A Microfinance consultant has stated microfinance companies in the country should not be regulated in the same way as mainstream financial institutions.
Speaking to JoyBusiness, Roderick Ayeh argues regulating microfinance companies in the same way as regulating mainstream financial institutions does not bode well for the sub-sector.
He believes microfinance institutions should have a different structure from the mainstream financial institutions such as banks.
“We cannot regulate microfinance institutions the way we regulate financial institutions, that one is a no-go area because microfinance is different, it has its own challenges, it has its own strengths,” he stated.
The regulator of the microfinance sub-sector is the Bank of Ghana, which is being handled by other financial institutions department (OFID).
He also called for a strengthening in the regulation of the social intermediation function of microfinance institutions.
Social intermediation refers to other activities such as the provision of business advisory services, skills training etc. that are within the remit of microfinance institutions but fall outside the financial intermediation (Mobilizing deposits and lending).
Minimum Capital Requirement
He also stated that it will be tough for some MFI’s to meet the new minimum capital requirement. Mr. Ayeh believes the best way forward will be a consolidation of the existing companies operating in that space. That is to say, mergers will be the best option for microfinance institutions to meet this minimum capital requirement.
He believes the central bank’s introduction of higher minimum capital requirements over the years has not been able to address the key challenges in the sector and it was only a suitable entry-point control into the sector but there is need to do more to fix the challenges.
The Bank of Ghana is looking to raise the minimum capital requirement of the microfinance sub-sector.
The sub-sector is divided into four tiers. Tier 1 is made up of savings and loans companies and rural banks and they have a new minimum capital requirement of GH¢15 million and GH¢1 million respectively while tier 2 which is made up deposit-taking microfinance companies now have a capital requirement of GH¢2 million.
Tier 3 which is made up of non-deposit taking money lending companies and financial non-governmental organizations (FNGOs) have a requirement of GH¢2 million and GH¢300,000 respectively while Tier 4 is made up of individual money lenders and Susu collectors regulated by their umbrella associations under the supervision of the BoG do not have a minimum capital requirement.
Skills and competencies
He also believes a key challenge in the sub-sector is the capacity of the managers of these institutions. He believes a basic and fundamental understanding of the microfinance sector is pervasive amongst some managers of these institutions
“The problem we are facing in the microfinance sector is not a problem of capital requirement but a problem of competence. People got into microfinance sector without the fundamental understanding and fundamental competencies,” he said.
Competency and understanding of the developmental connotations of this pro-poor intervention is lost on some practitioners and he believes we need to pursue this actively.