BoG outlines plan to protect microfinance sector after licences revocation

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Dr. Ernest Addison, BoG Governor.

The Bank of Ghana (BoG) has outlined plans to ensure sanity in the microfinance sector after it revoked the licences of some 347 insolvent microfinance companies.

137 microfinance companies are currently in good standing.

The Central Bank said the revocation of the licenses was to get rid of insolvent and dormant institutions that “have no reasonable prospects of rehabilitation” and have denied depositors access to their deposits thus constituting a threat to the stability of the financial system.

In the statement announcing the development,  the BoG assured that it has “put in place measures to ensure that the existing institutions remain safe and sound by complying with relevant prudential norms.”

Among other things, the BoG is:

  • Undertaking a comprehensive review of licensing and supervisory policies and directives;
  • Reviewing the minimum capital requirements for microfinance companies and encouraging possible consolidation through voluntary mergers and acquisitions;
  • Introducing proportional corporate governance, fit and proper, and risk management directives;
  • Embarking on strict supervision of licensed institutions and enforcement of relevant regulatory requirements;
  • Increase the resources available for effective supervision of licensed microfinance companies.

The microcredit sector was also affected by the BoG’s action as 39 microcredit institutions had their licenses revoked by the central bank.

The microcredit sector is now left with 31 institutions.

The revocation of the licences of the 39 microcredit institutions was mainly due to “severe undercapitalization, poor lending and risk management practices, and poor corporate governance practices.”

For this sector, the BoG said it is strengthening its regulatory and supervisory framework, and promoting confidence in the microcredit sector through:

  • A comprehensive review of licensing and supervisory policies and directives;
  • A review of the minimum capital requirements for microcredit and encouraging possible consolidation through voluntary mergers and acquisitions;
  • Introduction of proportional corporate governance, fit and proper, and risk management directives;
  • Strict supervision of licensed microcredit companies and enforcement of relevant regulatory requirements; and
  • Increase the resources available for effective supervision of licensed microcredit companies.

Source: citinewsroom.com