to retrieve their funds from the 70 microfinance companies whose licenses were recently withdrawn.

Owing to the negative press around such companies, some businesses are shunning MFIs, including genuine ones.

“I once fell a victim to quack MFI robbery since then I have never transacted any business with any MFI in the country,” Nana Yaw, Mobile phones and accessories shop owner at the Kwame Nkrumah Circle, said.

Hajia Kende, an Accra restaurant owner preferred saving money at home or with the commercial banks to MFIs.

“It is not save to transact businesses with the MFIs,” he said.

Figures from the BoG indicated as at June 2015, the MFIs had mobilised over $248,9 million in deposits. 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.

With this modest growth levels, MFIs were seen as having a role to play in bringing banking to the doorsteps of the populace and promote financial inclusion.

CAJ News

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Posted by on Feb 8 2016. Filed under Africa & World, Exclusive, Featured, Finance, National, News, Regional. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

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