BoG slammed for ineffective supervisory role
President John Dramani Mahama has slammed the Bank of Ghana (BoG) for being what he described as ineffective with its supervisory role in checking the operations of mushrooming microfinance institutions in the country.
“Lack of effective supervision on the part of the central bank has resulted in many cases, in which many microfinance companies licensed by the BoG, have breached the rules of procedure, one of such cases being DKM”, he said.
The President said this when he delivered a three-hour and 15 minutes State of the Nation address to Parliament last Thursday.
This comes at a time when hundreds of Ghanaians have been left at the mercy of fraudulent individuals who are using all means to perpetrate crimes within the banking sector.
And, without mincing words, President Mahama said: “Our laws place this matter squarely within the ambit of the BoG,” as he touched on the microfinance institutional challenges facing the country at the moment.
He was of the view that clients of the microfinance companies all over the country deserved to have been protected by a more robust inspection and supervisory regime by the central bank.
Many microfinance institutions in the country keep promising their clients juicy interest rates of between an average of 40 and 50 per cent over a three month period.
This has become the main bait for customers, many of whom are small business owners and in some instances, bankers and economists who many investment analysts say should know better to avoid such ‘traps’.
Many genuine investment instruments on the market can only be benchmarked with at least the Treasury Bill rate which is presently the most risk-free investment instrument in the country.
Presently, the 91-day T-Bill is 22.75 per cent while the 182 day T-bill is quoted at 24.62 per cent. The 1-year note is 23 per cent while that of the 2-Year note is 24.05 per cent.
There are some mutual funds in the system which return as high as 33 per cent per annum but these are carefully structured portfolios managed by experts in investment banking with a lot of experience in that area.
The DKM saga
DKM Diamond Microfinance, with its main office in the Brong Ahafo Region, promised clients high interest rates between 50 and 55 per cent and collected money from customers over a period.
The BoG, in a clampdown on illegal operations of microfinance companies, picked up officials of the company, who are expected to face prosecution for breaching the BoG’s laws.
DKM, according to President Mahama, diverted a whopping GH¢77 million of investors’ funds into its subsidiary firms, leading to the inability of the firm to pay returns to clients, some of whom have died or committed suicide as a result of the anguish they suffered in connection with what was more of a Ponzi scheme.
Today, business in the Brong Ahafo Region is on its knees because many business owners were forced to invest their capital in DKM only for their funds to be locked up through ineffective management.
The President announced that efforts to liquidate the company were ongoing and the objective of this exercise was to reimburse legitimate customers of their original deposit amounts.
He charged the BoG to find a lasting solution to the problem to prevent such occurrences in the future.
In his quest to see a law to protect depositors who might fall prey to such scams as that of DKM, President Mahama appealed to Parliament to expedite action on the passage of the Ghana Deposits Protection Bill.
The bill, when passed, will protect a small depositor from loss incurred by the depositor as a result of the occurrence of an insured event.
It is also to support the development of a safe, sound and efficient stable market-based financial system in the country.