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Mitigate impact of microfinance companies clean-up on informal sector — Dr. Lord Mensah

byBobbie Osei
June 6, 2019
in Banking And Finance, Economy, Local Economy, Top Stories
Economist Dr. Lord Mensah

Economist Dr. Lord Mensah

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Senior lecturer of the Department of Finance at the University of Ghana Business School, Dr. Lord Mensah, has called on the Bank of Ghana to as a matter of urgency put in place measures to ensure the recent clean up of the microfinance does not put a strain on the informal sector.

According to Financial Economist Dr, Lord Mensah, Ghana’s informal sector depends heavily on the operations of non-bank financial institutions like microfinance houses hence the cause for alarm.

Speaking on the impact of the recent clean-up exercise in the microfinance sector, Dr. Lord Mensah said the Central Bank needs to be up and doing to minimize the impact of such exercises on the informal economy.

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“Looking at the number of microfinance institutions who have had their licenses revoked, then you ask yourself whether the Bank of Ghana was indeed on the grounds or not.

Because clearly, it shows that they weren’t on the ground and they’ve been soft in cracking the whip when it matters.

This revocation of licenses will have a huge impact on the economy simply because the economy has a huge informal sector of which the microfinance is in touch with. And the universal banks can’t serve the informal sector like the microfinance companies do.”

After the Central Bank appointed Eric Nana Nipah, a Director of PricewaterhouseCoopers (Ghana) Limited (“PwC”) as receiver for all the 347 microfinance companies whose licenses were revoked last Friday (following what it said was an attempt to protect the stability of the financial system and to protect affected depositors), it was revealed that persons who are entitled to claims from any of the collapsed microfinance companies should expect to be paid at least from next month.

The Bank of Ghana has indicated that after the clean-up of the microfinance sector it is likely to turn its attention to the Savings and Loans sector which needs about GHC 7 billion for a successful clean-up.

But according to Dr. Mensah, the fallout from the upcoming Savings and Loans sector clean-up will be worse than what is being experienced with the ongoing clean-up exercise in the microfinance sector

“The way the financial institutions operate lends itself to a lot of interconnection of operations and activities. So, whatever we are seeing in the microfinance sector could be worse in the Savings and Loans sector.  For me, we shouldn’t expect anything different from what we are seeing now.

 

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