Government will need an amount equivalent to 1.6 percent of GDP to finish up reforms in the Micro Finance Institutions (MFIs) and Saving and Loans (S&L) companies, the fourth Ghana Economic Update report published by the World Bank has revealed.

The report states that government will have to spend at least GH¢5.5 billion of taxpayers money this year to address the challenges in the MFIs, S&Ls sectors, as well as the Heritage and Premium banks that were collapsed and added to the Consolidated Bank Ghana Ltd.

This comes after the banking sector cleanup, alone, cost the economy close to GH¢13 billion and another GH¢900 million that the Bank of Ghana said has been given by government to begin the cleanup exercise in MFIs sector. This means that, close to a whopping GH¢20 billion is likely to be spent on the entire financial sector reform exercise by end of this year. The World Bank, however, has thrown its weight behind the reform exercise, calling it urgent.

“Reducing financial sector vulnerability is urgent and will require additional efforts in 2019, and over the medium term. In total, in 2019, the government will have to spend an additional GH¢5.5 billion (equivalent to 1.6 percent of GDP) to solve all challenges related to the MFIs, Savings and Loans, and the introduction of another resolution bond for the CBG to support the closure of two additional banks that took place in January 2019,” the World Bank report said.

Many Specialised Deposit-taking Institutions (SDIs), the report says, are not operating in a safe and sound manner and are in violation of prudential norms. Not all the SDIs are currently active because they have either stopped reporting or have folded. Others are financially distressed, facing liquidity and/or solvency challenges.
The BoG estimates that about a third of the 707 MFIs and RCBs are distressed or have folded, putting more than 700,000 depositors at risk.

It is against this background that the World Bank says, plans outlined by the Bank of Ghana (BoG) which include reviewing licensing and supervisory policies and directives, reviewing capital requirements and encouraging consolidation, enhancing governance, and increasing resources available for supervision are steps in the right direction which will help “mitigate vulnerabilities” in the financial sector.

Last week, the bank’s Country Director, Henry Kerali, also urged the regulator to be tough on exercising its oversight responsibility in order to reduce the possibility of repeating this reform exercise in the future.

“In terms of mitigating these things from happening in future, there is the need for stronger regulations and oversight for the MFIs and all deposit taking institutions. They must come under stronger regulation and oversight. There need to be some mechanisms that will allow the central bank to exercise its oversight role without necessarily increasing its size,” Mr. Kerali told the media in Accra.