Provisions should be made for microfinance institutions (MFIs) to have access to information from Credit Reference Bureaus to control their rate of loan defaults and put them in a stronger position to support economic activities, says a report from the University of Ghana Business School (UGBS).
“Some customers take loans from so many financial firms and end up not being able to pay; if MFIs are able to access the true credit history of customers seeking loans, they will be able to reduce their rate of defaults.”
Considering the current state of MFIs in the country and the critical role the sector plays in socio-economic growth, the report also urged the Bank of Ghana (BoG) to tighten and intensify its regulations and monitoring activities to effectively protect the critical sub-sector from unscrupulous operators.
It also called for speedy implementation of the Depositor’s Protection Act (DPA)—which it says is long overdue—to help restore trust in the sub-sector and sanitise the activities of industry players to sustain their operations.
“Sustainable access to microfinance helps alleviate poverty by generating income, creating jobs, allowing children to go to school, enabling families to obtain health care and empowering people to make the choices that best serve their needs,” said the report on the need to have the microfinance sector working.
Microfinance is basically the delivery of financial services to low-income earners and micro-enterprises that have been excluded from the traditional financial system.
According to the UGBS’s Ghana Business Development Review, the MFIs landscape continues to grow rapidly with an existing market that holds opportunities for new entrants.
It stated: “Clearly, the concept of microfinance has been embraced by the Ghanaian populace – as verified in the rate at which millions of people patronise the services of MFIs.
Though less attention was paid to it at its inception stage, microfinance has emerged as an important sector to the country’s development and growth; the sub-sector is rapidly growing and transforming…”
Even though the sector appears to have improved in financial performance, the report said there is still a need to boost and strengthen services through capacity building, technical assistance and funding as well as an enabling infrastructure.
This, it explained, will improve the outreach and availability of financial services to businesses in the informal economy – mostly comprised of micro, small and medium enterprises (MSMEs) and individual persons.
“Although competition is keen in the microfinance sub-sector, there is still opportunity for growth since an estimated 70 percent of the Ghanaian populace remain unbanked,” said the report on outlook of the sector.