Business News of 2014-08-19

Stop charging high interest rates – BoG tells MFIs

Microfinance companies have been urged not to charge high, unsustainable interest rates.

This is because such rates, which have been described as worrying, could affect the quantum of deposits at the companies.

The Head of Other Financial Institutions Supervision Department of the Bank of Ghana (BoG), Mr Raymond Amanfu,made the remark at the third annual general meeting (AGM) of the Ghana Association of Microfinance Companies (GAMC) in Accra.

It had the theme: “The role of the second tier microfinance companies in promoting financial inclusion in Ghana”.

High interest rates

He said although the central bank was not interested in promulgating a legislation to fix interest rates in the financial sector, the high interest rates charged by some microfinance companies could compel it to do so to fix interest rates on their loans.

Mr Amanfu cited the example of a microfinance company that charged an interest of 75 per cent per quarter on its loans.

He also expressed concern about the practice where some microfinance companies borrowed from foreign institutions, adding that “it is against the law for microfinance institutions to borrow from foreign companies”.

According to Mr Amanfu, some owners of microfinance companies have resorted to selling their licences to third parties without seeking approval from the central bank.

He stated that it was unlawful for any microfinance institution to change the ownership structure of the company without prior approval from the central bank.

“We have to be involved and give approval to the whole transfer and sale process to check the financial status of the incoming owner and to be sure of the source of money to be used in the purchase because of issues such as money laundering,” he said.

Many branches

Mr Amanfu advised owners of microfinance companies against their penchant for establishing many branches.

He added that the companies established many branches without assessing their human resource and financial strengths; a situation that had led to the collapse of many microfinance companies.

“Some of the companies equate visibility to viability and sink huge sums of money belonging to clients into establishing branches,” he said.

According to Mr Amanfu, the BoG would continue to close down unlawfully established microfinance institutions. “We will also sanction licensed companies who do not file their returns,” he added.

For his part, the Director of the Financial Sector Division of the Ministry of Finance, Mr Joseph Chognuru said microfinance institutions were able to cater for the financial needs of the un-banked population who had been excluded from the formal banking sector.

He said trends in the microfinance sector suggested that clients of microfinance companies were net depositors rather than borrowers.

“This provides opportunities to mobilise very cheap deposits from the public and in turn offer very competitive credit products strong enough to keep universal banks out of the microfinance sector,” he said.

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