Someone called me on Friday 3rd August 2018 and asked, “chief, where is the banking sector going?” As a typical Ghanaian who answers questions with questions, I asked: “why do you ask?”. He, in turn, asked if I was the only stranger in Jerusalem? But I understood
his question. As an industry watcher, I had received phone calls from a number of people asking, what next for MFIs after the revocation of licenses and establishment of a consolidated bank. I jokingly told a couple of those who asked my opinion that, once the Bank of Ghana is finished with the universal banks, the cleansing will get to the microfinance institutions. This response may sound as a mere joke, but it is the reality. It is just a matter of time that we will hear from the regulator on the fate of similar MFIs, even if not on the scale of takeovers and consolidation as we have seen with the 5 banks.
So, what should MFIs be doing in readiness? By MFIs, I am referring to those deposit-taking institutions (who also provide credit/loans) that are in Tiers 1 and 2, comprising rural and community banks, savings and loans companies and microfinance companies.
It is obvious from the things we have officially heard from Governor Ernest Addison on the status of the affected banks and the behavior of their owners, directors, and management, that a number of MFIs would be found wanting when it gets to their turn. This is no good news but “it is what it is”. For those savings and loans companies, rural and community banks as well as microfinance companies which know they may be found wanting, there will be the need to reflect and act on the following:
- If you have understated/underdeclared deposits you have mobilized in your returns to the Bank of Ghana, it is time to rectify that before it gets too late;
- If you have given related business loans that are non-performing, push the beneficiaries to start repaying before it gets too late;
- If you have granted loans to owners and directors and these are non-performing, ensure the payments are regularized immediately;
- If you have invested MFI deposits in fixed assets and other landed properties, consider liquidating immediately;
- If you have not met the minimum capital requirements, start working on meeting this through strategies such as aggressively looking for investors, merger partner MFIs or sell some of your properties if any to boost your capital (these are quite difficult to meet), but you need to start from somewhere.
Moving forward, you may want to remind yourself that it is no longer business as usual. The alarm bells require the following:
- Directors, please leave up to your mandate and enhance your oversight roles;
- The provisions of the regulator regarding the following should be adhered to strictly:
- Engage in only permissible activities;
- Make a conscious effort to adhere to the relevant minimum capital requirements;
- Ensure compliance with directives on good corporate governance;
- Focus on meeting asset quality indicators;
- Observe good liquidity management practices and meet the appropriate indicators (including primary and secondary reserves, lending ratios, net loans to assets ratios;
- Meet the capital adequacy ratios;
- Ensure business expansion and growth strategies meet the regulator’s requirements.
We recognize these are difficult times for the financial sector including the banking and microfinance subsectors. But for MFIs, the takeaway is “opportunities abound and the market needs you and all you need to do is for you to reposition yourself”. It will get better eventually if we are committed to “doing the right things and doing things right”.