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

Are these by-laws adhered to strictly? The answer may be NO. This is because some clients are given the loans before they even apply. Again, a scan through the books of selected credit unions showed that there some loan aged more than two years going contrary to the bye-laws. In another development, some clients take individual loan that is more than even 25% of the institution’s total assets. All these undermine the essence of good governance thus generating bad loans hence bad money. In recent times, in Ghana, anonymous bank managers have had themselves to blame, sacked, imprisoned and sanctioned for condoning and conniving with clients to take loans that should have been approved through the entire board. In some instances too some employees of banks in Ghana have been blacklisted just because they involved themselves in one way or the other in granting loans. read more
Until July, 2011, the microfinance sector did not have any regulatory guidelines even though the Ministry of Finance and Economic Planning (MoFEP) had made strenuous efforts to document Ghana Microfinance Policy (GHAMP) document. Effective 1st August, 2011, the BoG issued regulatory guidelines to be followed by all existing and new MFIs. This is but one of the plethoras of proposals aimed at reducing risks in banking and in taming the excesses that some MFIs and financial service providers have caused over the past decade or two. This has brought the microfinance sector into a new perspective. In the past and before the introduction of the guidelines, some MFIs have folded up not because of mismanagement of funds but also high default rate among clients due to bad loans. The new regulatory guidelines have classified MFIs into four categories namely tier 1, tier 2, tier 3 and tier 4. In Ghana tier 1 MFIs include Rural and Community Banks (RCBs) and Savings and Loans Companies (S&Ls). These institutions are typical formal financial institutions and are governed by the Banking Act 2004. Tier 2 MFIs include Susu companies and other financial service providers, including Financial Non-Governmental Organizations (FNGOs) that are deposit taking and profit making and Credit Unions. However, credit unions are not regulated under this Notice. A Legislative Instrument (LI) under the Non-Bank Financial Institutions (NBFI) Act, 2008 will soon be passed to regulate their activities. Tier 3 activities are those undertaken by money lenders, non-deposit taking Financial NonGovernmental Organizations (FNGOs). Tier 4 institutions consist of Susu collectors whether or not previously registered with the Ghana Cooperative Susu Collectors Association (GCSCA) and individual money lenders. The new bank of Ghana guidelines specify that all tier 2 entities shall require not less than GHS100, 000.00 (One hundred thousand Ghana cedis only) as minimum paid-up capital and all tier 3 entities shall require not less than GHS 60,000.00 (Sixty Thousand Ghana cedis) as minimum paid-up capital. These new guidelines are to ensure that in times of crises institutions will be able to absorb the shock and also have enough funds to carry on their businesses.