MFIs hold huge prospects for economic growth -- Banker

The over-70 percent of Ghanaians in the informal sector offer ripe opportunity for socio-economic expansion if only the sector regulator, Bank of Ghana (BoG), will put the budding microfinance sector into expert hands and intensify its ‘watchdog’ function to boost investor confidence and public trust, a chartered accountant and Chief Executive of Mikensys Consult, Mike Oyemade Osikoya, has indicated.

He told the B&FT in an interview that the central bank must reconsider issuing operating licences to aspiring microfinance companies primarily on the basis that they meet the minimum capital requirement, and place premium on the competence and character of the would-be operator.

  

“The microfinance sector holds bright prospect because the over-70 percent of people in the informal sector provide a wider viable market that needs to be exploited.

“If the microfinance companies are able to strengthen their management team with competent leadership and skilled workforces, and the sector regulator is able to sanitise the industry by winnowing-off the miscreant few, then within a short period of time we can see the sector as a key economic trigger,” he said.

Mr. Osikoya said despite the significant increase in number of microfinance companies in the country over the last few years, the industry is still faced with a myriad of perennial problems -- most significantly the lack of professionalism and rampant cases of ‘runaway’ operators.

He insisted that these militating issues continue to exist because the regulator has failed to recognise the need for competence and character over capital.

“The microfinance business is a banking function, and it needs people with the technical knowledge and expertise; we have to put it in the hands of people with the right skills to run, just as it is done with the formal banking sector.

“The regulator of the sector is expected to show leadership in this respect: it is not mostly about the capital; capital is good, but the people who are given permission to operate the business of microfinance must be competent and must also have character,” he said.

As at June 2015, the number of registered microfinance institutions in the country stood at 447 -- despite the recent move by the BoG to contain the phenomenal numbers by raising the minimum operating capital.

According to a directive from the central bank, microfinance institutions which presently require GH¢100,000 to operate are expected to ramp-up their core capital to GH¢2million by 2018; while rural banks which now need GH¢150,000 to operate are also required to gradually meet a new capital requirement of GH¢1million by the end of December, 2016.

But according to Osikoya, meeting a proposed capital requirement is not enough to address the challenges of a sector that can be groomed to become an economic backbone.

“There is a strong need for structural empowerment of the regulator to be able to sanction and deal with players who flout industry regulations. 

“This will sanitise the sector to boost public confidence and grow the sector, because the situation on the ground is that most of the time depositors are held back due to fear and lack of trust.

“When these principles are applied, and then the microfinance sector can provide the needed resources for businesses to grow and expand the economy.”

Source:B&FT