A microfinance monitoring visit one day took me to Bawku in the Northern Region of Ghana, where we visited microfinance groups which had benefited from microfinance loans from one rural bank.
The groups were mainly women who were involved in various economic activities. I remember the excitement on the faces of women who had been granted an opportunity through access to micro loans to support themselves through investing in a chosen micro business.
One very remarkable experience from the visit was when the group-members informed us about one of their number who had told them she was going to buy an airplane and fly the group-members around the world.
This was a dream of a micro client, and the other group members gladly told me about this. It was funny to hear that at first, but then when the whole idea sunk further I saw something positive about the woman’s dream.
I saw a woman who was able to dream big because of the opportunity that had been created through an effective microfinance programme. Clearly, with the right microfinance methodology, low income and poor clients can dream about a better future.
While we were engaging the other members, the woman who was dreaming of buying the Airplane appeared and gracefully walked to take her seat. Just as she entered, the rest of women shouted, “this is the women who says she will buy the airplane”.
She confidently responded and said, “yes, I will buy a plane and I will put my group members on board”. I smiled as I saw the hope that microfinance had brought to the women who gathered to think about their businesses.
I enjoyed the conversation with the women as they discussed how benefits of the microfinance programme apply to them. What I experienced with those women is what can happen when microfinance programmes are implemented in a way that provides clients with needed financial and non-financial support so they can take advantage of economic opportunities.
After engaging the group and encouraging them to effectively use and pay their loans, the bank officer also took them through the ABCs of business management. Some of the women were involved in processing grains for preparing meals.
We discussed how they can package the products to improve their market value, and we then proceeded to the business premises of the dreamer. She was baking bread. She walked us around her business and told us that she started with a loan of GH¢200, which enables her to sell bread. Over time, she had acquired competencies in the bread business and therefore took a loan to assist her in building a traditional oven. She started baking her own bread -and then her dream started unfolding.
From her narrative and assessment, I could see that her business had progressed over the time. The story of the dreaming woman, in summary, must be the end result of all intended financial intermediation programmes targetting low-income and poor clients.
I brought up this single amazing story of the micro client to demonstrate how potent microfinance can be in helping poor clients to start dreaming once they are given the opportunity to change their lives through access to loans and other financial services.
Ghana’s microfinance sector needs rebooting. These institutions are an important aspect of the entire financial system. This sector has the potential of improving financial access for low-income and poor clients, who are largely found in the economy’s informal sector.
I shared one story to drum home the fact that we cannot as country, in the current state of our development, do away with financial institutions which provide financial and non-financial services described as microfinance to low-income clients with the objective of contributing to improving the economic wellbeing of the target clients.
Considering the value of Ghana’s microfinance sector to poverty reduction and livelihood empowerment, there is a need for stakeholders to put Ghana’s microfinance sector back on track so they are able do what only microfinance institutions can do to push the ends of our development agenda. The following points are my thoughts on how to reboot Ghana’s microfinance sector:
Ghana’s Microfinance Regulations
Ghana’s microfinance sector needs a regulatory framework that is cut out for microfinance management. Even though the current microfinance sector is regulated, the regulation is borrowed from the tradition regulatory framework used for regulating banks. This form of regulation does not consider the unique complexities of microfinance operations.
For example, traditional regulation does not really focus so much on social impact but on the financial soundness of the institutions or the financial sector. Microfinance operations must consider social as well as financial objectives.
Regulation must make MFIs efficient in delivery of their main objective, and must not unnecessarily add or introduce additional costs or financial or operational burden to the already expensive nature of microfinance operations.
Regulation can also focus on training to ensure that the right competencies for key management staff of MFIs are in place, since microfinance operations require certain special skills and knowledge which are totally different from traditional banking.
The thinking that microfinance is just like any other banking services or micro-banking can be identified as one of the reasons why Ghana’s microfinance sector witnessed a situation wherein owners and key managers of MFIs retired from the traditional or high-street banks to work within the microfinance space – without having to acquire the needed skills for managing or installing microfinance programmes.
This development can be seen as one of the several factors which negatively affected the advancement of microfinance operations in Ghana. At least, from evidence, it is now clear that MFIs are not ‘mini-banks’ and therefore must not just be managed as banks with people having only banking skills or qualifications. A microfinance-oriented regulatory framework for Ghana’s microfinance sector will help promote effective and impactful microfinance management.
Expand the concept of financial inclusion beyond Fintech
Financial inclusion is aimed at providing appropriate financial and non-financial services and products to non-bank and underbanked populations, so as to ensure that these products and services are competitively priced – with the products being relevant to meet needs of the poor or low-income earners. Ghana, through the advancement of technology, is currently experiencing a drastic growth in the use of mobile money platforms for banking services. This has been made possible through the efforts of Mobile Network Operators (MNOs) as well as Fintech Companies.
Piggybacking on the network of MNOs, Ghana has recorded an impressive mobile money growth with increasing deposits and user indicators. This impressive mobile money growth indicator is one major driver for making financial services available to a majority of the population. From this evidence, it is clear that FinTech and technology-aided platforms can help drive the financial agenda.
While we see the evidence in mobile money transactions recorded, we may have to push the conversation from increasing mobile transaction to efficient utilisation of the funds and its impact on owners of the funds – so we can achieve the right objective of financial inclusion, which goes beyond recording high volumes or values of financial transactions to ensuring derived economic benefits for low-income or poor clients.
Clearly, on the back on technology we can scale-up and increase access to financial services. However, it is important for the sector and players to intentionally look at how to translate all these growths to ensuring that the targetted clients, low-income and poor clients, have correct right products to help them invest in the right economic opportunities. Ghana must not drive the financial inclusion agenda without having strengthened the providers of microfinance – like the rural and community banks, microfinance companies, Susu Collectors, etc. These players do not just provide or dispense cash or loan services.
They serve as financial information, training and consulting centres for low-income and poor clients. When officers of these financial service providers interact with their clients, they provide more than just deposits, loan or cash withdrawal services. The officer-client interactions can help the low-income earners and poor clients to be effective users of financial services; something that is still missing from the present objectives/effects of technology. Ultimately, achieving financial inclusion can only be done through efficient collaboration of key players within the financial sector, which includes having a vibrant microfinance sector and not just relying on the availability of technology.
The microfinance sector needs confidence-boosting. This is largely because the confidence level for microfinance operations in Ghana has dipped – especially in the case of deposit-taking microfinance companies. This development can partly be ascribed to reported cases of MFIs absconding with clients’ deposits, or their inability to repay clients. Additionally, the unintended outcome of the banking sector clean-up also led to some loss of confidence.
The good news is that there is a general restoration of confidence in the financial sector, due to the roles of other players like the rural banking sector which became reliable alternatives for most of the clients who had challenges with the Microfinance companies. Overall, it is worth noting that some players are still battling with customer confidence; and these must be addressed since they will not go away by themselves or with time.
To improve the confidence level of MFIs, there is a need to support the existing MFIs with some funding to enable them have the needed liquidity for loan granting as well as deposit payments. The more these MFIs are able to honour their liabilities, the more the clients will become confident about their operations – which can translate to increasing the confidence level of the entire microfinance sector.
Microfinance Institutions must be ‘microfinance’ in their operations
One of the challenges of Ghana’s microfinance sector is the desire of MFIs to look like banks in their operations. This has affected the general outlook of Ghana’s microfinance, leading to some operators of microfinance services developing appetites for high loan value as well as increasing the overall cost of operations. By this, MFIs became interested in granting loans averagely in large value so that they could improve their income levels. From the size of loans granted, it probably indicates that most MFIs were targetting clients who did not necessarily qualify as microfinance clients.
The end result was that MFIs – in the absence of the right systems and human resources – created delinquent loans which negatively affected their operations. MFIs in Ghana should focus on staying ‘microfinance’ in their operations. They therefore must develop the right systems, lending methodologies and tools which will enable them to provide effective microfinance services to the targetted micro clients.
They must understand the microfinance market and know the key characteristics of micro clients. These can help them develop the right products and system to help them achieve the right mix of outreach, sustainability and impact through their services. If MFIs fail to target the right clients – the unbanked or underbanked – clearly, these clients will not be targetted by the high street banks and the overall objective of financial inclusion will be derailed.
Ghana’s microfinance sector is an important element within the overall financial sector ecosystem. This sector must be assisted to provide the needed financial and non-financial services. This class of financial service providers provide an array of financial serves to low-income and poor clients, which has evidently contributed to improving the livelihoods of target beneficiaries.
While we see a great enabler in technology as developed and deployed by FinTechs, it is important that we develop a good collaboration between technology and human interface banking to achieve the full benefits of financial inclusion. We must therefore take the needed steps to reboot the microfinance sector so it can be the foundation to drive technology-enabled financial products and services to the low-income and poor clients – so as to achieve the overall objective of poverty reduction through the provision of financial services.
The writer is a Microfinance Consultant and Credit Risk Manager of ARB Apex Bank.