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

Good Money’ Chasing ‘Bad Money’: Implications for MFIs Management and Governance in Ghana - OverviewThe issue of governance (internal and external) and management relationship with regards to loan application and disbursement has not been given much attention in the literature of microfinance in Ghana. The board has the responsibility to approve certain threshold of loan amount at board meetings. Unfortunately, the situation where a board member may solely influence or ‘fast track’ a client’s loan application is common in Ghana. In the same way a situation where management personnel may also influence the credit to recommend a client’s loan for approval is also not uncommon. Any of these two situations can generate bad loans at the cost of the institution. This is what the paper attempts to explore and proposes measures of dealing with them. In this regard, the main question that the paper addresses is that in the face of increasing default among MFI clients and using good money to chase bad money, what are the implications for managers and those who govern (the board) MFIs in Ghana? Is it worthwhile to use ‘ good money’ to chase ‘ bad money’? The rest of the paper is organized as follows: the next section takes a look at the management and governance issues in the Ghanaian microfinance sub-sector. Section three reviews some literature related to the current study; section four discusses the study methodology and data; section five presents results of the study and section six concludes.
On the basis of different levels of regulation and licensing, five main types of MFIs can be identified in Ghana. These institutions have been classified into formal, semi-formal and informal. Table 1 is skewed to the bottom suggesting that the microfinance industry is predominantly in the informal sector. The last category ‘susu’ is made up of either individual collectors or companies. The presence of individual collectors makes it difficult to track the actual number of ‘susu’ operators in the sub-sector. However based on the average number operating at a particular point in time researchers are of the view that about 1000 individuals and companies have been operating since 2000 but with a slight increase in the number of companies in 2009. Table 1 shows that the number of credit unions increased by almost 15 times between the 2006 and 2009. Among the number of reasons attributed to the increase in the number are under reporting in previous years and reorientation of the unions mandate and engagement in microfinance activities. While these reasons are unfounded, the geographical spread of credit unions as a result of its mode of evolution adds to its increasing relative advantage over the other categories.
The external environment of microfinance in Ghana is shrouded with several stakeholders including government agencies, regulatory and supervisory bodies, networks, associations, development partners and researchers. The complexity heightens given the undefined functional role of each of the stakeholders. This inevitably has led to functional role overlaps, market fragmentation and distortions and increasing cost of interventions. For instance, momentarily, the role of the Government of Ghana in microfinance can be identified from two perspectives; providing an enabling environment such as the commissioning of the Ghana Microfinance Policy (GHAMP) document through the Ministry of Finance and Economic Planning (MoFEP) and engaging in direct finance activities based on the mandate of the Microfinance and Small Loans Centre (MASLOC). Reading here

Table-1: Number and Trend of MFI Categories in Ghana

Type of Microfinance Institution 2000 2006 2008/2009
Rural and Community Banks 115 121 131
Savings and Loans Companies 8 12 17
Not-for-Profit NGOs 225 273 350
Credit Unions 8 29 409
‘Susu’ 1000 1000 1259