Manage planned MFIs clean-up with caution—ARB boss tells BoG

The decision of central bank to extend its financial sector clean-up down to the non-banking institutions is plausible, but will require a more cautious and helpful approach in order not to stir up fear and panic in the sector, National President of the Association of Rural Banks (ARB) Daniel Ohene Kweku Owusu has advised.

In an interview with the B&FT at a capacity building workshop for RCBs in Kasoa, he said: “It is the right step that is being taken by the central bank to harmonise operations of MFIs and to ensure that efficient institutions remain in business.

“But my reservation is about the way and manner the information on the proposed clean-up is being pushed across. Our system is very volatile, and if such plans are not communicated well it is going to defeat the very purpose that the exercise seeks to achieve.”

According to the ARB boss, the financial sector volatility will require the BoG to be apt and concise with information regarding the exercise to keep depositors and clients of the target institutions well-informed and assured.

“Creating the impression that BoG is going to pounce on microfinance institutions will send wrong signals and bring panic withdrawals into the system, as happened with the universal banks,” Mr. Owusu noted.

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The planned clean-up of the on-banking institutions, which comes on the heels of a similar exercise on the universal banks, is an attempt by the financial sector regulator to build strong, viable and stable banks, RCBs, MFIs and specialised deposit-taking institutions to support the country’s growth and development process.

It has already requested some GH¢700million in financial support from the Ministry of Finance to help undertake the exercise, scheduled for the second quarter of this year.

The amount is expected to cushion an estimated 705,396 depositors of distressed non-bank financial institutions from losing their funds in the wake of the clean-up.

A total of 272 out of the 707 institutions within the non-bank space, representing 38.5 percent, are said to be at risk.

To Mr. Owusu, carrying out such an exercise will need a tactful approach from the BoG, considering the unique role of non-bank institutions and the targetted market they serve.

He noted: “We agree that the system must be sanitised to get the very strong and vibrant banking system that will propel the national socio-economic growth we envisage.  So, we are all for it – but it must be carried out in a very cogent and helpful manner”.

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