The Ghana Association of Microfinance Companies (GAMC) has backed moves by the central bank to put a limit on the number of operating permits that can be issued to microfinance companies.

According to the Association’s National Board Chairperson, Collins Amponsah-Mensah, there is no doubt the huge number of microfinance institutions affects the ability of the oversight body -- the Bank of Ghana -- to efficiently regulate the sector.

“We are in full support of it [capping the number of MFIs]. The number [of MFIs] that has been issued with licences should be looked at and supported to be able stay within the regulations. Let us ensure that they are all complying fully with the regulations. Those that are not able to, let us ensure that the right sanctions are imposed on them so that we can say, for instance, that we licenced 400 companies and all of them are in compliance with the BoG regulations -- submitting their prudential reports and so on,” he said.

“Then beyond that, if we want to take on board a new set or batch we can do that. But as it is today, there is total difficulty with the regulation…but every day we are licencing. If it continues that way we will have a situation on our hands, because those who came in will be phasing-out through collapse; new ones will come in, and they will also get to the point of collapse -- then one day there will be no microfinance companies. We are for the capping; let’s stop at a point and ensure that those that we brought in, we bring their level to where we want them to be -- then we can continue,” Mr. Amponsah-Mensah added.

Mr. Amponsah-Mensah was speaking to the B&FT on the sidelines of a seminar organised by GAMC on lessons learnt from the collapse of microfinance institutions.

Since 2013, more than 50 microfinance institutions have collapsed due to poor managerial skills, while some have been used as a conduit for the perpetration of fraud through Ponzi schemes that lure depositors with absurdly lucrative investment interest rates.

Raymond Amanfu, Head of Other Financial Institutions Department of the Bank of Ghana, lamented the impact from the huge number of MFIs on regulation, and said the central bank is considering putting a freeze on issuing new operating permits to MFIs.

The regulator has licenced about 500 microfinance companies following revision of the operating rules and guidelines for microfinance institutions, categorising the sector into Tier-2 for deposit-taking and Tier-3 for non-deposit taking institutions.

According to the revised rules, new entrants applying to operate as non-deposit-taking firms will require a minimum paid-up capital of GH¢300,000 while deposit-taking institutions require a minimum capital of GH¢500,000. According to Mr. Amponsah-Mensah, microfinance companies suffered a “liquidity crunch” in 2013, resulting in the collapse of some of them.

“Although this situation affected our member-companies, it also brought out lessons that needed to be learnt. Our systems were put through a sustainability test, which at the end of the day revealed our capacity to continue in business,” he said.

According to him, microfinance companies must build on their capacities in order to remain in business.

“As much as we agree that some member-companies experienced crises due to their own lack of understanding of the microfinance business, others became victims of circumstances. It may interest all to note that liquidity risk, which was the cause of the crisis, ranked 19th in the global assessment report, with over-indebtedness, credit risk, competition and risk management taking the first, second, third and fourth places respectively. This tells us that microfinance in Ghana is in the infant stage,” he said.