The Bank of Ghana has urged non-bank financial institutions to endeavour to go for cheaper sources of funds, including relying on their own capital base, in order to reduce lending rates.
The Deputy Governor of the bank, Mr Millison Narh, made the call at the commemoration of the 25th anniversary of NDK Financial Services last Friday and added that funds from the market were very expensive, thus leading to an increase in the interest rates when used for on-lending activities, which go a long way to create challenges for the institutions.
Mr Narh said the best was to rely on own funds or sourcing from cheaper units, so that rates that the institutions offered to the owners of the funds (depositors and investors) would also not be outrageous.
BoG’s impression
The deputy governor, therefore, commended NDK Financial Services, a pioneer in the NBFIs market, for maintaining a high capital base of over GH¢18 million, above the GH¢15 million prudential requirement of the central bank.
NDK Financial Services, which started very small in 1991 with two members of staff – Mr Oko-Nikoi Dzani and a secretary—to offer quick loans flexibly without much encumbrances than was done by regular banks – now boasts of assets worth more than GH¢500 million.
The financial institution also controls about 26.4 per cent of the NBFIs or finance houses in the country, according to the Bank of Ghana.
Mr Narh also commended NDK for its support in coming out with regulations and guidelines for the sub-sector and the personal contributions of the founder, Mr Dzani, a seasoned banker, to the development of the non-bank financial services industry.
Caution to the market
He also called on the industry to be mindful of the changing environment, the sophistication of the customer and the increasing use of information technology to deliver financial services.
“The market is now becoming more competitive, IT driven, with sophisticated customers who require more diligence and innovation,” Mr Narh stated.
He also called on NBFIs to institute corporate governance structures as well as systems and controls and constantly develop the capacity of their staff to enable them to stay on top of the competition.
How it all began
The Founder and Chief Executive Officer of NDK Financial Services, Mr Dzani, recounted the early days of the market and how the finance house and other NBFIs came into being as a result of a World Bank sponsored government reform known as the Financial Sector Adjustment Programme (FINSIP), which as aimed at revamping the financial services sector.
He worked with SG Bank (then Social Security Bank) where he rose through the ranks to become a management staff, after which he was appointed as the deputy managing director of Cooperative Bank to support the managing director to revamp the bank.
Serving in those roles provided him with the opportunity to work closely with the World Bank, Bank of Ghana and other official government staff on the FINSAP. The experiences and exposure he got spurred him on to start something unique and different from mainstream banking.
The NDK started operations before the first law that regulates the sector was passed. It used to be an Ordinance under the jurisdiction of the Police Service. NDK and its founder have since played different roles to deepen the sub-sector, including the formation and support for an umbrella body for the industry.
“I wanted to do something special and unique. We wanted to avoid the bureaucracies that existed in the banking industry. We believe we needed to be closer to our customers,” Mr Dzani stated.
The past, present and future
The financial services company has since inception executed some unique projects not only for individuals and corporate organisations, but important government agencies, to meet the needs of the larger society.
These include partnering with HFC Bank to deliver turn-key real estate projects and warehouses; supporting Ghana Water to procure essential treatment chemicals; participating in rural and urban electrification and construction of gas terminals, haulage, cocoa purchases among others.
Mr Dzani said the company had expanded from a loans company to investments and providing other bespoke solutions for individuals, corporate bodies, NGOs, churches. He added, “never once have we not been able to meet our obligations to our clients as they fall due.”
For the future, NDK is considering longer tenor loans and transactions in support of the real sector to move the economy away from what Mr Dzani described as “too much retail business in the system.”