The Bank of Ghana (BoG) has revoked the licenses of 347 microfinance institutions in the country.
Thirty-Nine (39) microcredit institutions have also had their licenses revoked by the central bank.
Of the microfinance institutions affected, 192 of them were insolvent while the remaining 155 had ceased operations.
Following the revocation of the licences of these institutions, a total number of 137 microfinance companies remain active.
The BoG in a statement explained that these actions were to “protect the stability of the financial system and to protect affected depositors.”
“The revocation of the licenses of these institutions is to get rid of insolvent and dormant institutions that have no reasonable prospects of rehabilitation and have denied depositors access to their deposits, thereby constituting a threat to the stability of the financial system.”
The BoG took these actions in line with section 123 (1) of the Banks and Specialised Deposit-Taking Institutions Act, 2016 (Act 930).
This mandates the central bank to revoke the licence of a bank or Specialised Deposit-taking Institution (SDI) “where the Bank of Ghana determines that the institution is insolvent or is likely to become insolvent within the next 60 days.”
The BoG has also appointed Eric Nipah as Receiver for the specified microfinance institutions, also in line with section 123 (2) of Act 930.
The government has made funds available to enable the Receiver to pay depositors “after their claims are validated.”
“In line with the hierarchy of creditor claims set out under Act 930, other creditors of the failed institutions will be settled by the Receiver upon validation of their claims and to the extent that the Receiver is able to realise value from the remaining assets of these institutions.”
State of microcredit sector
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.”
“Despite notices issued to the affected institutions by the Bank of Ghana over the last few years requiring remediation of identified regulatory violations and other supervisory concerns, these institutions failed to address the issues brought to their attention.”
Following the revocation of the licences of these microcredit institutions, a total number of 31 microcredit companies remain.
The BoG says going forward, it will be strengthening its regulatory and supervisory framework, and promoting confidence in the microcredit sector.
It said it has notified the Registrar of Companies at the Registrar General’s Department of the revocation of these licences “and has requested that the Registrar commence winding-up proceedings against these companies.”
GHc900 to sanitise microfinance sector
The BoG has already indicated that it has secured GHc900 million to begin sanitising the country’s struggling microfinance sector.
About 705,396 depositors of distressed or collapsed microfinance companies and rural and community banks (RCBs) risked losing some GHc740.5 million without some form of intervention.
The Governor of the BoG, Dr Ernest Addison has indicated that GHc 7 billion will be needed for a full clean-up.