INTRODUCTION
The operations of microfinance Institutions (MFIs) in Ghana have recently come under serious public scrutiny.This situation was partly caused by Bank of Ghana’s announcement regarding the 70 microfinance institutions whose   provisional licenses were revoked as well as the closure of DKM and some other microfinance companies.
Prior to these developments some microfinance institutions were in the news regarding their inability to honour their contractual agreements with clients whose investments were due.These and other happenings fueled heated debates and argument regarding the activities of microfinance operators and their operations. In the heat of all these moments, some people have branded microfinance operators or owners as fraudsters. Others think microfinance companies are scams schemes established to dub people. To others, MFIs must not be allowed to operate and must therefore be banned. In one radio discussions, I even heard a radio presenter submitting that all MFIs should be “wiped” away from Ghana. 
Apart from the anger and hatred that the sector has attracted, the regulator or Bank of Ghana has also been blamed for not taking the right steps to curb the problems being experienced by the investors and depositors dealing with the MFIs. Some people are of the view that the Bank of Ghana should entirely be blamed   for the current microfinance challenges.  The blame was further echoed by the President in his state of the nation’s address delivered in parliament.The truth is that, from the legal sense of microfinance regulation the only institution that can be held responsible for happening within the Microfinance sector or the financial sector is the Bank of Ghana. However, for a long term solution to the current challenges there will be the need to look beyond the legal part of regulation to understand the responsibilities of other important actors within the microfinance space. It is important to review the challenges that confronted other economies with regards to microfinance regulation.
This article intends to provide review of microfinance programmes and the way out of the current challenges.

MICROFINANCE REGULATION IN GHANA
The regulation of the Ghana microfinance sector  in Ghana practically started in 2011 after a note of publication was issued in 2010. This happened at a time that many microfinance organizations were already in operations. The regulation was, therefore, to provide a prudent way for the existing as well as new MFIs to undertake their activities. Regulating an already exiting microfinance market especially in the case of Ghana comes with many challenges.
The Regulator (BOG)has a mandate to regulate the microfinance sector in such a way to achieve a balance between what needs to be done for the huge under-banked population as against what can be done by the MFIs in reaching the targeted population. Microfinance regulations must therefore be able to create the needed environment that will encourage the development of innovative methodologies in reaching poor clients while providing a legal framework for MFIs to mobilize savings for the public and as well ensure the protection of depositors and the financial system from unsound practices.

The technical fact is that, regulating microfinance industry cannot be done in the same manner in which traditional banks are regulated. That is not to say that there are no similarities in regulating both sectors. What is however important with regards to regulating microfinance is that a rush to regulate is likely to be counterproductive as it can constrain innovation and natural maturation in a nascent industry. Christen and Rosenberg indicates that this can happen if regulators impose regulatory burdens or regulators delegate the work of regulation to ill-equipped institutions or bodies to handle.

Considering the complex requirements of Microfinance regulation, constantly reviews regulatory frameworks  to ensure that the regulatory strategy adopted by a country is yielding the right results is very important feature in microfinance regulation. It is only through this that regulation will  ensure that the key objectives of microfinance ; achieving sustainable MFIs, improving impact through innovative products and increasing  outreach to drive financial inclusion are duly achieved.The current microfinance challenge should therefore initiate a thorough review of Ghana’s regulatory approach to help BoG to develop appropriate regulatory environment to promote effective microfinance programmes.

CHALLENGES WITH MICROFINANCE REGULATION
Globally, microfinance in general has recorded good and ugly stories. Some critics across the world have questioned the success story of microfinance and just like any enterprise; microfinance has its own challenges. Some of these challenges include credit bubbles, government crack downs and scams. Well no matter how negative people see microfinance, the unique contribution of microfinance to the real targeted clients cannot be eroded by the many  challenges that has characterized the development of growth microfinance.
It is important for Ghana to be guided by historical occurrences’ associated with the microfinance movement. The Microfinance movement between 2008 and 2009 recorded microcredit industries crashed in Bosnia, Morocco, Nicaragua and Pakistan. The causes of the challenges included fast growth, global   recession, debtor revolts and political backlash. Further in 2010,Nigerian’s young microfinance industry also experienced some crisis as a result of the inability of MFIs to honour their financial obligations to their investors and depositors. Same year of 2010, news of suicides were reported in India which led to the government of Andhra Pradesh to enact restrictive laws for MFIs operating in the Province.  In spite of the above noted challenges, current happenings, however, points to a very stable situation in the countries discussed.

The issues surrounding DKM et al,has given microfinance in Ghana some level of bad publicity. This is not however entirely a fair representation of what the Ghanaian microfinance looks like. The microfinance sector can be accredited with some key innovations that have provided opportunity for some low income clients to have access to products and services to improve their livelihoods. A clear example is the taxi ownership schemes that became a key product for most microfinance companies.

There are several reasons why those wishing for the closure of all microfinance companies will not wash. Although Ghana has a well structured financial sector, there is still a large unbanked financial sector that will require specialized financial services that can only be dispensed effectively by microfinance institutions.  The objective of achieving financial inclusion cannot be performed alone by the traditional banks. Although some universal banks have down scaled their operations to target the poor and low income earners, these target markets cannot satisfy the profit appetite of these traditional banks.
 MFIs have the specification and specialization to assist in increasing financial outreach. The challenge at hand should not be the verdict to brand Ghana’s microfinance as a failed one because there are notable and remarkable contributions of Ghana’s microfinance sector that can point to a sector contributing to improving the livelihoods of their targeted clients and their local economy in general. What is needed is a workable approach to solve the problem confronting the sector in the short to long term.

THE WAY FORWARD
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. Improving the regulatory processes can be achieve   if consideration is given to the following 5 points:

1.The microfinance sector must look beyond the central bank alone for effective microfinance regulatory environment. This therefore means other stakeholders and players together with the clients of microfinance must bear part of the blame for the current happenings.  Parties including clients,DKM (owners of MFI), microfinance networks and BOG must take part of the blame. The fact is that majority of DKM’s et al investment clients went for higher risk higher returns. They saw an opportunity but their expectations were not met. Unfortunately, officers of MFIs who must themselves ensure that they effectively manage these investments efficiently rather over traded without recourse to prudential and regulatory requirements. In the case of BOG it is important to acquire or develop systems that can enable the Central Bank to detect danger signs early enough to deal with them.We need early warning signs to identify near distressed MFIs.
2. Regulating microfinance operations is very expensive.It is estimated to be 6 times the cost of regulating traditional banks. A cost and effective model must be developed to achieve value for money regulation. We must begin to think of technology assisted application to provide real time MFIs reporting and 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 their head office.
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 for a thorough review. Officers from BOG can undertake on-site reviews to validate sampled MFI reports received from the ‘supervisory’ 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 a practically oriented manual for microfinance regulations in Ghana.

CONCLUSION
The truth is that no one can wish microfinance Companies out of the financial space in Ghana. What we need is to find the best way to make them effective so they contribute towards financial sector development. It is important for an improved financial litracy education that will enable clients to be well informed about their financial matters. 

Author: Roderick Okoampah Ayeh
Microfinance Consultant
roayeh@gmail.com