MICROCAPITAL BRIEF: Microfinance Companies in Ghana Allegedly “Reaping Heavily” from Small Businesses via High Interest Rates

Microfinance companies in Ghana reportedly are “reaping heavily” from high interest rates charged to consumers, who are often unaware of the flat-rate interest calculation method used by most microfinance companies that forces borrowers to pay interest on the initial loan amount rather than on their remaining balance. On average, commercial and universal banks charge interest rates between 20 to 25 percent per year, whereas microfinance companies in the country reportedly charge an average of 48 to 78 percent annually. According to a statement attributed to Mr Richard Amaning, the Executive Secretary of the Ghana Association of Microfinance Companies (GAMC), high interest rates are justified because the business conducted by microfinance companies involves high risk as the majority of clients who borrow money never repay the loan.

The majority of financial institutions allegedly do not explain interest payment details to clients, who often overlook the details of the loan’s repayment structure. Officials urge clients to demand details of their loan repayment when applying for a loan. Kofi Kapita, leader of the Consumer Protection Agency in Ghana, reportedly stated that he plans to investigate the issue and penalize those who are profiting and taking advantage of Ghanaians. The Bank of Ghana (BOG), the nation’s central bank, is concerned about the surge of microfinance companies in the country and the number of microfinance companies operating without a license or refusing to comply with sector rules and regulations.

Seventy-nine microfinance institutions (MFIs) in Ghana report data from 2012 to the US-based nonprofit Microfinance Information Exchange (MIX).

By Adrija Vaiciulionis, Research Associate

About Ghana Association of Microfinance Companies (GAMC):
Ghana Association of Microfinance Companies (GAMC) is an association of 560 member companies providing microfinance services in Ghana. Member companies offer both lending and deposit products to their clients. It is limited by guarantee and was registered in Ghana on the 20th of May, 2011. As of December 31, 2012, GAMC had approximately GHS 279,000 (USD 131,000) in assets and a loan portfolio of GHS 850 million (USD 400 million).

About Bank of Ghana (BOG):
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:

GhanaWeb Article, “Microfinance Companies Reaping Heavily from Small Businesses,”
http://www.ghanaweb.com/GhanaHomePage/NewsArchive/artikel.php?ID=284888

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

MicroCapital Article, July 26, 2013, “MICROCAPITAL BRIEF: Bank of Ghana (BOG) to Raise Minimum Capital Requirement for Microfinance Institutions (MFIs) to $240k,”
https://www.microcapital.org/microcapital-brief-bank-of-ghana-bog-to-raise-minimum-capital-requirements-for-microfinance-institutions-mfis-to-240k/

MicroCapital Universe Profile: Ghana Association of Microfinance Companies (GAMC)
https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Ghana+Association+of+Microfinance+Companies+%28GAMC%29

MicroCapital Universe Profile: Bank of Ghana (BOG)
https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Bank+of+Ghana+%28BOG%29

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