BoG must be tough on regulation going forward—World Bank Country Director

The World Bank Country Director, Henry Kerali, has urged the central bank to be tough on regulation and exercise its oversight responsibility strictly in order to prevent any future reoccurrence of revoking licences of some financial institutions as was done recently.

The Bank of Ghana (BoG) recently revoked the licences of more than 70 percent of microfinance companies, bringing their number down to 137 from 484. According to the Bank of Ghana, reasons for revoking their licences include undercapitalization; corporate governance breaches; non-compliance; poor lending and investment practices leading to inordinate losses; and diversion of customer deposits into private businesses, among others.

The move, the Bank of Ghana says, will cost the tax payer more than GH¢900 million. Besides the cost to taxpayers, thousands of livelihoods will be affected as a result of job losses. Again, confidence in the sector has been smashed – resulting in mass-panic withdrawals.

It is for these unpleasant outcomes that Mr. Kerali is asking the regulator to exercise its mandate strictly in order to prevent or mitigate the risk of such happenings in future.

“In terms of mitigating the risk of these things from happening in future, there is need for stronger regulations and oversight for the MFIs and all deposit taking institutions. They must come under stronger regulation and oversight. There need to be some mechanisms that will allow the central bank to exercise its oversight role without necessarily increasing its size,” he told the media in his last press engagement as his mission ends this month.

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He further stated that, even though the central bank’s decision has come at a cost to the economy, it is a necessary evil that ought to be done to restore sanity in the system.

“A lot of the microfinance enterprises, according to the Bank of Ghana, were operating at a loss with huge risks to the depositors – most of whom happen to be small business operators, making the number of people affected much larger than in the banking sector. So, at least, there was a need for the Bank of Ghana to take action, and we strongly support it,” he said.

As part of measures to reduce the possibility of repeating the recent financial sector turmoil, the BoG says it is planning on increasing the minimum capital requirement of microfinance companies to ensure liquidity in the sector. The current minimum capital requirement for the sector stands at GH¢2million.

The BoG says it will further introduce proportional corporate governance; fit and proper, and risk management directives; embark on strict supervision of licenced institutions and enforce relevant regulatory requirements; and increase the resources available for effective supervision of licenced microfinance companies.

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