Quality of borrowers is suspect - Nyinaku

The Chief Executive Officer of Beige Capital, Michael Nyinaku, says financial institutions focused on the informal sector are confronted with the challenge of identifying creditworthy businesses and individuals to support.

With hundreds of institutions springing up in the economy to offer microfinance facilities to individuals and businesses in the informal sector, there are concerns that the excessive interest rates charged by these companies are choking small businesses - forcing many debtors to default on their repayment terms.

“The danger here is that there could come a time when there will be too much money in the system but very few quality borrowers,” Mr. Nyinaku, who was speaking at the 1st West Africa Microfinance Conference (WAMIC 2013) in Accra, said.

The theme for the three-day conference was “Empowering Africa for Economic Peace: The Role of the Microfinance Sector”.

Mr. Nyinaku said even though it is expensive to manage businesses requiring small credit, it is worth it.

“Managing small loans is costly, yet in a developing economy like Ghana the microfinance market has the largest concentration of borrowers whose combined activities collectively drive the growth of the country," he said.

“As a growing player in the market, however, BEIGE Capital remains committed to delivering financial services innovated to suit the peculiar needs of this informal sector."

He said lack of appropriate documentation and weaknesses in the entire process of asset administration have resulted in a weak credit support system in the informal sector.

“Most borrowers in the informal sector either do not have documentation to support their assets or are unable to provide reliable documentation to support their business transactions," he said.

“This makes it difficult for them to qualify for support from willing microfinance institutions, and also difficult for the institutions to assess their needs and support them in the way they should.”