Role Of Micro Finance Institutions
The role of microfinance institutions in building the Ghanaian financial sector and the socio-economic development of the country cannot be overemphasised. In recent years, the Ghanaian economy has witnessed the establishment of several microfinance institutions. Financial analysts believe the introduction of microfinance companies is timely to fill the lending void created in the financial sector. They posit that the presence of microfinance institutions allows individuals, small and medium scale enterprises,SMEs to access loans for sustainable growth. Microfinance services are valuable in a free market economy such as Ghana. Per their incorporation, microfinance institutions acquire provisional licence required for their operations from the Bank of Ghana and subsequently issued with the substantive licence to fully authorise their operations in the country.
Further, effective and efficient microfinance institutions are required to be active members of the Ghana Association of Microfinance Companies. In recent times, the activities of some microfinance institutions such as DKM and God Is Love, to mention, a few have raised concerns and doubts among a section of Ghanaians and financial analysts about the ability of the non-bank sector of the financial industry to effectively complement the efforts of the main-stream banking sector.
As at July 2016, the non-bank financial sector had about 385 microfinance companies, 60 money lending institutions and 10 financial non-governmental organisations, NGOs in good standing with the Bank of Ghana, the Regulator. The existence of these microfinance companies in the books of the Central Bank affirms their adherence to existing rules and regulations governing the financial industry; and their readiness to make significant strides in the capital market. The underlining mandate of the microfinance institution is to contribute to Ghana’s socio-economic development by becoming a significant vehicle for mobilising, channelling and allocating funds to the banked and unbanked. They are to provide quality but affordable financial services including deposits, loans and investments. To achieve this objective, microfinance companies are committed to motivating their staff; adhering strictly to banking rules and regulations; becoming socially responsible; and ensuring higher returns on investment to meet the expectations of stakeholders. The investment option at most microfinance institutions is fixed deposits. The Revenue mobilisation drive of most microfinance companies is quite encouraging.
However, as characteristic of nascent companies, the average total expenses of most of them are high, relative to their average total revenue; and this translates into an average total loss. The dwindling financial fortunes of many microfinance institutions is comprehensible given that, most of them are still at the development stage of the company life cycle. Board, management and staff of microfinance institutions are expected to exude strong financial intellectualism; and demonstrate effective ideas in microfinance and banking in general to ensure their rapid transformation from microfinance to savings and loans; and eventually to a full-fledge bank.
Key stakeholders in the financial market are entreated to play active roles by providing the requisite intellectual and financial resources needed by microfinance institutions to effectively occupy their enviable position in the financial industry.
Bank of Ghana and the Ghana Association of Microfinance Companies must intensify education on the activities of microfinance companies to the general public using the media. It is imperative for the BoG and GAMC to use local and community radio stations across the country to outline the mandate of microfinance institutions within the financial regulatory framework; and to constantly announce microfinance institutions in good standing to the general public. Through such initiatives, individuals, businesses and investors would begin to regain confidence in microfinance companies and their operations to create room for expansion and employment opportunities. They must strive to be creative, innovative and adopt productive ideas for an accelerated growth.
BY DR.EBENEZER ASHLEY, FELLOW & COUNCIL MEMBER INSTITUTE OF CERTIFIED ECONOMISTS OF GHANA AND CEO OF EBEN CONSULTANCY.
Further, effective and efficient microfinance institutions are required to be active members of the Ghana Association of Microfinance Companies. In recent times, the activities of some microfinance institutions such as DKM and God Is Love, to mention, a few have raised concerns and doubts among a section of Ghanaians and financial analysts about the ability of the non-bank sector of the financial industry to effectively complement the efforts of the main-stream banking sector.
As at July 2016, the non-bank financial sector had about 385 microfinance companies, 60 money lending institutions and 10 financial non-governmental organisations, NGOs in good standing with the Bank of Ghana, the Regulator. The existence of these microfinance companies in the books of the Central Bank affirms their adherence to existing rules and regulations governing the financial industry; and their readiness to make significant strides in the capital market. The underlining mandate of the microfinance institution is to contribute to Ghana’s socio-economic development by becoming a significant vehicle for mobilising, channelling and allocating funds to the banked and unbanked. They are to provide quality but affordable financial services including deposits, loans and investments. To achieve this objective, microfinance companies are committed to motivating their staff; adhering strictly to banking rules and regulations; becoming socially responsible; and ensuring higher returns on investment to meet the expectations of stakeholders. The investment option at most microfinance institutions is fixed deposits. The Revenue mobilisation drive of most microfinance companies is quite encouraging.
However, as characteristic of nascent companies, the average total expenses of most of them are high, relative to their average total revenue; and this translates into an average total loss. The dwindling financial fortunes of many microfinance institutions is comprehensible given that, most of them are still at the development stage of the company life cycle. Board, management and staff of microfinance institutions are expected to exude strong financial intellectualism; and demonstrate effective ideas in microfinance and banking in general to ensure their rapid transformation from microfinance to savings and loans; and eventually to a full-fledge bank.
Key stakeholders in the financial market are entreated to play active roles by providing the requisite intellectual and financial resources needed by microfinance institutions to effectively occupy their enviable position in the financial industry.
Bank of Ghana and the Ghana Association of Microfinance Companies must intensify education on the activities of microfinance companies to the general public using the media. It is imperative for the BoG and GAMC to use local and community radio stations across the country to outline the mandate of microfinance institutions within the financial regulatory framework; and to constantly announce microfinance institutions in good standing to the general public. Through such initiatives, individuals, businesses and investors would begin to regain confidence in microfinance companies and their operations to create room for expansion and employment opportunities. They must strive to be creative, innovative and adopt productive ideas for an accelerated growth.
BY DR.EBENEZER ASHLEY, FELLOW & COUNCIL MEMBER INSTITUTE OF CERTIFIED ECONOMISTS OF GHANA AND CEO OF EBEN CONSULTANCY.
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