Second Deputy Governor of the Bank fo Ghana, Mrs Elsie Addo Awadzi has revealed that Ghana’s Specialised Deposit-Taking Institutions (SDI) sector has contributed significantly to the nation’s socio-economic development by serving individuals and micro, small, and medium sized enterprises.
She said but for SDIs, a big vacuum would have existed in our financial system today.
SDIs are expected to accept small deposits and to provide small loans to micro/small businesses and informal sector business operators.
For a developing country like Ghana, she said, this segment of our society forms the bedrock of our economy and can be harnessed and nurtured to become strong economic actors.
In her opening remarks at SDI’s media sensitization event on Tuesday October 13, Mrs Awadzi said at the end of July 2020, the assets of SDIs constituted 8.47 percent of total banking sector assets, and their deposit base and loans made up 7.70 percent and 14.28 percent respectively of the entire banking sector.
“Savings and Loans Companies, Finance House Companies, and Microfinance Companies, currently operate through a total of 1,070 branches nationwide serving about 1.5 million individuals and businesses, offer thousands of jobs, and provide loans for commerce & finance, salaried workers, transportation and communications, agriculture, forestry and fishing, and small-scale construction, mining and manufacturing, amounting to about GH¢5.7 billion as of July 2020, with loan amounts per customer ranging from a little over GH¢1,000 to GH¢20,000 and beyond.
“In spite of the achievements of the SDI sector, it has faced challenges over the years. As you may know, many of the microfinance companies that were licensed from 2012 were “grandfathered” into the then new microfinance licensing regime without the requisite due diligence done on them.
“Several of them had operated for a number of years without regulation, and upon being licensed, continued with business as usual, without compliance with licensing requirements and other regulatory norms, and without understanding that as financial institutions, they had to operate under prudent management and strong internal controls to ensure the safety of their depositors’ funds.”
She added “A number of Savings and Loans Companies and Finance Houses also strayed away from their mandates under the licences issued by the Bank of Ghana, and tried to operate as banks without the requisite amounts of capital or the expertise to manage the risks they were taking.
“Instead of taking small deposits and lending small amounts of money per customer, they took on large deposits and made large loans, and placed significant amount of funds with other SDIs and related parties with little or no prospects of getting back these funds.
“Essentially, it is these factors, namely, poor capitalization, poor business models, poor governance and risk management, and in some cases fraud and dishonesty, that led to many of these institutions collapsing in the last few years starting with the famous or infamous DKM in 2016, and subsequently many more.
“The Bank of Ghana had to revoke the licences of 347 insolvent microfinance companies and 39 microcredit companies on 31st May 2019.
“It is important to note that 155 of these Microfinance Companies and 10 of the Micro Credit Companies had already ceased operations and had been dormant for a number of years.
“On 16th August 2019, Bank of Ghana also revoked the licences of 15 insolvent Savings and Loan Companies and 8 insolvent Finance House Companies.
“The affairs of the defunct SDIs are currently being wound down in accordance with relevant laws. In the meanwhile, Government has stepped in to provide financial relief for their depositors and employees, so that they did not have to wait for years to see if any value might be realized out of the assets of these institutions before they got paid, if at all.
“Out of GH¢6.5 billion in cedi deposit claims validated by the receiver of the failed SDIs, an amount of GH¢6.39 billion has been paid in cash to depositors, leaving a balance of GH¢110 million being claims of related parties (shareholders, directors, and affiliates) of the defunct institutions who played active roles in their management and control.”