BoG asked to toughen microfinance regulation

The Bank of Ghana (BoG) has been asked to intensify its monitoring of activities in the microfinance industry to get rid of companies that do not meet standards. 

Last year, 50 of the over-700 microfinance institutions operating in the country collapsed -- affecting clients who lost their investments.

The collapse of these companies was the outcome of various processes that did not go well and not necessarily a one-time event, according to Dr. Boakye-Yiadom, a microfinance management expert and CEO of First Liberty Microfinance Company.

“It is important that the BoG strengthens its monitoring mechanism in order to clean the system. This is the only way the sector will survive,” he told a media conference in Accra.

He said the collapse of microfinance companies must be investigated to provide clear reasons that will help formulate appropriate solutions for safeguarding the sector from systemic risk and loss of confidence.

“The most risky venture is to take people’s investment and give it as a loan to people who do not have collateral or a proper and viable business proposal,” he said, adding that many microfinance businesses have failed because their managers lacked the requisite skill and knowledge to understand the risks associated with their operations. 

He said managers of some microfinance institutions collect deposits from clients and invest the cash in real-estate, school buildings, branches in plush buildings, and cars.

“When the people want their money and they can’t get it because the management has made long-term investments, it creates a run on the banks -- and not even the commercial banks can survive a run on them,” he said.

“It is wrong to mobilize susu and invest it into real-estate or schools. This is because with susu the clients give you the money today, and they withdraw next week.”

Dr. Boakye-Yiadom said First Liberty Microfinance Company has revived three microfinance institutions in three regions: BrongAhafo, Eastern and Asante.

“We at First Liberty Microfinance represent the difference others lack. We have the professionals who have experience and extensive knowledge in the sector. We have the structures and creative strategies to manage the microfinance companies. 

“First Liberty will not do long-term investments with deposits; we will manage them well so that the system always has cash to sustain the withdrawals. We have a very strong loan recovery strategy. We are here to stay,” he added.