The Bank of Ghana (BoG) has said that due to several challenges in the microfinance sector, it will be increasing their minimum capital requirement from GH¢100,000 to not less than GH¢500,000.

“Most of the institutions have challenges -- including liquidity crises, too many branches scattered across the country, clients coming in for loans and not paying, incompetent staff, and the bad image of microfinance institutions (MFIs).

“The BoG has therefore thought it wise to revise the minimum paid-up capital upward to at least GH¢500,000 from the original GH¢100,000,” Head of Microfinance at the BoG, Dr. Yaw Gyima-Larbi said in an interview.

He said when the BoG was establishing the rules and regulations for MFIs it had wanted to set the minimum capital at GH¢1million, but due to a lot of stakeholder consultations it was capped at GH¢100,000.

“When it was capped it was meant for one-branch institutions, but we have realised that most of these institutions have more than one branch scattered all over the country. And GH¢100,000 for so many branches is not enough.”

Dr. Gyima-Larbi was speaking at the 7th meeting of the Ghana Microfinance Forum in Accra. The meeting was to share lessons on MFI regulation and compliance, and to set priorities for enhancing regulation to promote financial inclusion.

Of the 228 licenced MFIs, only about 50 report accurately and regularly to the Central Bank, he said. “This is becoming problematic because they are expected to send us their liquidity, capital adequacy and other forms of return for us to strengthen on-site and off-site supervision.”

The proliferation of MFIs in recent years has triggered fears that some regulatory and prudential requirements could be compromised, especially as some of the companies have been found to be operating illegally.

The Executive Secretary of the Ghana Association of Microfinance Companies (GAMC), Richard Amaning, welcomed the proposed increase in the minimum capital but called for the creation of different tiers within the Tier Two category of the BoG’s regulations, which cover licencing requirements for MFIs.

“We agree with the increment, but what we are asking the regulator to do is come out with some sort of tier-system in respect to the capital requirement. It should look at those operating in areas where access to capital is a challenge; areas like the rural areas because companies operating in the rural areas and villages have difficulty in raising even the GH¢100,000” he said.

“For example, those operating in the urban areas with easy access to capital and more branches should have their own capital requirements, while those operating at the regional level should also have their own requirements; and then others in the rural areas should also have their own regulations.”

He said by further raising the minimum capital requirement across the board for all Tier Two MFIs, the BoG will be effectively shutting down the small companies operating in the rural areas, “which will lead to lack of financial support for the village folks”.

Justifying why MFIs charge high interest rates on their credit facilities, the Executive Secretary said: “It is not their fault, because they also have the challenge of recruiting the calibre of people the regulator wants. To prepare the prudential returns and other things the regulator wants, you need experienced staff, which comes at a cost.

“MFIs are not banks that can afford to hire the most experienced staff. Going to employ staff from banks further contributes to the high interest rates charged by these companies.”