Microfinance in Ghana has a future, provided its practitioners learn to stay within their remit of operations, says Raymond Amanfu, BoG’s Head of Other Financial Institutions Supervisory Department, the unit in charge of microfinance companies.

“I think microfinance has a future but a very cautious one. Operators have a future provided they stay within their scope of operations. These institutions are small and not sophisticated in terms of risk management practice and product delivery. So focus on where you have your competitive edge,” Mr. Amanfu said.

After taking-off officially in earnest during 2011, the sector has seen bad times in the last 18 months, with several institutions running into default and folding-up -- leaving unsuspecting depositors short-changed.

More than 50 microfinance companies have collapsed since 2013 due to poor managerial skills, while some have been used as conduits for the perpetration of fraud through Ponzi schemes that lure depositors with absurdly lucrative investment interest rates.

But Mr. Amanfu believes that if microfinance companies stick to their game-plan of serving the lower end of the market, the possibility of success is higher compared to the urge to do business with bigger clients.

“Do what you are capable of doing, where you have the expertise: and that is the small or lower end of the market. You are micro: what is your business a giving loan to a contractor? Do you have the capacity to supervise, or the balance sheet size to support it?

“If you give GH¢500,000 to a contractor or the same figure distributed equally to 1,000 clients at the same interest rate, should the contractor fail you lose all that money -- but how many of the people you have given GH¢500 will default? You will get more than 80 percent of them paying back with interest instead of giving all the money to one contractor that defaults,” he noted.

Another problem of MFIs, he said, is that they equate visibility with viability: which means that by having “big, branded buildings” they tend to feel they are good to go.

“If you keep a small office with very nice ambience and people walk in daily to pay up their loans in bits and pieces, you are okay. Those who keep small are doing very well, but those with problems are doing three things: first there are elements of connected lending where they take deposits to finance their other businesses; secondly some of them give unsustainable interest rates on deposits; and then those who undertake viability versus visibility. They just put up edifices and run into losses.”

As the regulator, Mr. Amanfu said he and his team are stepping-up their regulatory efforts this year to get rid of illegal institutions and clean up the system.

The Bank of Ghana, he said, is slowing down considerably on the registration of new microfinance companies -- even though the number of applications keeps rising.

“We are now looking at registering not more than five per quarter. We are increasing our scrutiny of the people and organisations behind these microfinance companies. We have to look at the background of the shareholders and be sure that there are no other related or affiliated companies,” he said.

He added that increasing the stated capital of GH¢100,000 to GH¢500,000 has reduced the number of applications that come to the Bank of Ghana.

The BoG, he added, is likely to officially revoke some licences. “We have to review the system, and those who are not operating within the rules and have been given some time to get their house in order but have not done so will see their licences revoked.

“It is a whole process. This year we will look at the whole spectrum of the industry to take stock, and those found wanting will have their licences revoked. There are some registered ones who may not be functioning and there are some that might have taken provisional licence but have not completed the process; there are timelines to that, and now we will be reviewing all those processes.”

He said, officially, the BoG has not revoked the licence of any microfinance company in Ghana. “What we have done is to just stop about seven of them from operating, and reported them to the EOCO and BNI for investigation.”