Skip to main content
Implications of Microfinance for Efficient Finance Systems in Ghana.



BY ATTA GEORGE PEPRAH


Most Microfinance (MFIs) in Ghana are deposit-taking institutions. However, deposit-taking is not without risk. MFIs must be able to lend profitably enough to pay for and protect the deposits they mobilize. They must also be able to cope with temporary downturns when these arise. Failure to do so can quickly harm financial stability and deprive small depositors of their deposits. For this reason, Ghana has subjected their banking sectors including the MFIs to prudential regulation.
There are several players in the microfinance sub-sector. Rural and Community Banks (RCBs) constitute the largest players in the rural formal banking sector. RCBs are unit banks owned by community members and stand out as the largest financial players in terms of geographical coverage
According to ARB Apex Bank (2013) as at 2013 there were 143 RCBs with 546 branches across the country with more than 1.2 million depositors and over 150,000 borrowers. Nevertheless, RCBs are generally rather small, especially in terms of the number of outstanding loans.
In Ghana Bank of Ghana (BOG) has the mandate to protect the interest of all depositors and ensure sanity in the overall financial system according to the BoG Act, 2002 Act 612 (BoG, 2002.
Before 2006 Ministry of Finance with support from United Nation Development Programme started drafting Ghana Microfinance Policy (GHAMP) to provide guidelines on microfinance system in Ghana. The GHAMP then became one major strategy being pursued by government to achieve its microfinance development agenda. The GHAMP in itself is not a regulatory document but it provided the microfinance unit at the Ministry of Finance the road map of microfinance activities in Ghana and to inform government and development partners about policies that will make microfinance work in Ghana
The main reason was in response to the public outcry and the frequent folding-up of MFIs (Bank of Ghana, 2011). The main objective of the regulation was to protect depositors and ensure sound financial system within the microfinance sector
The operational guidelines require that MFIs constitute a strong board of directors with diverse rich background to ensure effective strategic planning for the companies. In Ghana, most MFIs were operating as one man companies. The transition from one man companies to board companies has already been witnessed among MFIs that have been issued provisional licenses. Institutions are to feed the Bank of Ghana with updated records of the members that serve on their boards.  This is a big challenge for MFIs that started as sole proprietors. Board-management-employee management is likely to be difficult for these institutions. 
The prudential requirements set 30% of deposits and paid-up capital to be kept as reserves in an escrow account and government of Ghana of treasury shares seems to be moderately high. What this means is that excess reserve meant for operations will be 70%. The question is: will the remaining 70% be sufficient for MFI operation? What are the implications for outreach? It is possible that in the very near future BoG will increase the capital requirements of institutions. If this comes into effect those institutions that could not meet the requirements will have to close down. It is therefore essential to optimise regulation by weighing its costs against its benefits. From a policy point of view optimum regulation needs to ensure sanity in the microfinance sector by protecting the consumer and allocating scarce financial capital among the poor households

Even though the MFI sector soundness is a necessary ingredient for efficient financial system, there is the need for carefully designed regulation and supervision of these institutions-too stringent regulations might hamper the development of the sector and too lax regulation will also increase the riskiness of the sector. Designing effective regulation and supervisory rules for MFIs will require commitment from the institutions themselves, apex bodies, the government and the general public as well

Comments

Post a Comment

Popular posts from this blog

GAPNEWS Ghana moves to capture US$2.4bn China soya market. The hefty tariff on soybeans from the United States has caused a 17 percent import decrease of the produce into China in February 2019, being the lowest level recorded since 2015, General Administration of Customs – Chinese statistical agency, has revealed. In 2017, U.S. soybean exports to China reached a volume of US$14.573 billion. Currently, the United States is the world’s largest soybean producer and second largest exporter, after Brazil. On the other hand, China is the world’s largest importer of soybeans – imported 91 million tonnes in 2018 market year as against 94 million tones the previous year. This suggests that the trade war between the two largest economies has created the opportunity for more than US$2.4 billion market share of soybeans that countries producing it can compete. Although, imports of soybean to China has reduced by 17 percent, this does not mean that consumption has reduced in similar terms...
Post a Comment
Read more
GAPNEWS WHAT IS WRONG WITH GHANA l am not too old neither am I too young and certainly I can’t admit to knowing all the problems confronting our dear Nation Ghana, but suffice as it will I have had the speck removed from my eyes and have seen the trajectory of our Governance process as a Nation with my eyes and have come to the conclusion of the very facts I dare state beneath. The trouble in Ghana is simply and squarely a leadership crisis finding its expression in the “volcanic” way of our practice of politics in Ghana. Let me hasten to indicate that there is nothing wrong with the Ghanaian, our land, our climate, our water, and our ability to think and do things for ourselves. The Ghanaian crisis stems from the roots of the unwillingness and the wanton disrespect for patriotism on the part of its leaders to rise to the responsibility of performance beneficial to the good people of Ghana. We have seen quite fairly or if you will strongly in the epoch of our political li...
Post a Comment
Read more
GAPNEWS Inflation rate for May drops to 9.4% Inflation rate for May 2019 recorded a marginal reduction to 9.4 per cent down by 0.1 percentage point from the 9.5 per cent recorded in April 2019. Deputy Government Statistician, David Kombat has been explaining to the media in Accra that the rate recorded was highly influenced by the declining rate of food inflation in the measuring basket. "We have seen a slight decline in food prices especially vegetables as a result of the weather patterns. This usually happens when we're entering into the raining season and commodity prices begin to experience some dips but this is also accompanied by some reductions in certain components of the non-food items" he said. Upper West recorded the highest general inflation of 11.1 per cent whiles Ashanti the highest rate in food inflation. "The food and non-alcoholic beverage group recorded 7.3 per cent, a reduction of 1.1 per cent point lower than the rate recorded in April ...
Post a Comment
Read more