MFIs’ survival hangs in the balance … as COVID-19 disrupts trade

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Johnson Boadi, MD Golden Pride S&L

The decline in trading volumes and values due to COVID-19 disruption in supply chains globally has had serious effects on the wholesale, retail and distribution business in Ghana – having a ripple-effect on Specialised Deposit-Taking Institutions (SDIs), which have a majority of their customers within this business segment.

According to the Savings & Loans companies (S&Ls) and microfinance companies, the informal sector – which deals in mostly trade and serves as the clientele base of these SDIs – has been greatly affected due to government’s response of swiftly closing borders, restricting air travel and also implementing a partial lockdown in certain areas of the country.

In March 2020, the Bank of Ghana (BoG) announced a number of monetary policy interventions including a cut in policy rate by 150 basis points to 14.5 percent; and loan repayments past due of Microfinance Institutions for up to 30 days shall be considered as ‘current’, as is the case for all other SDIs.

Despite these cushioning measures, the SDIs are struggling to stay on their feet since the virus’ prevalence has kept borders closed and international travel is still banned – which has led to major disruptions in the supply chain.

Managing Director-Golden Pride Savings and Loans, Johnson Boadi Asamoah, speaking at a webinar organised by Krif Media – publisher of Integrity Magazine – emphasised that with the pandemic coming right after the financial industry clean-up by the BoG, which reduced industry players significantly, the contraction in business threatens the survival of most of them.

“Our institutions are at risk because of their dependence on short-term funding, interbank liabilities, and high concentration in sectors particularly affected by the COVID-19 shock. MFIs’ portfolios are under stress as a result of lending to households with volatile income and no assets, and some may be unable to maintain liquidity and solvency,” he stated.

He narrated that declines in income and revenue mean borrowers cannot meet their obligations, and as a result stability of the S&L sub-sector in the country is threatened by the likelihood of a sharp increase in non-performing loans. “In addition, MSMEs also remain vulnerable to failure,” he said.

Nii Amankra Kwashie Tetteh, CEO of Bayport Savings and Loans, on his part at the same webinar indicated that the impact of COVID-19 has resulted in asset quality declines and profitability suffering – worsened by the inability of borrowers to meet their commitments.

He also narrated how cost of doing business is soaring on account of creating ‘green spaces’ free of disease. “The first priority in the crisis is containment. S&Ls must comply with all public health measures to protect staff and clients, particularly at locations where in-person meetings are frequent.

“People need access to their savings; therefore S&Ls, especially those that accept deposits (Susu etc.), should to the extent possible maintain a minimum level of operations while heeding safety protocols,” he said.

He maintained that the regulator must dialogue with the associations of S&Ls, finance houses and microfinance companies to adopt policy interventions which highlight their financial restructuring to help them survive these challenging times.

Nii Amankra Kwashie Tetteh, CEO of Bayport S&L

The theme for the webinar was ‘Effects of COVID-19 on Corporate Ghana-The microfinance and savings and loans industry’.

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