Microfinance in Ghana has come under much heat due to the operations of some microfinance institutions and their inability to pay investors and other depositors. Several discussions have gone on. While we look at who to blame for the DKM issue let us not take our eyes off the solution needed to practically improve the regulatory environment of the microfinance sector in Ghana. These are my 5 points for consideration in order to review and strengthen microfinance regulation in Ghana:
1. Blame should be shared by clients, DKM(owners of MFI),microfinance networks and BOG. Majority of DKM’s investment clients went for higher risk higher returns. They saw an opportunity. DKM over traded and BOG did not capture the danger signs early enough.We need early warning signs to identify near distressed MFIs.
2. Microfinance regulations are very expensive and it is estimated to be 6 times the cost of regulating traditional banks. A cost effective model must be developed to achieve value for money regulation. We must begin to think of technology assisted app to provide real time MFIs assessment?
3. The regulatory environment for MFIs should be divided into 5 regions instead of keeping the traditional 10 regions.This will make regulation easier compared to having the Central Bank concentrate on 10 regions all from the headquarters.
4. Microfinance technically oriented consultancies should be contracted and assigned to each of the 5 regions to implement the supervisory roles of BOG and report by using agreed templates to the BOG microfinance unit for a thorough review. Officers from BOG can undertake on site review to validate sampled MFI reports received from the supervision consultants.
5. The BOG must declare the next 3 to 5 years of regulation as a project phase to capture and document practical lessons for adoption as the green book for microfinance regulations in Ghana.
The truth is that no one can wish microfinance Companies out of the financial space in Ghana. What we need is to find best ways to make them effective.
Author: Roderick Ayeh
Co Founder at Quente Africa