The Bank of Ghana in August, 2017 exercised its mandate spelt out in the Banks and Specialized Deposit-Taking Institutions Act 930 (2016), Section 123 (1), to annul the license of any financial institution assessed to be insolvent or short of necessary corporate governance requirements.

The move by BoG as explained by the Governor Dr. Ernest Addison is to reestablish confidence and sanity in the banking and specialized deposit-taking sector.

This action resulted in the revocation of licenses of 9 universal banks; 347 microfinance companies, of which 155 had already ceased operations; 39 micro credit companies of which ten had already ceased operations; 15 savings and loans companies; eight (8) finance house companies and two (2) non-bank financial institutions that had already ceased operations.

Even though BoG’s intention to restore sanity, stability and confidence in the banking sector was made clear to Ghanaians and the banking society, the exercise, which has been announced to be completed as at August 2019 has generated a never ending debate as to whether BoG’s intentions was in the best interest of Ghanaians or for some political agenda, whether or not the exercise was the best option after its cost of approximately Gh?21billion was reported by the Finance Minister, Hon. Ken Ofori-Atta and most importantly its aftermath effects on Financial Institutions and their customers.

A research however aimed at analyzing the unintended effects of the cleanup exercise on unaffected financial Institutions in the Yilo Krobo Municipality has revealed that, Financial Institutions in the municipality are still fine-tuning some major alterations the exercise has caused in performing their financial intermediation functions exclusively among microfinance and micro credit institutions.

According to the findings of the research, financial institutions largely among micro finance institutions experienced panic withdrawals and this was due to fear and panic among their customers who feared losing their investments or savings.

For this same reason, deposit-taking levels reduced with some debtors deliberately defaulting on their loan repayments in anticipation of closures of financial institutions they owe. This position has caused severe liquidity challenges among microfinance institutions according to the research. Unaffected commercial and rural banks are not experiencing this instability according to the research.

On the other hand, demand for credit and loans have escalated as customers of defunct financial institutions are now falling on the few unaffected ones in the municipality to sustain their businesses and livelihoods.

Again, micro finance institutions which over the years have been touted to be the major source of credit for micro entrepreneurs are unable to meet the demand of its customers. Liquidity challenges’ arising from panic withdrawals has made it difficult to meet the demands of their well deserving customers. Commercial and rural banks again are operating without any challenge in meeting the demand of their existing customers.

With the above revelation on how the cleanup exercise have impacted the core financial intermediation function of unaffected financial institutions in Yilo Krobo municipality, one can deduce that with microfinance and micro credit institutions been hugely affected, micro businesses are likely to be affected too and this could adversely impact livelihoods.

This is because, micro financing over the years has bridged the gap that existed between the vulnerable and banks and this have been proved to have improved financial inclusion and most importantly impacted lives. The study recommended strict regulatory enforcement, periodic publishing of financial institutions in good standing, and timely education of customers of financial institutions in the event of any possible revocation of the license of any Financial Institution.

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