The surge in the number of microfinance companies in the country may soon be halted as the Bank of Ghana (BoG) plans to put a ceiling on the number of licences to be issued for the industry.
The Central Bank has already licenced over 340 microfinance companies, while close to 600 applications for licences are pending. Regulating the high number of microfinance companies has been a tough challenge for the Central Bank, which recently created the Other Financial Institutions Supervisory Department to deal specifically with this rapidly-expanding financial sub-sector.
Apart from concerns over their “outrageous” lending rates, microfinance companies have many times been a conduit for the perpetration of fraud through Ponzi schemes that lure depositors with absurdly lucrative investment interest rates.
“Honestly, we will put a cap on the licences at a certain point,” said Raymond Amanfu, Head of the Other Financial Institutions Supervisory Department of the BoG, in an interview with the B&FT. “But let’s deal with those who were in the system initially -- those operating under the old law, the Money Lenders Ordinance (Cap 176). We are giving everybody the opportunity to meet the new regulations.”
He further explained: “There have been complaints that our requirements are too strenuous, but we must get the background to these requirements. Until 2008, when the Non-bank Financial Institutions Act was amended, people did what was called money-lending under the ordinance of 1960, which required only police permits.
“There were lots of these money-lenders. When they were brought under the law, we had a lot of these individuals who were already taking deposits. We didn’t want to clamp down on them for their clients to lose their deposits; the idea was to migrate them gradually.”
According to Mr. Amanfu, the Central Bank is also tightening the entry requirements to ensure that only companies with the right capacities are licenced.
“It is quite a tough exercise, but we are tightening the controls so that the people who come in will have the capacity, the know-how and capital to manage the business.”
In 2013, the Central Bank revised its operating rules and guidelines for microfinance institutions, categorising the sector into Tier-2 for deposit-taking and Tier-3 for non-deposit taking institutions.
According to the revised rules, new entrants applying to operate as non-deposit-taking firms will require a minimum paid-up capital of GH¢300,000, while deposit-taking institutions require a minimum capital of GH¢500,000.
The BoG gave existing microfinance companies up to 30th June, 2016 to meet the new requirements. Institutions with up to five branches require an additional paid-up capital of GH¢100,000 for each branch, while those with more than five branches require an additional GH¢200,000 for each branch.
“We have a lot of applications we are declining because certain criteria we have set have not been met. For instance, you have to show us the capability of the managers of your business; hitherto, these requirements were not in place. When you don’t have these requirements, we decline the application,” Mr. Amanfu said.
“In fact, some have even withdrawn their applications because of the strenuous processes they have to go through under the new regulations. Also, there are those who are merging their businesses to be able to meet the new regulations,” he added.
