Caution Fast expanding microfinance companies dangerous- Microfinance Network

They are most likely financing the expansion with their depositors' monies. This is wrong, and makes it difficult to pay but their depositors monies and the promised interests.

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The executive director of  the Ghana Microfinance Institutions Networks (GHAMFIN) has charged the Bank of Ghana to police the tendency of microfinance companies to hastily expand their branches.

The director made this call on the premise that many microfinance companies in the country expand the number of branches using the  deposits of their their customers.

Speaking on Radio Univers' Business Discussion Program, Business Trendz, Mr. Yaw Gyamfi  said

" The menace of microfinance companies losing the monies of their customers is a bigger problem than we think. Not all of them though. But when you see a microfinace finance company expanding its branches at such a fast rate, you must question where they are getting their monies from. They are most likely financing the expansion with their depositors' monies. This is wrong, and makes it difficult to pay but their depositors monies and the promised interests."

The executive director further lauded the Central Bank for the way it is has dealt with the DKM Finance case.

Mr. Gyamfi disagreed with criticisms from the microfinance industry that the Bank of Ghana has been unfair to the customers of DKM finance.

Customers of DKM have vowed to make the Brong Ahafo Region a living hell for government officials in the region if the Central Bank does not release their investments to them.

Read more: Rogue microfinance customers threaten lives of govt employees

Meanwhile, Mr. Gyamfi argues that the Bank of Ghana is taking the right steps to safeguard the interests of the customers.

He has however disagreed with the increment of the minimum capital requirements for microfinance institutions from GHC500,000 to GHC2 million. He has argued that not all microfinance companies need that amount of money to operate due to differences in market sizes.

" Not all the companies need to come up with a GHC2 million capital base. A company operating in rural areas for example, may not have the market size that a company in Accra will have. So it will be unfair to ask them to come up with the same amount of capital. The central Bank must classify the companies into classes, and segregate the capital requirement in accordance with it."

In related development, Pulse Business has been finding out the role microfinance companies play in the financial ecosystem of the country.

David Kumi, an investor with a micro finance institution and a student of the University of Ghana says, his microfinance company presents him with more convenience and ease than a commercial bank would.

" With my microfinance company, I sit in the comfort of my home, and employees are sent to me for my transacitons. I don;t have to go to their offices. They understand my needs, and they meet them at a personal level. They serve everyone in my community. I think that is why someone will go to the microfinance company and not a commercial bank."

Executive director of the Ghana Microfinance Institutions Network, Yaw Gyamfi on his part said, microfinance companies fill a void in the un-banked sector that fully-fledged microfinance companies do not.  He however concedes that a lot policing is needed to rid the system of rogue microfinance companies.

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