The Bank of Ghana (BoG) has said microfinance institutions do not keep liquidity reserves with the Central Bank, but they rather keep them with their respective clearing universal banks.
There is a general notion that the minimum paid-up capital of microfinance companies are deposited with the BoG, and therefore it must come to the aid of customers should a microfinance institution default in paying back customers’ deposits.
Addressing a news conference on recent developments in the sector, which has led to the revocation of the provisional licenses of 70 microfinance companies, the first Deputy Governor of the BoG, Mr Millison Narh, stated categorically that it was only universal banks that kept liquidity reserves with the BoG.
“Let me emphasise that the capital of microfinance institutions is the money that they use to start their businesses, meet initial recurrent expenditure, and such monies are not deposited with the Bank of Ghana as is being speculated by some unscrupulous institutions that are out there to deceive the clients,” he said.
“With the exception of the universal banks that are mandated to maintain liquidity requirements for clearing and liquidity purposes with the Central Bank, no other institution under our regulation keeps any money with us. Microfinance institutions are also mandated to maintain liquidity reserves with their clearing banks.”
The microfinance sector in Ghana, though immensely helpful, has been faced with a number of challenges, and in most cases, customers mount pressure on the BoG, who is the regulator, to recover their deposits.
‘Approval in Principle’ not licence
Mr Narh also explained that the “approval in principle” letters handed to companies who wanted to operate in the sector did not allow them to operate.
“Granting of an approval in principle is not a licence to operate. It is a letter issued to the applicant to fulfil certain conditions to enable BoG to issue licence to operate. The 70 listed microfinance institutions failed to comply with the above requirements, hence the revocation,” he said.
He also explained that was a public misconception that the licence of the affected microfinance institutions have been revoked, stressing that those institutions had not been issued with a final approval and a licence to operate according to banking regulations.
“All the affected institutions had approval in principle that had expired and did not respond to letters written to them by BoG, the various associations and BoG notices,” he said.
The BoG, he said, was in the process of reviewing the entire process of licensing new microfinance institutions.
Although the Central Bank would not put a freeze on the issuance of new licences, the criteria and processes, it said, would be more stringent to sanitise the sector and ultimately protect customers.
“The BoG will also intensify its intelligence network; all regional offices of the BoG are being resourced with staff to improve surveillance of the microfinance landscape,” he said.
He also added that there would be improved collaboration with law enforcement agencies to deal swiftly with illegal financial services providers.
Currently, there are 546 Microfinance Institutions (MFIs) comprising 468 microfinance companies, 67 money lending companies and 11 financial non-governmental organisations (NGOs), while 92 institutions are awaiting the fulfilment of final approval requirement.
Source: Graphic