Business

    Microfinance operators seek extension for GHS 50 million capital requirement

    Ghana's microfinance sector warns new capital rules could lead to widespread closures and threaten financial inclusion.

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    The Ghana Association of Microfinance Companies (GAMC) has appealed to the Bank of Ghana (BoG) for more time. They want an extension on the deadline for new capital requirements for microfinance institutions. Current proposals require Microfinance Banks to hold a minimum capital of GHS 50 million by December 31, 2026. GAMC warns that this tight timeline and high capital threshold could force many institutions to close. This could harm Ghana’s financial inclusion efforts, especially for people in rural areas. Many traditional banks do not operate in these regions. Historically, the BoG has implemented policies to strengthen the financial sector. Earlier reforms in the banking sector led to consolidation and increased capital bases. The current move aims to enhance the resilience and stability of microfinance institutions. This is part of a broader trend by the central bank to ensure a robust financial system across the country. Rebecca Addo, GAMC Board Chairperson, stated their support for stronger regulation. However, she believes the proposed timeline is unrealistic for many operators. She said, “We support reforms that will strengthen the sector, but the implementation timeline must be realistic.” She urged the BoG to adopt a phased approach, allowing institutions to gradually meet the new requirements. Closing microfinance institutions would leave thousands of unbanked Ghanaians without financial services. These institutions provide essential services like credit and savings in communities ignored by commercial banks. Losing them creates a significant gap in financial access, particularly for low-income earners and small businesses. This could reverse progress made in bringing more people into the formal financial system. Regulators also face concerns about foreign ownership within the microfinance industry. David Aguda, Principal Consultant at Protage Consult, highlights risks associated with unrestricted foreign ownership. He notes that profit repatriation by foreign-owned firms increases demand for foreign currency. This can put additional pressure on Ghana's foreign exchange reserves, impacting the cedi’s stability. Mr. Aguda believes the current framework, which allows 100 percent foreign ownership, needs review. Industry players advocate for a balanced regulatory framework. They want one that enhances stability while preserving the sector's crucial role. The sector supports small businesses and financially excluded populations. Ebenezer Odame, CEO of Equity Focus Microfinance Limited, suggested a tiered system. This system would allow different capital requirements based on an institution's operational level. He cited Nigeria as a successful example of this approach. Mr. Odame urged the BoG to reduce the new minimum capital requirement to GHS 15 million or GHS 20 million for sector stability.

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