Clients lose money after collapse of 30 microfinance institutions

More than 30 microfinance institutions in the country collapsed in the first quarter of this year as a result of their inability to sustain their operations.

Customers with huge deposits with those institutions could not get a refund, as the owners could not be traced, or where they were traced, they failed to raise the requisite funds to pay the customers.

The issue of some microfinance companies being established with the sole purpose of duping unsuspecting members of the public took centre stage at the second annual general meeting (AGM) of the Ghana Association of Microfinance Companies (GAMC) in Accra last Friday.

It was on the theme, “Microfinance as a tool for national development: The role, the challenges and way forward for second tier microfinance institutions”.

The Executive Secretary of the GAMC, Mr Richard Amaning, who outlined the frustrations some microfinance organisations encountered, said it had become increasingly difficult to recover loans and added that the more the institutions folded up, the higher the unemployment rate in the country escalated.

The GAMC is an association of companies providing microfinance services under tier two of the Bank of Ghana’s categorisation.

Its establishment was occasioned by the emergence of the microfinance regulation and the need to create an apex body to bring microfinance companies together  to be able to effectively monitor their operations. It is also to assist members to comply with the new regulation framework of the Bank of Ghana.

There are more than 560 members across the 10 regions who offer both lending and deposit products to their clients.

For Mr Amaning, there were still millions of poor Ghanaians who were yet to have access to financial services, although they needed those services urgently.

“This segment does not get access to the formal financial institutions, especially the banks, which come with a long list of requirements,” he explained.

GAMC’s financial portfolio

Mr Amaning stated that the GAMC was planning to provide an outreach capacity support for member companies and implement stringent consumer protection principles to protect clients of member companies.

The GAMC currently has GH¢480 million, with a loan portfolio of GH¢850 million.

As of December 31, 2012, it had GH¢278,526 in current assets and GH¢5,868 in current liabilities.

As of the end of the year under review, its balance stood at GH¢293,776.

In his message to member companies, the National Board Chairman of the GAMC, Mr Collins Amponsah-Mensah, expressed gratification for the association’s ability to facilitate the submission of 198 applications on behalf of its members.

Giving details, he said 77 institutions had received their final licences; 134 were issued with provisional licences, with the applications of a couple of others currently being reviewed.

He expressed concern over the high interest rate charges, saying they did not augur well for the industry.

Mr Amponsah-Mensah implored the government to consider microfinance institutions in the remittances regulations policy to enable Ghanaians in the hinterlands to have access to finance.

Minister pledges support

The minister of state in charge of Private Sector and Public-Private Partnerships, Mr Rashid Pelpuo, who was the special guest of honour, noted that microfinance institutions were the forerunners in redefining the private sector in Ghana.

He pledged the government’s support to the GAMC as he asked its leadership to partner the government in the smooth run of the institutions for the betterment of Ghanaians.

He identified inadequate retail capacity and high transaction costs as some of the challenges facing the microfinance industry.

Lending his support to the GAMC as the keynote speaker at the function, the minister of state in charge of Allied and Financial Institutions, Mr Fiifi Kwetey, lauded the idea of the establishment of a body to oversee the operations of microfinance companies.

He underscored the need for the institutions to sustain themselves in the business, in view of the rate of collapse of microfinance institutions.

Mr Kwetey advised industry players against concentrating on the sole purpose of making ‘quick profits’ at the expense of their clients and rather focus on spreading their volumes to achieve a win-win situation.

By Sebastian Syme/Daily Graphic/Ghana

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