Business News of 2014-08-01

Microfinance industry to see M&As

Some microfinance institutions are considering mergers and acquisitions (M&As) to form bigger businesses, Raymond Amanfu, head of the central bank’s division in charge of the industry’s supervision, has said.

“A few of them have seen the need to merge; while some are merging, others are being acquired. We think that is the way forward because it will strengthen their balance sheets, make corporate governance stronger and reduce the number of failures,” he said.

He added that due to the talk of M&As the Bank of Ghana is not in a hurry to place a cap on the number of licenced MFIs, adding that the central bank is still getting to know the sector properly.

“When challenges become intense, the numbers will shrink via M&As -- but for now we have not taken a decision to cap the numbers. The numbers will drop once there are M&As, and as we also take drastic measures against the failures.”

Speaking on the topic “Microfinance in Ghana -- Where We Are and Where We Are Going”, at the second University of Ghana Business School (UGBS) conference on business and development, Mr. Amanfu said MFIs continue to create an avenue to access financial services for the disadvantaged segments of the population -- who cannot avail themselves of the services of traditional banks.

The four-day conference seeks to provide answers as to how enterprises and institutions can be built for the future.

He said since the central bank created his division to specifically regulate the sector, a lot of improvements have been recorded. For instance, the Bank of Ghana has started receiving prudential returns from MFIs, and has been embarking on on-site examinations of some of them.

Currently, 447 MFIs have been licenced to operate, out of which 390 are microfinance companies, 50 are money-lending companies and seven are financial non-governmental organisations.

At the end of May 2014, total assets of MFIs stood at GH¢688.5million, representing about 1 percent of total assets in the banking industry. Loans and advances granted by MFIs amounted to GH¢345.5milion during the period and represented about 1.57 percent of credit in the banking industry. Total deposits stood at GH¢344.8million.

Despite these statistics MFIs still have basic challenges, like poor liquidity management skills due to inexperience; inter-microfinance institutions borrowings which result in liquidity crunch; and diversion of loanable funds into unprofitable and unsustainable projects.

Others include paying unsustainable returns to customers in order to attract and retain them; irregular submission of prudential returns to the Bank of Ghana; weak credit administration, policies and practices; and operation of numerous branches without carrying out a proper cost-benefit analysis or seeking Bank of Ghana approval.

Mr. Amanfu said the central bank is working closely with the apex bodies of these institutions to streamline their activities properly.

“The way forward includes periodic revision of the initial capital for start-ups and existing institutions; revising liquidity requirements for MFIs to enable them hold more liquid assets; providing logistical and financial support to MFI umbrella-bodies; and closing down and prosecuting MFI operators who refuse to apply for an operational licence from the Bank of Ghana.

“We also have to constantly dialogue with operators on strategic and operational issues with a view to ensuring that our model of microfinance becomes a point of reference globally; and constantly monitor and review the business environment and enact laws or issue relevant guidelines that will ensure stakeholder satisfaction, thereby enabling the microfinance sector to remain vibrant and sustainable.”

Source: B&FT
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