The Bank of Ghana has revoked the licences of 347 insolvent microfinance companies, saying the institutions continue to pose risk to the entire financial system.

“Given the risks that these institutions continue to pose to the entire financial system, and the need to protect depositors, the Bank of Ghana is sanitising this sector through the orderly resolution of the failed institutions in accordance with sections 123 to 137 of Act 930,” the Central Bank said in a statement.

Consequently, the Bank of Ghana has appointed Mr Eric Nipah as Receiver for the specified institutions in line with section 123 (2) of Act 930.

“The revocation of the licences of these institutions is to get rid of insolvent and dormant institutions that have no reasonable prospects of rehabilitation and have denied depositors access to their deposits, thereby constituting a threat to the stability of the financial system.”

“By the revocation of these licences, the Bank of Ghana seeks to protect the stability of the financial system and to protect affected depositors.”

To salvage depositors’ funds, the Government has made funds available to enable the Receiver pay depositors, after their claims are validated, in line with the hierarchy of creditor claims set out under Act 930.

Other creditors of the failed institutions will be settled by the Receiver upon validation of their claims and to the extent that the Receiver is able to realise value from the remaining assets of these institutions.

By the end of 2015, about 484 microfinance companies had been licensed by the Bank of Ghana.

Following the revocation of the licences of these institutions, a total number of 137 microfinance companies will continue to operate.

Going forward, the Bank of Ghana has put in place measures to ensure that the existing institutions remained safe and sound by complying with the relevant prudential norms.

The statement said over the years, the Bank of Ghana notified those institutions of deficiencies and vulnerabilities, which had been identified through off-site reviews and onsite examinations.

Unfortunately, efforts by the Bank of Ghana to get the affected institutions and their shareholders and directors to rectify those deficiencies yielded no results.

Consequently, the financial position of those institutions continued to deteriorate, leading to their insolvency with majority of them ceasing operations and closing their offices with depositors’ funds locked up.

“Even those that have not closed their offices are unable to pay their depositors. This has placed a substantial amount of depositors’ funds at risk,” the statement said.

“These actions were taken pursuant to section 123 (1) of the Banks and Specialised Deposit-Taking Institutions Act, 2016 (Act 930), which requires the Bank of Ghana to revoke the licence of a bank or Specialised Deposit-taking Institution (SDI), where the Bank of Ghana determines that the institution is insolvent or is likely to become insolvent within the next 60 days.”

“The Bank of Ghana assures the public of its continued commitment to protecting depositors’ funds and promoting the stability of the financial system.”