The Ghana Microfinance Institutions Network (GHAMFIN) has attributed the failure of some Microfinance Institutions (MFIs) to the mismanagement of depositors’ funds as a result of inexperienced operators in the sector.
GHAMFIN, which is the umbrella body of microfinance companies operating in the country, posits that the industry has been invaded by self-seeking and inexperienced agents who exploit the poor.
The Chairman of the GHAMFIN Council, Mr Emmanuel Oduro Darko, told the GRAPHIC BUSINESS on the sidelines of the association’s 6th annual general meeting that there was the need for a strategic policy by the various umbrella bodies of the non bank financial institutions to build and monitor the operations of the individual companies that are their members.
“If the groups of the microfinance organisations are able to reorganise themselves to monitor the activities of their members, then when we spot any microfinance going out of the way, we can punish them. We have to enforce the moral aspects of the regulation,” he explained.
He also added that another way to ensure sanity in the industry was for the Bank of Ghana (BoG) to enforce the minimum capital requirement because most of these operators entered the industry without taking into consideration any capital issue, adding that “so they just collect people’s money, mismanage it and that is how come we record the failure of some of the institutions.”
According to him, most of the companies were new and were currently struggling with sustainability issues but was quick to add that the challenge would be for a short period of time.
Challenging year for MFIs
Mr Darko described 2013 as a very challenging year for microfinance institutions as a result of the depreciation of the Ghana Cedi in relation to the US dollar and other major foreign currencies.
“The local market also experienced high fuel prices, erratic power outages and periodic increase in utilities, with implication for the various sectors of the economy. The microfinance sector has not been spared with all these development,” he said.
Again, the internal challenges of the sector ranged from product design flaws, uncontrolled branch expansion, mismanagement of clients deposits, loss of focus, poor structures to methodological flaws resulting in high reputational for the industry.
“All these factors have affected operations of businesses at all level. Consequently, most MFIs experienced rampant withdrawals of deposits. The cumulative effects resulted in the closure of 46 MFIs during the period (2013),” he said.
Overview of the microfinance sector
Microfinance institutions remain key supporters of Ghana’s informal sector, providing it with a range of financial and non- financial services. Currently, there are over 1420 MFIs and 722 individual money lenders and susu collectors serving not less than 9 million clients. As at March 2014, the association has 344 fully licensed members. GB