Microfinance Prism

Introduction

The blog has not seen any post in a long while and COVID-19 is not the excuse. I had gone looking and doing other things but now I am back to the blog and will hopefully post once every two weeks. In the coming posts, I will present my thoughts on issues affecting microfinance providers and proposals that may just contribute to addressing the issues. 

Blame no COVID-19

Microfinance providers especially non-bank actors in Ghana have suffered various levels of decline in the face of COVID-19, but practitioners will be the first to admit that, the challenges were there long before the pandemic. Much as COVID-19 might have contributed to the current situation, we need to avoid laying all the blame at the feet of COVID-19. What we choose to do – action or blame –  will determine how we solve the issues. I will strongly suggest we choose the path of ACTION instead of BLAME. To act with the intention of succeeding, we need to understand the causes of the issues that confront us as microfinance providers so we can develop innovative solutions. 

What are the issues? 

In a study conducted by CDC Consult for GHAMFIN at the onset of the pandemic, several constraints were identified. The major ones were lack of preparedness in the face of the pandemic; declining deposits and loan repayment in the face of the pandemic; low loan disbursement; increasing operating cost and declining profit margins; loss of customers among others. 

What can providers do?

Providers can either find solutions or throw their hands in despair. What are the causes? No one could have imagined a pandemic with disruption capacity as that of COVID-19 in order to have been prepared with various business continuity strategies. The truth however, is that our institutions were never prepared for anything at all. Business continuity plans were available in most of the institutions largely as a requirement of the regulator but were never owned and could not have helped. As a result, the response was completely catastrophic for most institutions. 

The role of good corporate governance in addressing the challenges

Effective corporate governance- the presence or absence of it- comes up again in times such as these. I would like to zero in on the availability and capacity of the board of directors to provide leadership and oversight in these uncertain times. A board must have in-depth understanding of the uncertain times and demonstrate the capacity to work with management to plan and execute a response plan. Once this is achieved, the board reverts to an enhanced oversight role to monitor compliance with the response plan and performance. For this to happen, the board has to:

• understand the regulations with focus on what can be done within the confines of regulatory provisions; 
• understand market changes and suitability of current products and their delivery channels; 
• understand what opportunities are available in the marketplace; and more importantly 
• assess available internal resources and structures (people, technology, funding) to determine what can be done to improve performance.

What should boards and institutions be doing?

• Boards have to work with management to carry out scenario planning to determine the best mix of options available to them. With this approach decisions relating for example to staff and market rationalization can be carried out on a more informed basis. 

• Institutions are encouraged to take a new look at their business model which in essence is how they create value, who they create value for and how they deliver value. 

• Funding as always remains a clear challenge. Without a viable business model, no provider should expect funding to solve their problems in a COVID-19 era. With a strong business model, the right mix of funding can be sought and obtained at competitive cost. 

• Staff need to be trained quickly to adjust to digital literacy and orient clients in this direction.

• Investments in shared technological platforms must be made and the overall business processes have to be reinvented. 

Some of the above issues and more will be addressed in the next post. See you and keep safe!

Last week some microfinance industry practitioners were pushing for government support to recapitalize their MFIs to provide them with the much needed fuel to reposition their microfinance businesses. The writer’s thoughts on the expectations, merits, and demerits of the expectation and some considerations are presented.

Expectation

There is a growing expectation among microfinance institutions that government has to provide them with financial support to recapitalize their businesses. The support, in their view, will reposition them to provide the useful services they already provide to the excluded and low-income segment of the population. What are the merits and demerits of these expectations and should the government provide support or not?

 Merits and demerits of the expectation

What are the merits? It is okay for citizens of any country to expect the government to provide them with the required support that makes the business environment conducive to their operations. Indeed, the government owes it as a responsibility to create a conducive business environment so the call can be described as a justifiable call.

Financial inclusion remains a priority of government and given that microfinance institutions are active players in this arena, it is a justified demand for support. The government has provided and continues to provide a lot of technical assistance support to the microfinance sector to help position them on the path of profitability and sustainability. What has not come to the microfinance industry is direct funding which they can assess for purposes of on-lending.

MFIs borrow from other lenders such as commercial banks and other high net-worth individuals for on-lending. These funds come at high interest rates that compel the MFIs to on-lend at high interest rates to their clients. MFIs themselves recognise that the interest they charge is high but they do not have any other option if their institutions have to make decent profit and remain sustainable. The net effect is high interest rates on loans lead to loan installment default on the part of clients which in turn affects the capacity of MFIs to repay their individual investors including depositors and lenders. Some providers in their bid to rise from the challenge continue borrowing at even higher rates and lending at higher rates and the cycle has no end till the MFI gives up the ghost. It is obvious that in the absence of owners’ capital contribution to the business, most MFIs will collapse and with them, the deposits of most of their clients. It is also clear as broad daylight that current owners of MFIs are unable to raise additional capital on their own.

The major downside of the call for government support is the expectation that government’s funding support for MFIs, most of which are private profit making and sharing businesses is a right and government is under obligation to provide this support. One might as well argue that all private businesses in health, education, tourism etc. should be supported with direct funding to reposition and stabilize their businesses. The other downside of the call is the posture of MFI owners and directors, blaming the Ghanaian economic environment for the state of MFIs. The argument that MFI clients are unable to pay their loans because of the poor economic environment caused by government actions and inactions, for which reason government has a responsibility to bail out MFIs cannot win the call for government financial support.

Funding Support and Conditions to be met by MFIs in need of funding

Do MFIs need funding support from the government? Yes, they do because they serve as critical agents for achieving government and the world’s agenda for financial inclusion. But this support should not be considered and provided on a wholesale basis. The government should be encouraged to provide support for MFIs (Microfinance Companies, Financial NGOs, and Micro Credit Lenders) that meet some preconditions that serve government agenda as well as facilitate MFI profitability, growth and sustainability. Some of the pre-conditions to be considered are presented:

• Demonstrate that they serve the vulnerable and excluded as well as micro and small businesses. Some MFIs are known to serve salaried workers and businesses that already have access to credit from banks. The demonstration of serving deprived, excluded and low income must be backed with evidence of what has been achieved over the years and what they intend to do to further reach the deprived and excluded;
• Demonstrate good governance practices that will include among others the nomination of a board chairperson who is not a shareholder in the MFI or any other MFI;
• Demonstrate it has strong MIS in place that provides periodic information to facilitate sound management decisions or be willing to install this with the needed technical support;
• Demonstrate the willingness to implement an effective risk management structure for the MFI;
• Demonstrate the willingness to participate in periodic training and implement gaps identified from training;
• Demonstrate the willingness to merge with other MFIs to increase outreach and improve operational performance;
• Demonstrate the willingness to implement good responsible inclusive finance practices – compliance with client protection principles management especially responsible client treatment, develop products that meet the needs of clients and responsible pricing;
• Demonstrate minimum performance indicators such as in areas of loan portfolio quality and cost/income ratio at the time of seeking the support and through the life of the support;
• Commit to carrying out financial education (not product education) of clients as a key part of product and service delivery methodology;
• Demonstrate compliance with BoG’s reporting requirements and performance standards at the time of joining and throughout.

 Source of funding

We need as a country to explore various sources of funding for the qualifying MFIs. But the government has to take the lead. Sources may include:

• The government with the needed determination can find the funding as it always does when it is needed;
• The government could consider the provision of incentives to universal banks with strong capital base to provide on-lending fund to MFIs at rates that are tied to the prime rate + margin;
• District Assemblies could consider setting up a fund for MFIs in their districts to access for on-lending after meeting the pre-conditions to fund as a strategy for local economic development.

Screening and Monitoring

There must be an independent body to screen the applications from MFIs and as much as possible this should be independent of practitioners. The various microfinance associations and industry network could be represented on the screening board. Continuous monitoring of the beneficiary MFIs should be a key strategy. Fees and expenses for monitors could be included in the interest to be paid by MFIs on the on-lending fund.

Someone called me on Friday 3^rd August 2018 and asked, “chief, where is the banking sector going?” As a typical Ghanaian who answers questions with questions, I asked: “why do you ask?”. He, in turn, asked if I was the only stranger in Jerusalem? But I understood his question. As an industry watcher, I had received phone calls from a number of people asking, what next for MFIs after the revocation of licenses and establishment of a consolidated bank. I jokingly told a couple of those who asked my opinion that, once the Bank of Ghana is finished with the universal banks, the cleansing will get to the microfinance institutions. This response may sound as a mere joke, but it is the reality. It is just a matter of time that we will hear from the regulator on the fate of similar MFIs, even if not on the scale of takeovers and consolidation as we have seen with the 5 banks.

So, what should MFIs be doing in readiness? By MFIs, I am referring to those deposit-taking institutions (who also provide credit/loans) that are in Tiers 1 and 2, comprising rural and community banks, savings and loans companies and microfinance companies.

It is obvious from the things we have officially heard from Governor Ernest Addison on the status of the affected banks and the behavior of their owners, directors, and management, that a number of MFIs would be found wanting when it gets to their turn. This is no good news but “it is what it is”. For those savings and loans companies, rural and community banks as well as microfinance companies which know they may be found wanting, there will be the need to reflect and act on the following:

• If you have understated/underdeclared deposits you have mobilized in your returns to the Bank of Ghana, it is time to rectify that before it gets too late;
• If you have given related business loans that are non-performing, push the beneficiaries to start repaying before it gets too late;
• If you have granted loans to owners and directors and these are non-performing, ensure the payments are regularized immediately;
• If you have invested MFI deposits in fixed assets and other landed properties, consider liquidating immediately;
• If you have not met the minimum capital requirements, start working on meeting this through strategies such as aggressively looking for investors, merger partner MFIs or sell some of your properties if any to boost your capital (these are quite difficult to meet), but you need to start from somewhere.

Moving forward, you may want to remind yourself that it is no longer business as usual. The alarm bells require the following:

• Directors, please leave up to your mandate and enhance your oversight roles;
• The provisions of the regulator regarding the following should be adhered to strictly:
  • Engage in only permissible activities;
  • Make a conscious effort to adhere to the relevant minimum capital requirements;
  • Ensure compliance with directives on good corporate governance;
  • Focus on meeting asset quality indicators;
  • Observe good liquidity management practices and meet the appropriate indicators (including primary and secondary reserves, lending ratios, net loans to assets ratios;
  • Meet the capital adequacy ratios;
  • Ensure business expansion and growth strategies meet the regulator’s requirements.

We recognize these are difficult times for the financial sector including the banking and microfinance subsectors. But for MFIs, the takeaway is “opportunities abound and the market needs you and all you need to do is for you to reposition yourself”. It will get better eventually if we are committed to “doing the right things and doing things right”.

Coming up……, is the board of your Microfinance Institution competent? Is your MFI benefiting from the board’s competence or it is dying slowly from the board’s incompetence?

Financial inclusion and microfinance institutions: The role of increased inclusive financial systems in promoting macroeconomic benefits and significant improvement in personal benefits to households, stability, and growth to enterprises is important. The Bank of Ghana has indicated it is working to increase financial inclusion from 58% at end of 2017 to 75% by the close of 2023. One cannot underestimate the role of microfinance institutions (MFIs) in achieving this target.

Ghana’s microfinance sector is one that is unique and difficult for many to understand. It is a mix of profit sharing and not-for-profit sharing providers, with some working at combining both commercial and social missions. The Bank of Ghana has outlined a four-tier approach to segmenting the various provider categories. The tiers have different capital requirements and permissible activities.

Tier 4 which is at the base of the regulated institutions has susu collectors and individual money lenders. This is actually to ensure that the role of individual providers and the Ghanaian entrepreneurial ingenuity is not sacrificed on the altar of regulation. The tier 4 providers make “profit” for themselves. Tier 3 has corporate micro lenders and non-deposit taking financial NGOs (FNGOs). FNGOs are those known to mainly have social mission and are non-profit sharing (please note that “non-profit sharing” does not mean “non-profit making”). The microlenders on the other hand are profit oriented and when they make the profit, it is distributed among the owners. Tier 2 has microfinance companies (MFCs), Deposit-taking FNGOs and Credit Unions. Credit Unions are member-owned cooperatives and share profit or losses as the case may be among their members. Microfinance companies have shareholders who are profit oriented. The deposit-taking FNGOs are largely social mission oriented. The providers in Tier 2, especially MFCs can have the dual mission of social and commercial orientation if they choose to, but it is important to note that most of them did not set out to be social mission oriented. These companies have deployed private capital that has to be rewarded and may therefore not be keen on social mission. However, those MFCs that realize a microfinance business can combine social and commercial mission and remain profitable are the eventual winners. Afterall, social mission is largely about the client and it is clients who determine the success or otherwise of a business.

The Tier 1 providers comprise mainly rural banks and savings and loans companies. Their inclusion in Tier 1 recognises that prior to the formal regulation of the others, they were under regulation. It is interesting to note that the rural and community banks did not consider themselves as MFIs and most of them had gone ahead to set up independent departments and units that they called microfinance unit or department within the bank. The savings and loans companies are fighting hard through all their actions and pronouncements that they are not ‘microfinance’. This fight is about self- preservation from a branding perspectives. The fact however, remains that these tier 1 providers also adopt methodologies and practices similar to those of the providers in tiers 2, 3 and 4. It is important to note that some commercial banks also provide microfinance products and services through direct and indirect channels.

State of microfinance institutions in Ghana: Ghana’s microfinance sector receives different assessments from various stakeholders. It is clear that it is a sector that can do more than it is currently doing. It has received negative reportage even before the days of DKM crisis of 2016. The negative image has assumed even greater proportion with the advent of the DKM crises as if DKM is the face of Ghana’s microfinance sector.

A reliable assessment of the industry comes from the industry regulator, the Bank of Ghana. In a presentation[1] on the state of Ghana’s financial sector, on a day one of Ghana’s banks (uniBank) was put under Official Administration, the Governor of the Bank of Ghana indicated that the problems in the financial sector (referring to the banks) were also reflected in the Microfinance or MFI subsector comprising MFCs, MLCs, FNGOs, and RCBs. The Governor indicated specifically that “the extent of distress in this subsector was characterized by severely impaired capital; inability to meet regulatory capital adequacy requirement; generally low asset quality; and liquidity crises”. In his words, these developments have “culminated in threats to depositors’ funds thus eroding public confidence and undermining efforts to promote financial inclusion”. It is obvious that the situation as painted by the Governor of the Bank of Ghana has affected the ‘survival’ of most of the microfinance institutions.

But how did the microfinance industry get to the level that their survival and ability to play a key role in the nation’s quest for high financial inclusion has become a major concern? Several interrelated factors brought us here, key ones include low or no capital from owners at start of business or for expansion; lack of distinction between board and management roles; board and management failure; use of depositors’ fund for what capital should be used for; inadequate understanding of microfinance business and its management; deliberate fraud and slow response from the regulator in dealing with those found culpable.

Capitalisation: One of the tools for addressing the current situation is that of increased capitalisation. Indeed, most of the MFIs (MFCs, FNGOs, and MCLs) are required to comply with increased minimum capital requirements by 30^th June 2018. At the time of writing, 30^th June had arrived. The industry expects to hear a formal statement from the Bank of Ghana on minimum capital directives. Whether it is offering an extension, abandoning the capitalisation agenda or instituting measures to take over the MFIs. It is obvious that the BoG means well in its minimum capital directives and it is also obvious that the MFIs recognise the need to operate with adequate capital. The challenge is, how much capital is adequate and is the timing given to the affected MFIs adequate given that the industry itself is not currently attractive to potential investors. Do we anticipate takeovers or consolidations in the microfinance sector as we saw with some banks? This is not likely and will not be an ideal option. It is not easy to takeover MFIs or put them under official administration as was done for the banks (UT, Capital Bank, and uniBank). The sheer number of MFIs that may be affected makes takeover or official administration scary, but the real concern remains the effect on depositors. The depositors of MFIs especially customers of microfinance companies remain one of the bargaining chips that may influence the next steps of the Bank of Ghana. If for nothing, customers of DKM are still petitioning for their deposits and no one would want to create more of this through a deliberate action. As we await the decision of the Bank of Ghana on the minimum capital directives for MFIs, the providers (MFIs) have to recognise the need to address the capital requirements. No MFI can operate without adequate capital especially if it intends to make the needed impact of achieving scale, profitability, and sustainability. The changes on the microfinance landscape including digitisation, decline in donor fund for FNGOs, the absence of wholesale funds from which MFIs can borrow for competitive on-lending and the increased number of financial services providers point to only one conclusion – MFIs that do not increase their capital will not go far. Infact, MFIs cannot build their businesses on depositors’ funds.

Options for Increased Capitalisation: There are not many routes for MFIs to increase capitalisation and we are not about to see significant changes in the minimum capital base for most of the MFIs anytime soon. The main reason for this situation is that, a majority of the MFIs have not positioned themselves as befitting brides to be taken over or invested in by interested grooms. The options for addressing capitalisation include increased investment from owners; admission of new shareholders; mergers and acquisitions; downward movement along the tiers.

Increased investment from existing owners/promoters: The first path is increased investment from existing shareholders or promoters of the affected MFIs. It is doubtful how many of existing shareholders will be keen and even if they are keen, do have the resources to invest. Most have already invested their all, and asking them for additional investment will not yield any results.

Admission of new shareholders: This sounds logical especially if existing owners cannot increase investment. Given that foreign nationals cannot invest, this has to be Ghanaians. Existing owners need to demonstrate they have a viable business that will generate future earnings, adequate enough to be of interest to new shareholders. MFIs need real data and strong as well as realistic market and financial projections to attract investors. Most MFIs have not demonstrated that their businesses deserve capital from new investors. This demonstration is necessary whether we consider individual investors or through the stock exchange. All MFIs that need new shareholders should go back and build a credible story that resonates with investors. Additionally, existing MFI owners should be willing to become minority shareholders because, for many, their holdings will drop below controlling levels. I doubt if golden share scenario will work here.

Mergers and acquisitions: This strategy has been touted by many as one of the main tools for meeting the capitalisation challenge. This has so far not yielded the needed results. In most cases, you will need mergers of about seven institutions if you have to meet the minimum capital of GHS2.0million (using an average of unimpaired capital of GHS300,000 per MFI). Most MFIs hold impaired capital due to accumulated losses (reference governor’s speech). It is not easy having a merger of seven previously independent providers. You have to deal with all the issues relating to conflict of core values, loss of using MFI resources for personal benefits, management, and board restructuring, and inability to fund related businesses among others. Still, on mergers, there are not enough unique offerings from the respective MFIs that will promote mergers. This does not mean mergers cannot work, it is only meant to highlight the real issues that have to be considered. Willingness to sacrifice control will win the day for many that are interested in merging.   An acquisition, on the other hand, may look more promising. Some existing MFI owners are tired of the challenges posed by the business and will gladly sell off. This provides individuals and funds interested in going into microfinance business the opportunity to buy off the MFIs by making offers to existing shareholders through cash or share considerations or both. But this is a slow process that requires more time to see results especially because those acquiring the MFIs should also be willing to take over all known and unknown liabilities. We should push for more of this in the coming months.

Downward movement along tiers and collaborations: One feasible option is to move downwards along the tiers. Tier 2 providers may want to move downwards to a lower tier where minimum capital requirements may be more manageable and rebuild from there (eg Tier 2 to Tier 3). Others have to negotiate with commercial banks to become commission agencies and mobilization centres. There may be issues of changes in legal structure and treatment of existing liabilities to be addressed, but it is a viable option and should be pursued.

Is capitalisation the panacea to the issues faced by MFIs?: No, capitalisation alone will not do the trick for MFIs if we expect them to play their critical role in financial inclusion.  The market for MFIs remain huge, but not all MFIs are well placed to serve the market. Whether MFIs operate as microfinance companies (MFCs), financial non-governmental organisations (FNGOs) or micro-lending companies (MLCs), there are a number of considerations that must be given the needed attention. Even though these are not the only factors, it is my submission that, attention to these issues will reposition most of the providers to reach scale, operate profitably and attain sustainability.

Define your business model: Choosing a business model is about strategy. There is need for MFIs to understand the nature of their business and develop suitable business models that will clarify the entrepreneurial opportunities they wish to take on; outline the specific markets and alternative market segments so as to choose the preferred market they want to serve; understand the needs and capacities of the chosen markets so as to develop appropriate products that meet the changing needs of these chosen markets; adopt appropriate promotional and distribution strategies that reach the chosen segments. It is surprising that most MFIs have not outlined who they want to serve, let alone convince themselves that, there is a significant market with growth potential prior to committing capital at commencement or expansion. Simply put, a majority of our MFIs lack strategy and others do not pay adequate attention to strategy. This lack of business model and strategy is not limited to Ghana, as was made abundantly clear in the results of financial inclusion banana skins 2016[2].

Indeed, the absence of a well-defined business model is one of the reasons why it is difficult to attract discerning capital into most MFIs in the country. Tied to the need for robust business models by MFIs is the role of technology in financial services delivery. The role of fintech providers on the financial inclusion landscape and effect of the emergence of mobile money on the operations of MFIs are well known to the providers. For the typical MFI, the emerging technology has great prospects for microfinance business but it will also be the source of rapid death of many MFIs. The important focus of MFIs should be their business models – only those MFIs that have appropriate business models to take advantage of the emerging technologies will benefit from the opportunities offered by technology. This does not suggest that without adopting the technological innovations all MFIs will be out of business. The key determinant is the market an MFI serves. Some MFIs have adopted technological innovations that their clients are not comfortable with, a clear reflection of inadequate understanding of clients.

Put a performing board in place: The fish rots from the head and if you are in any doubt just ask anyone who cooks fish. The Governor of the Bank of Ghana had this to say in his address on the state of the financial sector in Ghana in March 2018, “……It was also clear from BOG’s banking supervisory reports that some banks and deposit-taking institutions lacked good corporate governance structures and more worryingly, was the co-mingling of board and management responsibilities which significantly undermined credit and risk management policies”. This is not only about banks but MFIs as well. The role of a performing board in the MFI cannot be overemphasised. Even though we admit that the MFI board is not the only actor in the governance structure, its role is very significant. The performing board will ensure markets are selected carefully, appropriate policies and procedures are established and followed as well as exercise oversight. To carry out these and more, MFI boards must be capable and committed to the work of a board. It is not enough to constitute a board that either does not understand the work it is expected to do or is not allowed to do the work it is supposed to do or is not committed to doing its work. From my experience, there is a sad situation with some board members who believe that they do not need any orientation in microfinance to serve on MFI boards. This pretense is a very disturbing development that MFIs and their boards have to address if the board is to play its envisaged role effectively. Let us be blunt on this: how can you serve on the board of a business that you do not understand?

MFIs should have competent management and staff:  Management and staff quality is a key determinant for building sustainable MFIs. Indeed, both are cited as key risk sources in the Financial Inclusion Banana Skins 2016. A management team and staff that understand the business of microfinance in this country is a major gap that needs immediate attention. One does not need to be the Executive Director or Managing Director or CEO of an MFI, whether FNGO, MFC or MLC only because you are the founder or financier. This is difficult to accept but it is a fact that many do not want to accept. For example, your previous role as Head of Credit in a commercial bank has not necessarily prepared you to be the CEO of an MFI. The industry has seen many failed MFIs that were set up by bankers and other experienced business people. It is always easy to blame it on the state of the economy. But we need to get it right, there is need to admit that management and staff training in the rudiments of “how to make microfinance work” as well as the willingness on the part of management to implement what is learned is critical if MFIs want to be sustainable.

Build a culture of business integrity: Integrity is synonymous with business. Ask any long-distance business runner that is still on the road and one of the success factors they will mention is integrity. Integrity in the MFI shapes the behaviour of management and staff. A culture of integrity will significantly reduce fraud in the business especially those committed by management and staff, increase client retention as MFIs remain true to their customers and contribute to compliance with regulatory provisions among others.   There are many instances where under the misdirected guise of doing “smart business”, some MFIs have brought shame to themselves and the entire industry. A culture of integrity starts with the board and filters through management and staff actions. It is realised through upholding core values and practices that reinforce integrity. Additionally, strong sanction and reward regimes are needed to entrench a culture of integrity.

Operate as a regulated business: MFIs need to recognise that they are under regulation and should conduct the business as such. A regulated business cannot be carried out in a “business as usual” manner. MFIs need to among others meet specific capital requirements, governance requirements, reporting requirements, management capacity requirements, risk management requirements and engage in only approved permissible activities[3]. Adherence to regulatory provisions is not only in the interest of the general public but the MFI itself. There are concerns from MFIs that some of the requirements from the Bank of Ghana are overburdening for some of them and this has led to non-compliance. Some have even argued that MFIs should not be held by the same standards banks are held to if we are to see MFIs play their role in promoting financial inclusion. I do not share the opinion that MFIs are held to the same standards banks are held to because the facts on the ground do not support this view. I will however, agree that some of the requirements are really difficult to meet. For example, the expected minimum capital requirement of GHS2.0 million for MFCs and minimum of 5 board members for those required to have a board are difficult for some to meet. The regulatory concerns will be discussed in another article. For now, MFIs need to understand the regulatory provisions if they want to remain in business.

Implementation of robust management information systems: Microfinance business is a serious business that thrives on well-informed management decisions carried out on the basis of timely, complete, accurate and relevant information. Two problems are worth noting in this area, in the first instance, some MFIs do not have the system to capture, process, analyse and generate the needed reports to drive management decision making. Secondly, some MFIs simply do not know how to use the information generated from the MIS to make well-informed management decisions. Performance indicators that are provided by well-structured and fed MIS provide early warning signals that facilitate effective decision making. For example, an MFI’s loan portfolio report with its supporting indicators provides valuable insight on what actions management should take to cure or minimise the effect of potential future failures.

Concluding thoughts

The best is yet to come for Ghana’s MFIs. In the meantime, many more providers will be out of business as they will fail to meet the basic market conditions, some will grow even stronger and others will develop new partnerships and collaborations. With these, we shall all realise the benefits of inclusive financial systems especially for those individuals, households, and enterprises that are yet to be covered to achieve the country’s financial inclusion targets. Until then let us keep discussing what has worked for other countries and what works best for our context regarding appropriate policy framework, effective regulatory systems, and sustainable MFIs.

[1] State of the Financial Sector in Ghana, Address by Governor of the Bank of Ghana, March 2018.

[2] Centre for the Study of Financial Innovation

[3] Please see Business Rules and Sanctions for MFIs (Tiers 2,3&4) issued by Bank of Ghana

Microfinance Prism discusses issues of relevance to microfinance from the lens of a financial inclusion expert of  20 years continuous work in the industry. Look forward to real insight on issues that affect microfinance as a business; microfinance regulation; microfinance supervision; microfinance delivery and impact of microfinance on clients and economy on this blog. [Read, Contribute, Like and Share]

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