MICROCAPITAL BRIEF: Majority of Ghanaian Microfinance Institutions (MFIs) Allegedly Lack Operating Licenses, Bank of Ghana to Increase Surveillance

Ghanaian Radio XYZ Online, an online news publication, reportedly has discovered from an undisclosed source that of approximately 550 operating microfinance institutions (MFIs) in Ghana, only an estimated 200 are licensed. As a consequence, the Bank of Ghana (BOG), the country’s central bank, allegedly is increasing its surveillance of the unlicensed MFIs in the face of growing “liquidity challenges” recently faced by MFIs, including a lack of lending capacity and over-reliance on public funds for their financial services [1].

One explanation for the lack of licensing is the alleged inability of BOG to efficiently regulate the high number of MFIs in the country. Another reported explanation is that many institutions do not have the capacity to meet BOG requirements to provide banking services legally and therefore never apply for licensing in an effort to circumvent the system [1]. According to the licensing procedures established by BOG, it is illegal to engage in credit-granting and deposit-taking activities without prior approval. MFIs operating without licensing are subject to closure [2].

In August 2013, MicroCapital reported that 30 MFIs closed in Ghana in 2013 due to the inability of the institutions to sustain their operations effectively [3]. This incident was preceded by a regulation increase of MFIs by BOG.

As of year-end 2012, BOG has total assets of GHS 31.5 billion (USD 16.5 billion), return on assets (ROA) of 4.9 percent and return on equity (ROE) of 25.8 percent.

By Anesa Kratovac, Research Associate

About Bank of Ghana

Established in 1957, the Bank of Ghana (BOG) has regulatory and supervisory authority over banking and financial institutions in Ghana, including rural and community banks, savings and loan companies, credit unions and cooperatives. The Bank of Ghana is to conduct annual on-site audits of these institutions; however, nonprofit organizations in Ghana are not regulated by any government agency. As of year-end 2012, BOG has total assets of GHS 31.5 billion (USD 16.5 billion), return on assets (ROA) of 4.9 percent and return on equity (ROE) of 25.8 percent.

Sources and Additional Resources:

[1] GhanaWeb Article, October 19, 2013, “Only 200 microfinance firms have licenses,”http://www.ghanaweb.com/GhanaHomePage/business/artikel.php?ID=289326

[2] Bank of Ghana Notice, April, 2012, “Notice to Banks, Non-Bank Financial Institutions and the General Public,” http://www.bog.gov.gh/privatecontent/Public_Notices/LICENSING_OF_MICROFINANCE_INSTITUTIONS.pdf

[3] MicroCapital Article, August 22, 2013, “Thirty Microfinance Institutions (MFIs) Close in Ghana,”https://www.microcapital.org/microcapital-brief-thirty-microfinance-institutions-mfis-close-in-ghana/

MicroCapital Article, September 29, 2013, “Microfinance Companies in Ghana Allegedly “Reaping Heavily” from Small Businesses via High Interest Rates,” https://www.microcapital.org/microcapital-brief-microfinance-companies-in-ghana-allegedly-reaping-heavily-from-small-businesses-via-high-interest-rates/

MicroCapital Article, September 25, 2013, “Bank of Ghana Increases Liquidity Requirement for Microfinance Financial Institutions,” https://www.microcapital.org/microcapital-brief-bank-of-ghana-increases-liquidity-requirement-for-microfinance-financial-institutions/

MicroCapital Article, August 6, 2013, “Money Lenders Association of Ghana Signs Memorandum of Understanding to Provide Members with Microinsurance Products,”https://www.microcapital.org/microcapital-brief-money-lenders-association-of-ghana-signs-memorandum-of-understanding-to-provide-members-with-microinsurance-products/

MicroCapital Article, July 18, 2013, “Depositors Withdraw Savings from Microfinance Firms in Kumasi, Ghana amid Lack of Safety Nets for Clients,” https://www.microcapital.org/microcapital-brief-depositors-withdraw-savings-from-microfinance-firms-in-kumasi-ghana-amid-lack-of-safety-nets-for-clients/

MicroCapital Article, March 21, 2012, “Bank of Ghana (BOG) Pursues Tighter Regulation, Enforcement of Microfinance Sector,” https://www.microcapital.org/microcapital-brief-bank-of-ghana-bog-pursues-tighter-regulation-enforcement-of-microfinance-sector/

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