Roderick Ayeh

Some critical happenings recorded in the Ghanaian microfinance sector over the past 3 years seem to have slowed down the momentum which was driving the outreach of Ghana’s microfinance sector. Many people in Ghana now have some negative view about microfinance companies. Some of the notable events actually affected the way people perceived microfinance in Ghana. For instance, the news about the inability of some known microfinance companies, clubs, etc., in honouring contractual agreements with their depositors or customers gave microfinance in Ghana a very bad name. The aftermath of these developments is the several ‘blame games” as to whose role was it to prevent such happenings.
Looking at Ghana’s microfinance industry from the point of outreach, sustainability and impact, it is easier to conclude that, microfinance in Ghana is at a crossroad. The sector is at the crossroad of regulations. Policy watchers are still wondering whether to regulate MFIs the same traditional banks are regulated or whether there must be a special vehicle for the purpose of regulating MFIs.

Microfinance as a business entity is well defined per Ghana’s microfinance classification. The sector is clear in terms of what operationally qualifiers an organization as a microfinance institution(MFI). However, the challenge is that there is confusion about what microfinance really stand for especially for most people involved in managing and delivery microfinance programmes. To many people, microfinance is just another financial institutions delivery services to people and not necessary low income or poor clients.

Clearly, Ghana needs an effective regulatory framework to direct the operations of MFIs. Although, there has been some notable developments in the area of microfinance regulation in Ghana, there are still many grey areas that must be made very clear. A critical look at current events will point to the fact that the momentum with which microfinance companies where springing up has drastically slowed down. The slowdown in the development of microfinance operations in Ghana is not because the sector has reached the saturation stage as per microfinance market development theories. The evidence on the ground shows clearly that, we are still at the market development stage and not anywhere near the saturation stage.
So technically we must see more activities within the microfinance sector. However, this is not the case. The main reason for the slowdown in the establishing of new MFIs can be attributed to the effect of regulation barriers which have been strengthened. Actually, regulation is controlling the entrance of new players. So it is not easy for new MFIs to go past the current entry barriers. Apart from regulation, trust has also become a barrier confronting the sector. Many people are skeptical of our MFIs and their owners. Clients and potential clients see MFIs as quick source for their loan needs. However, many people with excess cash looking for financial institutions to safely invest this cash, will first look past a MFI. This has resulted in the difficulties of MFIs in raising investments from the public.
Ghana’s microfinance industry must be redefined. The redefinition should encompass the entire regulatory structure at the national level. Once the right approach to regulation is achieved, then technically, the way microfinance is organized and practiced in Ghana will automatically be defined. The critical reformations that should be looked at in the microfinance sector should be addressed in the following light:

Establishment of one microfinance Apex Body.
The current multiplication of Apex Bodies for microfinance institutions must be reviewed. There are so many microfinance apex bodies undertaken the same or similar activities. Examples of apex bodies within the microfinance sector are: Ghana Co-operative Credit Unions Association (GCCUA), Ghana Co-Operative Susu Collectors’ Association (GCSCA), Association Of Financial NGOS, Ghana Cooperative Council (GCC), Ghana Microfinance Institution Network (GHAMFIN), ARB Apex Bank and

Money Lenders Association of Ghana.
In the case of the ARB Apex Bank, it was set up to directly provide banking and other support services to rural and Community banks. Rural banks were created to address rural financial intermediation challenges within the Ghanaian economy. Apart from the Apex Bank which has the mandate over rural banks, most of the other Apex bodies have microfinance institutions in tier 2, 3 and 4. These tiers of MFIs are almost the same in terms of their operations. Per Ghana’s microfinance regulatory definition, microfinance companies can be categorized into deposit or non-deposit taken institutions. So the critical factor beyond the nature of type of ownership which separates microfinance institutions in tiers 2 to 4 is whether they take or do not take deposits. This therefore implies that, by nature and operations, all these tiers of MFIs have the same targets; that is poor and low income clients. The other common feature is that these companies do not also have location limitations as compared with rural banks. In summary, MFIs in tiers 2,3 and 4 are typical microfinance institutions with similar operational modalities.

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Creating several Apex Bodies, therefore, implies that the microfinance space will indirectly be controlled by different bodies who are actually seeking to achieve the same thing on the market. In terms of financial management, it is more expensive for the economy to run different Apex bodies compared with having one stronger Apex body that will serve as a one stop Apex body for all tiers 2-4 Microfinance companies. The advantages of having a unified Apex microfinance body is that, it will reduce, if not avoid the multiplication of programs targeting the same industry. It will also provide economy of scale advantage which can be leveraged upon by the Apex bodies for better output. A unified Apex body will create the needed environment for all its members to support their growth instead of each apex body looking just at the progress of their members. It will also provide a faster possibility of the nation strengthening its microfinance operations because there will not be a case of a weaker apex bodies lagging in the effort to improve the overall performance of microfinance actors in Ghana.

The efforts of the Apexes currently operating in Ghana must be consolidated. In this design, all the other tiers can be established as departments within the larger Microfinance Apex Body.
The sector must quickly find ways around this so as to reduce the possibility of the stronger apex bodies developing a ‘superiority complex” over the other apexes which will not help create the outcome needed. There is a need for one stronger voice to quickly stir up public confidence to revive microfinance operations.

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Review the operational function of MASLOC.
The launch of the Microfinance and Small Loans Centre (MASLOC) was a brilliant concept. One of the key objective for the establishment of MASLOC was for the institution to serve as an Apex Body to coordinate Government microfinance activities. MASLOC was also established to provide funds for on-lending through microfinance companies and the rural banks. Currently, MASLOC has involved itself with dispensing services and products directly to clients. It operates as a ‘MFI’ and not as an institution seeking to promote and strengthen the sector through policy directives.

The fact is that, MASLOC can be used in a better way than it is currently being used for. The retail microfinance being undertaken by MASLOC should be looked at again. This creates a huge limitation as compared to what can be achieved if MASLOC is made to operates more in the area of coordinating government microfinance activities and providing funding for on-lending through the microfinance institutions.

The on-lending mandate of MASLOC can be quasi-commercial with funds priced in a way to make it a sustainable institution. MASLOC can be used to effectively coordinate the microfinance related programs of government. It can provide a better way of accounting for all government investment made towards microfinance in any government ministry. One important gain when Masloc is effective is that, it will reduce, if not eliminate the duplication of microfinance programs and provide a better utilization option for government funds.
The direct involvement of MASLOC in the delivery of loans is what has led to the perception by most clients that, MASLOC loans are political loans. This notion has affected the repayment of the loans granted by MASLOC.

MASLOC can be used as a tool to support the operations of microfinance companies so that they can have the financial means to serve the many low income earners in a more sustainable way.

Conclusion
Regulating microfinance does not come easy. Regulation must be able control the way microfinance is done but must also propel the growth of microfinance. The sector must be structured from the Apexes in a way to ensure that we have a consolidate front to drive the impact that is expected from employing effective microfinance methodologies.
The good thing about the case of Ghana is that, successive Governments have demonstrated their support for the microfinance industry. What has been the challenge is that, most approaches or drivers used for microfinance programs are mixed with political objectives which have weaken the gains expected from government microfinance programs. Ghana must go over the current challenges facing microfinance so that microfinance can stand for what it must stand for in the area of addressing poverty and making more poor people economically active.

RODERICK OKOAMPAH AYEH
INDEPENDENT MICROFINANCE CONSULTANT
roayeh@gmail.com

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