He believes microfinance institutions have not failed but was quick to add that some of them had had major challenges that had significantly impaired their status as going concerns and ultimately fuel concerns about the reputation of institutions at that level of financial intermediation.

In an exclusive interview with the Daily Graphic, Mr Nyinaku traced the challenges to several factors, such as the lack of basic business management and corporate governance structures; insufficient technical capacities, and they being exploited by some bigger finance institutions.

He also mentioned the lack of basic understanding of the regulations governing the practice as another major challenge bedevilling the sector.

Lack of structures

The business executive and entrepreneur stressed the point that some of those institutions, especially the ones that had challenges, did not have basic office management structures such as procedure manuals, personnel and role segregation, basic data generation, management processes and more.

Strikingly, he said, the absence of such key structures made the business and decision making centre around one person, which meant continuity was not guaranteed if that person was not available.

“They did not have standards for monitoring and reporting on their operations in a way that would enable them to notice the performance of the business from all perspectives. Some of these institutions also do not invest sufficiently in human resources well as logistics sufficient to support the delivery of the business at that level,” he stated.

Technical capacities

Regarding, insufficient technical capacities in some of the institutions, he said finance and banking – at the universal banking or micro finance level – were governed by a set of finance management principles which did not change much regardless of the size of the undertaking.

“Building a business involved in financial intermediation is a specialised form of intellectual entrepreneurship. The process is not as straight forward as normal trading, hence the reason why the practice is highly regulated,” he posited.

That therefore required depth in finance to be able to successfully run an institution involved in financial intermediation, including using a set of complex financial and operational performance indicators that reported on the outputs of various aspects of the businesses performance.

He mentioned, for instance, that BEIGE Capital, since inception, had been measuring its performance in accordance with the MIX reporting standards which were worldwide standards for measuring the performance of businesses involved in banking at all levels.

The BEIGE Group CEO emphasised that the mix reporting standards were very detailed and would reveal the output in every area of the business.

Regulation

In its regulations governing deposit-taking microfinance institutions, the Bank of Ghana made a lot of provisions, some of which included the maximum amount of deposits from a single individual depositor and the volume of assets the firm could create in relation to their stated capital.

“These, I believe, were made specifically to protect depositors as well as ensure that the institution is always well resourced to meet expected demands from depositors,” Mr Nyinaku explained, adding “it appears that some of these institutions did not heed them or keep them, thus leading to the stress they encountered.”

The BEIGE boss indicated that some of the microfinance institutions were exploited by some bigger finance institutions, because microfinance institutions at lower echelons of the financial services hierarchy were unable to raise rates comparable to what the big institutions would offer.

“Thus, to have access to wholesale funds, they had to turn to the bigger institutions. In boom periods, bigger finance houses lent a lot to the microfinance institutions at quite expensive rates but for relatively shorter tenure. It was difficult for the MFIs to redeem some of these funds as they fell due because of the tenure at which they had to on-lent the funds,” he explained.

Support BoG

Mr Nyinaku expressed his belief that no matter what had happened, the Bank of Ghana’s decision to regulate microfinance institutions was a good one and called for a concerted support for the regulator to ensure that sanity prevailed.

He stressed the importance of microfinance as an essential platform in the delivery of financial services in the economy, especially because of the various classes of people their services reach, including those at the bottom of the pyramid.

“I believe that rather than whipping up the lack of confidence in the sector, we should look at the bigger picture and promote initiatives that would further protect depositors’ funds, thereby reigniting confidence in the system.” — GB