PRESS RELEASE (Strengthening the Non-Banking Sector: A Shared Responsibility)
Strengthening the Non-Banking Sector: A Shared Responsibility
On May 31, 2019, the Bank of Ghana (BoG) revoked the licenses of 347 insolvent micro finance companies. This action forms the second phase of the on-going reforms in sanitising the financial sector towards improving operational resilience and confidence in the system. It is expected that government’s release of GHS900 million will enable the Receiver pay depositors after validation of claims.
As the representative voice of the business community, the Ghana National Chamber of Commerce & Industry (GNCCI) commends BoG for the steps taken in revoking the licenses of these insolvent companies and government’s release of funds, given the imminent threat they pose to the stability of the financial system, depositor’s funds, and small businesses. Nonetheless, the GNCCI is worried over the increasing number of failed and the collapsing of financial institutions by BoG. The disappearance of these businesses raises critical questions about operational resilience and our collective effort at building and supporting Ghanaian businesses to participate in the inclusive growth agenda with improved collective efficiency.
Microfinance companies provide unique financial services to small businesses who play significant role in the economic stability and development of our national economy. Extant literature supports the connection between microfinance institutions products and small businesses in emerging economies; underscoring the positive effects of microfinance products to small business growth, with micro loans being the dominant influence.
Per the BoG’s assessment, majority of these companies veered off their mandate by acquiring funds from retail and institutional sources and lending them at exorbitant costs in addition to diverting much of the funds into private ventures. These companies were also faced with weak capitalisation and poor governance system making them vulnerable and unsustainable.
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