Good Money’ Chasing ‘Bad Money’: Implications for MFIs Management and Governance in Ghana – Financial Services

Anecdotal evidence indicates that the latter functional role of the government has contributed to distortions in the microfinance market as a result of the wide differential interest rate charges created by its engagement in retail financing. In addition to Ghana Government’s functional role of retail financing distorting the microfinance market, sustaining this responsibility is currently grappling with operational hurdles such as monitoring and loan recovery. In another instance, while the mandate of the Bank of Ghana transcends any other body in terms of prudential regulations, the social mission of microfinance and MFIs dominance in the informal sector has sparked capacity related challenges for the Bank of Ghana (BoG). Thus for the government to successfully regulate MFIs it should incorporate social monitoring indicators into the periodic reports submitted for assessment. This by no means is daunting and an initial national level benchmarking of social indicators and extra capacity (financial and human) is imperative. Among the attempts to combat this challenge is the institutionalization of mini-central banks (Apex bodies) and reliance on networks (Ghana Microfinance Institutions Network (GHAMFIN)) and or associations (Association of Financial Non-governmental Organization (ASSFIN)). While this initiative is commendable, clear exclusivity of responsibilities of each of the institutions and hierarchical definition of functional roles in the event of overlaps between financial and non-financial issues is lacking in Ghana. Among the obvious reasons for initiating the GHAMP was to deal with the issue of conflicting responsibilities and mandates. However, for reasons including the above mentioned issues and bureaucracies, launching of the GHAMP since 2006 is still expected. read more
The financial sector (and microfinance industry) in Ghana, has made modest strides in the area of financial electronic service delivery and linkages among and between MFIs, other financial institutions and support agencies. Only a couple of years ago, Ghana joined the league of countries pioneering the use of national platforms of electronic service deliveries to expand financial services to remote and deprived segments of the population. The launch of EZWICH in 2008 was intended to create a common platform for both formal and semi-formal financial institutions and to issue a biometric card for users to facilitate both online and offline payment. Also in 2009, Mobile Telecommunication Network initiated mobile phone banking which added to the evolving financial ESDs in Ghana. While the expected benefits of these interventions are overwhelming, issues of security, risk-sharing and consumer education and confidence require careful consideration. However, Ghana can escape these challenges by learning lessons from neighbouring countries such as South Africa, Kenya, Uganda and La Cote d’Ivoire.
Institutional linkages in the microfinance industry that have emerged in recent past in Ghana were between: Barclays Banks and Susu Companies; Rural and Community Banks (RCBs) and Financial Non-governmental Organizations (FNGOs) and between the government and MFIs. The former could not survive because the Susu Companies could not mobilize the retailed funds back to Barclays Bank. The underlying factor was basically high default among clients. Barclays, realizing this abrogated the contract between the bank and the Susu Companies. The latter has predominantly taken the shape of MFIs (RCBs) disbursing funds on behalf of the government. This kind of collaboration is not consistent with the form described above since in most instances MFIs have acted in the capacity of exigent in contrast to collaborators. As agents MFIs do not have the mandate to examine their operational market and package financial products (pricing, determining duration, targeting and establishing other conditions) that will enhance repayment and sustainability. Collaborations between financial institutions have been comparative advantages of each institution. Susu companies are well known for their exquisite client relationship and targeting, hence collaboration between Barclays Bank and susu companies will foster synergies in the area of expanding outreach and mobilizing deposit.