Speedy establishment of a Microfinance Apex Bank has been proposed to bolster the microfinance sector, critical for poverty reduction through financial empowerment of low-income people.
The Microfinance Apex Bank can be set up along the lines of the ARB Apex Bank with all umbrella microfinance bodies having a stake in its ownership together with government.
It could be best positioned as a public-private venture also involving other interested bodies and individual collaborators in the public and private sectors.
Such a bank will constitute the forum that can help improve on policies and develop networking strategies through collaboration with microcredit bodies, Ministries, Departments and Agencies, development partners, the Central Bank, Ministry of Finance and Economic Planning, and other apex bodies of microfinance associations.
Mrs. Felicity Acquah, former Managing Director of Eximguaranty Company (Gh) Limited, made this proposal at the fourth annual AngloGold Ashanti (Ghana) Business in Africa lecture under the topic: Microfinance: Its Evolutions and Impact on the Economic Development and Growth of Emerging Economics Over the Past Three Decades — Lessons for Africa and Ghana.
The annual lecture was held in collaboration with the Institute of African Studies and brought together stakeholders from the financial sector, mining industry, government officials, academia and private sector operators to deliberate on the positives of the microfinance industry in the country’s non-banking financial sector.
Delivering this year’s lecture, Mrs. Acquah said: “The challenge remains for policymakers in most African countries, particularly in Ghana, to promote the establishment of an Apex Microfinance Bank to exemplify policies, best practices and standards for the industry.
“The application of such practices will trickle down to impact positively on business growth, employment, education, housing, health and productivity generally in the country.”
She indicated that government must ensure that the large informal sector is properly defined and structured in order to make future policies more relevant, and guide microfinance operations in the country and other African countries over the next decade.
She observed that policymakers recognise that poor and low-income persons have skills which remain unutilised or underutilised.
“Poverty is not created by the poor; it is created by the institutions and policies which surround them.
“In order to eliminate poverty, we need to make appropriate changes in the policies and institutions we have and also create new ones.
“Charity is not an answer to poverty; it only helps poverty to continue, and it creates dependency and takes away the individual’s initiative to break through the wall of poverty. Unleashing of energy and creativity in each human being is the answer to poverty,” she remarked.
The Bank of Ghana has recognised the major impact of microfinance on the economy by providing for its operations under the Non-Bank Financial Institutions Act, 2008 (Act 774).
Currently, there are over 228 licensed institutions contributing combined capital of over GH¢407 million.
The Ghana Association of Microfinance Institutions, however, estimates that there could be over 1,000 microfinance institutions in the country. There are more than 560 members across the 10 regions that offer both lending and deposit products to their clients.
According to data from the association, about 198 applications were submitted on behalf of its members to the Central Bank, and out of this, 77 had received their final licences, with 134 issued with provisional licenses as at August this year.
However, more than 30 microfinance institutions in the country collapsed in the first quarter of this year as a result of their inability to sustain their operations. Customers with huge deposits with those institutions could not get a refund as the owners could not be traced, or where they were traced, they failed to raise the requisite funds to pay the customers.
From Modern Ghana
The Microfinance and Small Loans Centre (MASLOC) is currently striving to, in the near future make practical its policy document status of being the apex body of microfinance institutions in Ghana.
Should it succeed, the centre will be more empowered to subsequently concentrate much of its lending efforts on wholesale lending rather than spending time on its present three mandates of loaning to groups, individuals and that of other microfinance institutions.
According to MASLOC, such a move would help regularise the activities of these institutions while helping to boost credit availability to the informal sector which continue to accommodate a large chunk of the country’s entrepreneurial community yet receives the least financial attention from banking and non-banking financial institutions nation-wide.
The Chief Executive Officer of the centre, Ms Bertha Ansah-Djan told the GRAPHIC BUSINESS that the centre was now aiming at making proper use of its policy document status as “the apex body of microfinance institutions”.
Associations such as the Ghana Association of Microfinance Institutions (GHAMFIN), Money Lenders Association of Ghana (MLAG) and the ‘Susu’ Collectors Association (MLAG) are currently serving as the respective umbrella bodies of their individual institutions.
The microfinance sector has for the past few years witnessed dramatic growth, but regulations, supervision and monitoring of the activities of these institutions in the country has however left much to be desired.
The sector was, until 2007 legally under the control, supervision and licensing of the Criminal Investigations Department (CID) of the Ghana Police Service, a mandate many financial experts thought was not well placed and therefore not well executed by the criminal body.
The passage of the Non-bank Financial Institutions Act, 2007, Act 774 has, however, transferred that mandate of regulating and licensing these institutions which fall under the microfinance sector from the police onto the Bank of Ghana. (BoG)
Many however think that the numerous roles of the Central Bank including regulating the country’s financial sector and commercial banks would not give it the needed time and resources to monitor and supervise the sub-sector.
The BoG had earlier on observed that a number of financial service providers, including financial NGOs, Susu companies, money lenders, and companies that come under the microfinance sector have over the past few years emerged.
The BoG has under the ARB Apex Regulations, LI 1826, delegated its monitoring and supervision powers to the ARB Apex Bank to monitor and supervise rural banks while the Securities and Exchange Commission (SEC) at the moment also serves as the apex body of the country’s security or the capital market. The microfinance sector is however yet to get such a sub-sectorial control delegated by the BoG.
MASLOC is therefore currently aiming at getting such a mandate that would enable it to become the umbrella body of these microfinance institutions, effectively monitor and supervise their activities and subsequently lend its funds to them for onward lending to the informal sector in general.
But that, according to the MASLOC CEO would require the passage of centre’s policy document into a a law to give them full mandate to play such a role.
The document, she said was currently before Cabinet “read through by all the authorities” and awaiting the relevant measures to get it passed.
The government earlier this year hinted of its readiness to restructure and re-organise the MASLOC to enable it ”effectively finance local entrepreneurs and rural agriculture.”
According to Ms Ansah-Djan, stepping up MASLOC’s wholesale lending to microfinance institutions in the near future would help boost credit access to the sector to enable it undergo the needed expansions.