Find ways to capitalize MFIs – GAMC demands

The  National Board Chairman of the Ghana Association of Microfinance Companies (GAMC), Mr. Collins Amponsah Mensah, has described as welcoming the latest decision by the Bank of Ghana (BoG) to revise the minimum paid-up capital of microfinance institutions (MFIs), but insists there should be a clearly cut-out plan to assist MFIs to raise capital, henceforth.

He said the move by the Central Bank, to increase the core capital of microfinance institutions, will contribute to enhance the operations of MFIs and further strengthen them to protect depositors’ funds, as expected.

However, he observed that although the directive is going to help those in the industry, how microfinance institutions would raise this money remains the headache. 

He said “as a country we have to look at institutionalizing structures that make it easier for these institutions to be able to raise the needed capital.”

His comment follows a notice by the Bank of Ghana to rural and community banks (RCBs) and microfinance institutions (MFIs) to adjust their minimum capital requirement for the industry applicable to both existing and new entrants, in accordance with Section 6 (2) of the Banking Act, 2004, Act 673, and Section 11 of the Non-Bank Financial Institutions Act, 2008, Act 774.

The notice post that microfinance institutions, both Deposit Taking and Non-Deposit Taking, which hitherto required GH₵100,000.00 to operate, are expected to raise their minimum paid-up capital to GH₵2,000,000.00 representing a 1,900 percent increase, within the next three years.

RCBs on other hand, are to gradually meet a new capital requirement of GH₵1,000,000.00, from a previous GH₵150,000.00, representing about 566.67 percent increase, by 31st December 2017.

The directive, further notes that, MFIs which have been granted provisional approval by the Bank of Ghana, shall comply with a minimum paid-up capital requirement of GH₵500,000.00 and submit a credible capital plan to raise the minimum paid-up capital to GH₵2,000,000.00 in accordance with the transitional arrangements, set out in the notice; while new applicants and those yet to secure provisional approval will have to with immediate effect meet the full capital requirement.   

Sadly, the fortunes of the once budding microfinance industry has declined drastically due to the loss in confidence of depositors, as result of the unprecedented collapse of many microfinance institutions in the country leading to the seeming unattractiveness of the industry, over the last three years.

He said “the market is reserved for Ghanaians, so as it is one can’t go for equity from outside,” and observed that going ahead to borrow, which is debt, to augment one’s capital base would rather increase one’s debt stock as opposed to increasing equity.

Mr. Amponsah Mensah, made these pronouncements in an interview with the media, said at the moment, the only means by which MFIs can add to their capital is by making more profit, but conceded that, the present state of the industry does not make it easy for many MFIs to attain their targets.

It was in view this that he asked that measures are instituted to help in capitalizing these institutions, given that the market is reserved for only locals.

He appealed to MFIs in the country to consider mergers; nine or ten institutions coming together to become one, in order that they can raise the required capital, as opposed to operating individually without the financial muscle to meet the latest requirement.