The immediate past Executive Secretary of Corporate Initiative Ghana, organisers of the Ghana Banking Awards, Mr Afotey Odarteifio, has called on the Bank of Ghana (BoG) to take immediate steps to help depositors recover their money from the microfinance institutions whose licences have been revoked.
“I hope the BoG will do its utmost to ensure that depositors get their money back,” he said.
In an interview with the Daily Graphic in Accra in reaction to the revocation of the licences of 70 microfinance institutions in the country, Mr Odarteifio said, “my main issue has to do with depositors who have their funds with those institutions whose licences have been revoked.”
According to him, when such revocations happen, “they appear at the rough end of the stick since many of such depositors lose their money”.
Mr Odarteifio said since the financial services industry used much more of depositors’ funds than shareholders’ funds, there was the need for utmost care to ensure that depositors would not lose “their little savings with these institutions.”
“This has happened with a number of ‘bogey' finance houses and money scams in the past, who seem to be operating fairly well and paying out to depositors, then there is an abrupt instruction from regulators to stop and that rather creates losses for depositors”, he said.
Mr Odarteifio said ideally “one would expect that these finance houses are made to wind down gradually and refund all deposits to the last penny before they close down.”
Mr Odarteifio was of the view that when depositors lose their money, they do not have any recourse “since we do not have any depositors’ insurance arrangement like the Federal Deposit Insurance
Corporation (FDIC) in the US that protects the funds depositors place with banks and savings associations in the US.”
“It is indicated that since 1933, when the FDIC was set up, no depositor has lost any money of FDIC insured funds,” he added.
He, however, noted that “this phenomenon perhaps offers the opportunity to call on the government to put in place a Deposit Insurance arrangement for the Ghanaian depositor”.
He said as a country, there was the need to encourage savings, but instances such as this “is a stab in the back of the savings drive.”
Touching on the action of the BoG, he said, “instantly, one would say this is a bit disturbing; how can 70 pre-approved finance houses just fail like that to meet the final requirements to continue operations?”
“But my checks have indicated that out of about 1000 operators who had to reapply, 400 were successful, out of which these 70 have been revoked”, he said.
Mr Odarteifio added: “I hear the Bank of Ghana did quite some engagement with the microfinance players before coming out with this revocation, but close to 25 per cent revocation is rather challenging.”
Microfinance now Ponzi
Due to the hash economic conditions and the quest by many to get rich fast, some persons with virtually no knowledge in fund management or banking are taking advantage of the ignorance of the masses to run microfinance institutions in name but operate Ponzi schemes.
According to some financial experts, microfinance schemes, if not properly regulated, will operate Ponzi schemes that lock up the capital of depositors.
Sometimes they become scams in which the gullible public is enticed with the promise of very high returns in a very short time, but is based on paying off the early 'investors' from the cash from (the hopefully ever increasing number) of new 'investors.' In the end, the whole structure collapses when the cash outflow exceeds the cash inflow.
This is the case in Ghana presently and that is the reason many have taken the BoG on for failing to play the role of a monetary policy regulator to prevent the practice.
One expert asked: “How can the central bank sit down for microfinance institutions to tell people that they can return as high as 45 per cent on their depositors in a month?”
According to him, if the BoG had asked these companies these questions in the initial stages, their inability to answer would have given the bank the signal to close those ones down.
“The Central Bank must be proactive and not reactive in these trying times to protect the citizenry”, he added.