MICROCAPITAL BRIEF: As Bank of Ghana Intervenes Due to COVID-19 Pandemic, Concerns of Failure, Profiteering Among Microfinance Institutions

The Bank of Ghana, the central bank of the country, recently introduced a series of measures to cushion the effects of the COVID-19 pandemic on microfinance institutions (MFIs). Many MFIs are struggling with liquidity for various reasons including that many have granted their borrowers repayment moratoria of up to 6 months. Citing a recent report from the Bank of Ghana, Samuel Darko, a local researcher, warns that a “liquidity stress-test conducted for the sub-sector shows minimal survival rate for most MFIs.”

In its effort to assist lenders, the Bank of Ghana has: (1) provided cash to some institutions, including via the apex bank for rural and community banks; (2) pushed until the end of 2021 the date by which MFIs must meet previously announced increases in capital reserves; (3) reduced primary reserve ratios by 2 percentage points; and (4) reclassified loan repayments that are overdue by 1 to 30 days as “current.” Despite these measures, Mr Darko argues that MFIs must consider additional steps to maintain liquidity, such as postponing debt payments to investors and cutting staffing levels and salaries. Meanwhile, “These interventions extended by the regulator must meticulously be appropriated by the MFIs for intended purpose of survival (liquidity) only, rather than using same for presumptuous profiteering enterprises, which [would] jeopardize the sub-sector.”

Sources and Additional Resources

B&FT Online article
https://thebftonline.com/04/08/2020/thriving-amid-chaos-mfis-to-focus-on-liquidity-before-profitability/

Bank of Ghana report for the first quarter of 2020
https://www.bog.gov.gh/wp-content/uploads/2020/06/Banking-Sector-Developments-May-2020.pdf

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