Venture capitalist calls on MFI, stakeholders to help reform industry

 

Adnan Adams Mohammed

A venture capitalist has called on the stakeholders within the Microfinance Financial Institutions (MFIs) to collectively help to reform the industry to protect depositors funds and also sustain businesses. 

The Chief Executive Officer of Quick Angels and Quick Credit, Richard Nii Armah Quaye has proposed that, the remaining Microfinance and Microcredit must stop taking deposits from customers, raise equity and provide loans over a period of time to bring back confidence into the sector.“ … And they must learn to be disciplined and learn how to use depositors’ money”.

Many Ghanaian have their investment and deposits with savings and loans companies; if the well-structured and well-regulated institutions are not able to give them their funds can you vouch for a Microfinance company, Mr. Quaye he said. “The industry as I speak with you is virtually dead. The few that is left must change their structure; they must change their module.”

Bank of Ghana, forth night ago, announced that the licenses of 386 financial firms in the Microfinance and Microcredit space have been breached due to regulatory infractions. After the revocation of the licenses, 137 firms remain operational in the Microfinance sector while 31 firms remain in the Microcredit sector.The move is part of a cleanup of the sector which is estimated to cost the country some GHC7.0billion. The Central Bank has however, outlined a number measures to save the industry.

“The Bank of Ghana is undertaking a comprehensive review of licencing and supervisory policies and directives; reviewing the minimum capital requirements for microfinance companies; and encouraging possible consolidation through voluntary mergers and acquisitions,” the regulator stated in a press release issued last week.

Consequently, Prof. Peter Quartey, an economics professor at the University of Ghana in a comment has said, the BoG’s intention to increase the minimum capital requirement is long overdue. Adding that, the delay in raising the minimum capital requirement led to the springing up of many microfinance companies which do not have the capacity to compete in the industry.

“I think it is something that is long overdue because the MFIs are also means of banking, and banking is serious business; you need some liquidity to cushion yourself. You should have some money to fall on quickly so that people don’t lose confidence in your operations. But where you have a very thin capital-base, then it becomes a problem.

“So, I think the industry should have a decent minimum capital to operate. When that happens, this mushrooming of microfinance will reduce so that those who really have the capital to do this business will remain in it,” he told an Accra based media during an interview.

This, Prof. Quartey said, is the right time for such an action to be taken, saying it will restore lost of confidence -despite it having some repercussions on the economy and livelihoods of the people.

“It is the right time for this to happen. There is an interconnectivity between the MFIs and the banking sector, so you can’t reform only the banking sector and leave the other. Initially, it will bring some pain in the form of lost jobs and frustrations in retrieving deposits – and thereby creating inconvenience to customers; but in the long run it will restore some confidence in the system,” he said.