[ 2016-10-18 ]

Microfinance companies, a major challenge for financial sector - Prof. Kwesi Bot
Chairman of National Development Planning
Commission (NDPC) is warning that microfinance
institutions in the country could pose a major
challenge for the entire financial sector if not
better supervised.

The crisis bedeviling the microfinance sector,
which has seen thousands of customers lose
millions of their deposits Professor Kwesi
Botchway said could eventually impact on the
banking sector negatively.

He is, therefore, warning for urgent steps to be
taken by the Bank of Ghana (BoG), against the
backdrop that the entire system thrives on trust
with customers.

Speaking with JOY BUSINESS the Former Finance
Minister said stringent monitoring is critical to
averting a possible spill-over.

"Microfinance institutions do need to be better
supervised. They have expanded exponentially, this
year were numbered 555 institutions.

"They can create problems for the entire banking
system by weakening trust both in themselves and
worse by extension the banking system generally,"
he said.

He cited Tim Geithner, the Treasury Secretary in
the United States who at the height of the
financial crisis in 2008 and thereafter said in
his 'Stress Test' book that financial systems are
built on belief explaining the derivation of the
'credit' from the latin meaning 'for believe'.

"Geithner says confidence is a very fragile thing
and once it evacuates it is very difficult to
bring it back, but as bankers, it is something you
learn at your mother's knee and we take it for
granted," Prof. Botchwey added.

Meanwhile, the Chief Executive of Dalex Finance,
Ken Thompson, is advocating a reduction in
Treasury Bill Rates in the country to enable Small
and Medium Enterprises (SMEs) access cheaper
credit for growth.

The current rate at which banks borrow to
government he believes is stifling credit
extension to SMEs.

"Very few businesses can pay an interest of 70
percent and survive. If you take even us we borrow
to on-lend at 31 percent so we do a multiple of
2.5 but a bank may take your money at 3 percent if
you are lucky and they do 45 percent," he
explained.

He said the cost of credit is expensive with some
people paying as much as over 100 percent noting
that Ghana has one of the highest rates of
interest in the world.

Mr Thompson bemoaned the rates at which they are
borrowing adding "...it is very very difficult to
do business. For us, the policy rate doesn't
really help us, being a treasury bill rate."

He explained that if the treasury bill rate comes
down the borrowing rate would also come down which
will also make the lending rate to come down.

The Dalex Finance boss doubts that in the
short-medium term, this would happen because "the
government needs to borrow until maybe the
projects they have invested in starts to yield
fruits, but I doubt it very much."

Source - Joyfm

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