The Bank of Ghana needs to sit up and improve its supervision of the microfinance sector, wherein fraud has led to many depositors losing their life savings, President John Dramani Mahama has said.
A host of microfinance institutions, notably in the Brong Ahafo Region, went bust and caused depositors to lose their funds.
Notable among the companies are DKM Diamond Microfinance and God is Love Fun Club, who together with other MFIs were unable to account for over GH¢200million of customers’ deposits lodged with them.
In his State of the Nation address to Parliament yesterday, the President said the central bank — which is regulator of the microfinance sector — failed to effectively supervise activities of some of the companies.
Since amendment of the Non-Bank Financial Institutions (NBFI) Act 738, which regularised the operations of microfinance institutions, there has been a proliferation of MFIs — over 500 have been licenced, posing a challenge to the central bank by way of supervision.
The President told Parliament that: “These microfinance companies come under the direct supervision of the Bank of Ghana. Unfortunately, lack of effective supervision on the part of the central bank has resulted in many cases in which microfinance companies licenced by the Bank have breached the rules of procedure they were supposed to follow, and have created supposed pyramid schemes that eventually came crashing down”.
Finance Minister Seth Terkper, who appeared before parliament earlier in the week, said DKM alone diverted GH¢77million of depositors’ funds into subsidiary business of the company’s managers.
President Mahama said through the ill-supervision of the central bank, “many depositors have lost their life savings and livelihoods.
“Government has a concern for the poor unsuspecting Ghanaian clients who deserved to be protected by a more robust inspection and supervisory regime from the central bank.”
To ensure further protection for depositors, he mentioned that the much-touted Deposits Insurance Scheme will soon be presented to Parliament for passage into law.
The Scheme, he said, will “permanently sanitise and restore credibility to the Microfinance industry and strengthen the Bank of Ghana’s supervision.
Hope for victims
The president meanwhile noted that liquidation proceedings started by the central bank should help those who lost their monies to get them back.
“I am aware that the BoG has commence liquidation proceedings in respect to DKM. And I believe that this process should be part of a comprehensive package that looks at protecting the livelihood of especially small depositors without rewarding the reckless conduct of the microfinance company. The object of this exercise should be to look at reimbursing legitimate customers their original deposit amount — not the Alice in Wonderland profits that they hoped to acquire” he said.
He maintained that the initiative should be conceived in the context of a broader solution that will “permanently sanitise and restore credibility in the microfinance industry, and strengthen the Bank of Ghana supervision”.
While empathising with the numerous customers who were fleeced, the president tasked the Bank of Ghana to intensify its “liquidation proceedings against DKM” in particular, to “reimburse legitimate customers with their original deposit amount”.
Parliament has, in unison, called for a ‘bail-out’ of the DKM scam-victims, and has also requested that officials from the Bank of Ghana be summoned before the House to explain issues.
The Bank of Ghana recently liquidated the assets of DKM microfinance after it failed to give its customers the returns it promised them.
Hundreds of Ghanaians are reported to have been affected by the actions of DKM, with the majority of them losing their life savings and assets because of the development.
“DKM, with the super high interest of between 50% and 55% promised to depositors is believed to have caused a loss to its clients to the tune of 77 million Ghana cedis. Mr. Speaker many depositors have lost their life savings and their livelihoods,” Mahama lamented.
The President called on Parliament to “fast-track the Ghana Deposit Protection bill, which will protect the small depositors in funds like this”.
The Ghana Deposit Protection bill 2015, according to the Finance Minister, will provide protection for the small depositors from the loss incurred as the result of an insured event occurring; and will support the development of a safe, sound, efficient and stable market-based financial system in Ghana.
Source: B&FT Online