Role of microfinance institutions - In Ghana’s socio-economic development and growth
The role of microfinance institutions in the edifice of the Ghanaian financial sector; and socio-economic development and growth of the country cannot be over emphasised.
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In recent years, the Ghanaian economy has witnessed the formal establishment of several microfinance institutions. Connoisseurs of activities in the financial sector believe the introduction of microfinance institutions is timely to fill the lending void created in the financial industry.
That is, the presence of microfinance institutions allows individuals, small- and medium scale enterprises (SMEs) to access loans for sustainable operations, development and growth of their businesses; and the Ghanaian economy. This affirms the valuable role of microfinance services in free market economies such as Ghana.
Licencing of microfinance institutions
After their incorporation, microfinance institutions acquire provisional licence required for their operations from the Bank of Ghana (BoG); the licenced microfinance institutions are subsequently issued with a perpetual licence by the Bank of Ghana to fully authenticate their operations in the country.
Further, effective and efficient microfinance institutions are required to be active members of the Ghana Association of Microfinance Companies (GAMC).
Challenges of microfinance institutions
Indeed, in recent times, the activities of some microfinance institutions such as DKM, God Is Love, to mention, but a few have raised concerns and doubts among a section of Ghanaians and financial analysts about the ability of the non-bank sector of the financial industry to effectively complement the efforts of the main-stream banking sector. In spite of the seeming challenges militating against their success and meaningful contribution to the development and growth of the Ghanaian economy, many microfinance institutions operating within our jurisdiction are striving for innovation and excellence.
Microfinance institutions in good standing
As at July 2016, the non-bank financial sector could boast of about 385 microfinance companies, 60 money lending institutions, and 10 financial non-governmental organisations (NGOs) in good standing with the Bank of Ghana, the Regulator.
These non-bank financial institutions have satisfied the necessary conditions to facilitate their operations; and to receive funds from the public.
The inclusion of these microfinance companies on the list affirms their strict adherence to existing rules and regulations governing the financial industry; and their readiness to make significant strides in the financial market.
Objective, vision and mission of microfinance institutions
Generally, the underlying objective of microfinance institutions is to provide microfinance services to individuals, small- and micro-enterprises. Their vision, among others, is to contribute meaningfully to Ghana’s socio-economic development and growth by becoming relevant, significant and efficient vehicle for mobilising, channelling and allocating fund to the banked and unbanked.
Microfinance institutions seek to tailor their financial services to adequately meet the needs of their clients; and to become a strong force to reckon with in the financial industry.
Like any other group of organisations that is well-organised and focused, microfinance institutions have a mission.
That is, to provide quality, but affordable financial services to their existing and prospective clients. To achieve this objective, microfinance companies are committed to motivating their staff; adhering strictly to banking rules and regulations; becoming socially responsible; and ensuring higher returns on investment to meet the expectations of stakeholders.
Microfinance products
The financial products of most microfinance companies can be categorised into three. These include deposits, loans and investments. The deposits may include micro-savings and special-savings; the categories of loan may include micro SME loans, personal loans, emergency loan, and micro loans, among others. The investment option available at most microfinance institutions is fixed deposits.
Operating performance of microfinance institutions
The revenue mobilisation drive of most microfinance companies is quite encouraging. However, as characteristic of nascent companies, the average total expenses of most microfinance institutions are high, relative to their average total revenue; and this translates into an average total loss.
The dwindling financial fortunes of many microfinance institutions is comprehensible given that, most of them are still at the development stage of the much-touted company life cycle.
Expectations
The board, management and staff of microfinance institutions are expected to exude strong financial intellectualism; and demonstrate effective ideas in microfinance and banking in general to assure their rapid transformation from microfinance to savings and loans; and eventually to a full-fledge bank.
It is the fervent hope and expectation of key stakeholders that the management and staff of microfinance institutions would continue to research into the financial market; and emerge with useful financial products and services that would meet the financial needs of their existing clients and prospects; and contribute meaningfully to the development and growth of businesses.
Recommendations
All key stakeholders in the financial market are entreated to play an active role by providing the requisite intellectual and financial resources needed by microfinance institutions to effectively occupy their enviable position in the financial industry; and in the socio-economic development and growth of the Ghanaian economy.
The Bank of Ghana and the Ghana Association of Microfinance Companies must intensify their education on the activities of microfinance companies to the general public through radio, television, and print media.
It is imperative for the BoG and GAMC to use local and community radio stations across the country to outline the activities of microfinance institutions within the financial regulatory framework; and to constantly indicate microfinance institutions in good standing to the general public.
Through such initiatives, individuals, businesses and investors would begin to regain confidence in the microfinance institutions and their operations to create room for expansion and job opportunities.
Like the Biblical statement which admonishes us to seek first the Kingdom of God and its righteousness, and all other things shall be added unto us, microfinance institutions in the country must strive to provide quality and affordable products and services to their teeming customers, and the expected profits would fall into perspective.
All microfinance institutions in good standing with the bank of Ghana and the Ghana Association of Microfinance Companies must display this information, explicitly, to existing clients and prospects in their business transaction areas.
This would help existing clients and prospects distinguish between good and risky microfinance institutions in the country. The board, management and staff of microfinance institutions must strive to transform their creative, innovative and productive ideas into actionable ones for an accelerated expansion and growth.
The author is the Lead Consultant/CEO @ Eben Consultancy and a Fellow Chartered Economist &
Council Member, ICEG
Email: [email protected]
Website: www.ebenezerashley.com
