Here is how much the Bank of Ghana needs to clean up the microfinance industry

The Governor of the Bank of Ghana (BoG) Dr Ernest Addison has said that the Central Bank will need about GHC700 million to sanitise the microfinance and savings and loans industry.

Governor of the Bank of Ghana, Dr Ernest Addison

He said at a press conference that the BoG has requested for support from the Finance Ministry in order to save thousands of depositors from losing their funds.

“We have done an initial assessment and the estimates we have done are not expected to be significantly higher than the GH¢700 million.”

In 2018, Dr Addison indicated that he inherited a weak financial system which he was hopeful to correct by the end of the year.

Currently, the banking sector is classified as solid and very strong after some reforms instituted by the central bank.

“In terms of significance, the deposits in distressed MFIs form 8.81 percent and 52.49 percent of total deposits of the RCBs and the MFIs, respectively,” he said.

Dr Addison said that out of the 566 licensed MFIs in 2018, “211 are active but distressed or folded up”.

“Also, out of the 141 RCBs, 37 are active but distressed or folded up.

In total, it is estimated that 272 out of the 707 institutions in the sub-sector, representing 38.5 percent, are at risk.

“This indicates that approximately GH¢740.5 million is owed to an estimated 705,396 depositors of the distressed or folded up MFIs and RCBs,” he added.

About 705,396 depositors of distressed or collapsed microfinance companies and rural and community banks (RCBs) risk losing a total of GH¢740.5 million if their financial resources are not shored up swiftly.

The GH¢740.5 million is currently the total locked up cash in the 272 rural and community banks and microfinance companies which were either in distress or had folded up as of last year.

Dr Addison said they did not have to wait any further to address these issues, adding that the cost of the clean-up was estimated at GH¢700 million, which the government was ready to make available from the second quarter of this year to begin the clean-up of the sector.

After the BoG cleansed the banking sector, they stated that the next body they will be looking at is the non-bank financial institutions (NBFIs), which have been an albatross on the neck of the regulatory authorities.

But Dr Addison was certain that the clean-up of the sector would happen in the second quarter of this year.

Meanwhile, Parliament has also ratified a $30-million World Bank credit facility agreement to implement the Financial Sector Development Programme (FSDP) aimed at improving the regulation of the MFI and rural banking sectors and making them more accessible to the banking public at the grass-roots level.

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