The Ghanaian microfinance sector has had its fair share of challenges in recent times- challenges that seem to have lacerated its existing wounds and has hence, unfortunately, incited some loss of faith and confidence in the sector. It must however be noted that these challenges are not peculiar to Ghana alone since Microfinance Institutions (MFIs) in most parts of the globe have equally not been spared of these woes. For instance, due to harsh treatment and harassment from MFIs staff and officials to loan defaulters, the South-eastern province of Andhra Pradesh in India had lost about fourteen thousand of its inhabitants to suicide cases by the first 9 months of 2010. The state authorities’ strict measures that was formulated to respond to the crisis rather ended up leading over thirty MFIs to bankruptcy. That same year in Nigeria, the nascent microfinance industry also came crushing down due to the inability of most of the MFIs to honour the liquidity demands of their investors and clients. Another unfortunate example is the scandalous interest rate of 195% that was charged by Banco Compartamos of Mexico.
Thankfully, there are a few documented experiences of some MFI programmes through which much lessons can be learnt. Dhaka’s SafeSave, Indonesia’s BKD, and Bangladesh’s ASA are good examples of MFIs that crafted programmes which made it possible to approach financial sustainability without necessarily landing themselves into the mud.
Whilst most jurisdictions, especially the more advanced economies, have already had their experiences (and continues to have them) of these troubling times and have learnt their lessons, Ghana, on the other hand, rather seem to be now entering this difficult phase of the business. The recent ignominious scandal that involved the DKM Diamond Microfinance Company, God is Love, and Jastar Motors made the challenges more pronounced. For instance, about fifty persons were said to have committed suicide in the Brong Ahafo region after several months of failed efforts to get back their investments. In a very recent scam that appeared to be a clear case of a Ponzi scheme, a number of aggrieved investors hit the streets of the Ho capital of the Volta region to demonstrate against and demand their lost monies from the Little Drop Investment Club, JODEQ, Clear Image Investments Ltd., Devine Rain, and Royal Foundation among others. Prior to these unfortunate incidents was also a revocation of the licenses of seventy microfinance companies.
These recent scandals seem to have dragged the Ghanaian microfinance industry into a moral turpitude, and the repercussion of these is a seemingly complete loss of faith and confidence in the sector. In order to get myself well informed on the reality of latest happenings on the ground, I joined a group of mobile bankers to market some microfinance products to members of a certain community, and I dare say the response was pitiful and discouraging to say the least. In their frustrations as they appeared utterly bereft of hope, a number of the prospective customers vehemently lamented their ordeals and how they have been swindled by some MFIs. In the eyes of many of them, microfinance operators were nothing but a bunch of fraudsters. Some even held extreme opinions such as a complete ban on the activities and operations of microfinance institutions in Ghana. But is it indeed all lost? Is there any hope for microfinance in Ghana?
Having consulted for a few MFIs and as a practitioner of development finance, I would not hesitate to provide an answer in the affirmative if the right measures are not put in place. Ghana as a country has about 70% of its population being unbanked. Despite the proliferation of financial institutions and an enviable growth in the number of commercial and universal banks within the country, there still remains a huge chunk of individuals who cannot qualify or meet the requirements to participate in the mainstream banking sector. These are the category of individuals for whom the microfinance concept was designed. And so for it to make its expected positive strides there would therefore be the need to revisit the basics by paying attention to its core mandate. At this juncture, I feel obliged to shed some light into the genesis of the concept. Microfinance simply has to do with the extension of financial services such as microcredit, micro savings, money transfer, and other financial products to poor or low-income and unsalaried individuals or micro enterprises who, but for such services, would have been excluded from the formal banking system. The modern concept of microfinance actually came to the realization of the global community when Dr. Muhammed Yunus of Jobra (a small village close to Chittagong in Bangladesh), in 1983, converted his lending institution into what is known in Bangladesh today as the Grameen Bank. This was an institution he had started by giving out some very small amount of money ($27) in the form of loans to some group of forty-two (42) Bangladeshi female basket weavers, but decided to continue after realizing how helpful and profitable it was. His main objective was to give people who are generally excluded from the conventional financial system a chance to escape from poverty. Unfortunately, managers and operators of today’s MFIs, particularly in Ghana, have completely ignored the ‘helpful’ side of the business and taken to profiteering directions. Hugh Sinclair, a microfinance consultant, wrote in his book that “the sector is more and more characterized by dramatic levels of greed, mercantilism, deceit and causing chaos on the stock market of Wall Street.”
The challenges and difficulties of the microfinance industry are quite numerous and daunting, and in an attempt to proffer solutions, a number of literature have been provoked. Rather unfortunately, most of these solutions have not been able to yield the results expected due to the generality of their tones. The fact is that, for reasons of differences in levels of economic development, capacity of human capital, regulation, age of the industry, etc., generalized studies on the difficulties of the industry may not satisfactorily address country-specific challenges. Every country has its unique and peculiar challenges and so will require specific well-thought out tailor-made solutions. For the lack of space and also to avoid an unnecessarily long write-up, I will only spell out here what I have observed in my few years of practice as Ghana’s peculiar difficulties, and which has also been agreed by many a practitioner. These challenges in my observation are largely three-and I believe conscious efforts at tackling these problems will certainly bring in some level of liberation and set the concept on its intended trajectory. Concrete and very workable solutions to these challenges will follow soon in my next article.
The biggest challenge to the conduct of microfinance the world over, and in Ghana particular, is what I term as a perversion of the concepts core objective(s). As explained earlier, microfinance’s primary objective is poverty alleviation with particular focus on the poor or low-income earners and the unbanked. Sadly, the focus has been redirected to the already rich and more affluent. Instead of giving out microcredit to help establish, sustain and grow microenterprises, operators and managers of the business have greedily diverted their attention to big fish investments. Capital investments into infrastructure, international trade and automobiles seem to whet their appetite than any other. In the 3rd Annual Women’s World Banking Advanced Leadership Conference organized by the Women’s World Banking and Wharton Executive Education, Paul Arias Guevara, CEO and General Manager of Credife, a microcredit programme of Banco del Pichincha in Ecuador commented “My personal thought is that when they say microfinance hasn’t helped poverty much…we are not responsible for lifting people out of poverty. When you give somebody credit…but they don’t have water, infrastructure or education, I’m sure that all our efforts [can] help, but not help enough.” Like Paul, this has been the justification of most Ghanaian MFI managers for the kind of huge investments they do. In as much as I do not entirely disagree with this opinion, I strongly believe that there should be a conscious effort to return to the basics and the real objective(s) of microfinance. Otherwise, the microfinance concept will gradually drive the country into a deep ditch of the very problem it is supposed to solve.
Author: Lartey Stephen Sarpong
Microfinance Consultant/Development Finance Practitioner
stevlat@yahoo.com
