The microfinance sector has been touted as being instrumental in improving the lives of the poor through the provision of credit for them to start some enterprises that will support their livelihoods.
Indeed, the concept of microfinance is not new to Ghana.
There has always been the tradition of people saving and/or taking small loans from individuals and groups, within the context of self-help, to start businesses or farming ventures.
Over the years, the sector has thrived and evolved into its current state where it is governed by structures because of the various financial sector policies and programmes undertaken by different governments since independence.
The sector, however, lacks a clear strategy for financial inclusion and the means for the development of microfinance institutions (MFIs), as well as other methodologies for making financial services widely available.
While the universal banks have the bulk of the assets of the financial system, MFIs reach more clients of around eight million, with more than 3,000 outlets spread throughout the country.
Although not all of such institutions are directly regulated by the Bank of Ghana (BoG), capacity building, oversight and monitoring support from microfinance associations and donor-supported programmes helped to ensure stable growth in the sector.
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During the late 2000s, however, new types of unregulated microfinance service providers proliferated, increasing the number of operators who lacked sufficient capacity, skills, governance, transparency and accountability to act as responsible financial intermediaries.
That posed a risk to the sector, with increasing incidents of reported fraud, insolvency and loss of savings by some low-income households.
The BoG has, over the years, initiated measures to bring all types of MFIs under a consistent regulatory framework by issuing guidelines for them.
Despite the many efforts by the BoG to streamline the operations of the sector, it is becoming increasingly difficult for many companies in the sector to survive beyond the growth stage or stay in operation after the first five years of incorporation.
The problem with the microfinance sector in Ghana is largely the lack of capacity building for key personnel and staff.
Inadequate staffing at the BoG also means that regulation will be a daunting task, as there are always unscrupulous people taking advantage of the system.
Although the Daily Graphic welcomes the move by the government to bail out distressed microfinance companies, so that depositors can have access to their lifetime savings, we are unhappy with the loose supervision by the central bank.
It is the view of the Daily Graphic that while there is the need to comply with policies, regulations and directives, the sustenance or future viability of microfinance institutions also depends on reliable funding sources.
We, therefore, recommend that since the business of microfinance institutions requires public trust and confidence to thrive, the Ghana Alternative Exchange (GAX) of the Ghana Stock Exchange can help them raise the needed funds and help create awareness that will enhance the companies’ status and create opportunities for them to be viable.
They should also be made to list on the GAX as a way of raising the needed capital.
At least this will afford them the opportunity to secure longer-term capital for growth and make them withstand competition.
The measure will also open them up for public scrutiny, so that they will be transparent and also put in place proper governance structures to secure their sustainability.
The Daily Graphic is hopeful that when these measures are adhered to, the country will be spared the trauma and pain of having to secure costly funds to bail out troubled microfinance companies.