Microfinance existed in various forms before independence, has thrived and evolved through various government policies initiated to shape and improve the microfinance industry in the country.
People engaged in savings and taking loans from individuals or a group of people to grow their businesses, have long existed before microfinance became formalized in Ghana.
However, the industry, since its validation by the Government of Ghana (GoG) has played significant roles in boosting the micro economic sector of this country.
MFIs were mandated by GoG to offer financial services primarily aimed at individuals and small businesses who lack access to traditional banking and services. Their roles includes the provision of microcredit, small loans to low income clients, savings and payment systems.
The Bank of Ghana (BoG) in April 2011 classified the microfinance companies in the country as tier 2 financial institutions which required that, the microfinance companies form an association which will act as the first point of call to its members and stakeholders.
Hence, the establishment of the Ghana Association of Microfinance Companies (GAMC) in May 2011 as a company limited with certificate incorporation number G.23679. The Association is the apex body of Microfinance Companies under tier 2 in Ghana.
The Association advocates and lobbies government, at various levels, for the formulation of appropriate legal and regulatory framework, microfinance development policy and national capacity building programs.
The Association assembles all necessary resources required for the efficient and effective delivery of services of its members to their clients and also facilitates and coordinate sensitization programs to train and educate human resources in the sector.
Again, to ensure that members abide by regulations that governs the 2nd tier microfinance sector, GAMC plays a supervisory role by monitoring and accessing the activities of its members so as to establish credibility and sanity into the operation of 2nd tier microfinance companies so as to be recognized among the public, stakeholders and other regulatory body.
In addition to the supervisory activities of GAMC for its members, the Bank of Ghana also oversees the activities of microfinance companies by reviewing periodic reports and on-site supervision. Operating licenses are also subjected to annual renewal upon satisfactory performance and payment of the appropriate license renewal fee.
Microfinance companies as tier two financial institutions are to notify BoG before opening other branches and are required to hold a minimum capital not less than GHC 100, 000.00 per one-unit office.
Members of GAMC are permitted to accept deposits from the public as well as give out loans, however, they are not allowed to issue checking accounts, engage in foreign exchange business and engage in any trading activities or hold any stocks of goods for sale to their clients.
Microfinance companies in Ghana together with GAMC has served as an essential tool in growing financial inclusion in the country and helped built self-sufficient and economically stable people in the society.
Access to financial services is imperative for the development of the informal sector, and also helps to mop up excess liquidity through savings that can be made available as investment capital for national development.
The microfinance industry has emerged as one of the most interesting financial delivery innovations.
Microfinance has been as a poverty reduction tool and an instrument to support economic development, but increasingly, it is also recognized as a valuable financial service and a good business opportunity at the ‘’base of the pyramid’’: a significant number of MFIs across the world have demonstrated that it is possible to reach out to the poor and be profitable at the same time.
In recent time, microfinance in Ghana is emerging into a viable, prosperous and a citadel of hope for those living below the poverty line who cannot access the formal financial system.
Growth drivers for the microfinance sector depends on GDP projections, population growth, new products, technology, the entrance of international players and transformation of NGO’s into for-profit institutions.
The threats are poor infrastructure, political risk, economic crisis (weak macro-economic variables), poor corporate governance and the ability to find, afford, train and retain high quality human resources.
The opportunity in the MFI industry is unparalleled relative to other industries in the financial sector.
Indeed, MFIs seem indispensable in the Ghanaian context looking at the prevailing economic and financial conditions.
What is needed however, is effective regulatory approach to ensure sanity in the sector and thereby address the recent reported challenges.
It is recommended that the Central Bank creates an independent and separate entity (apex body) that will run the affairs of this sector and also sensitize the various stakeholders of the industry in restoring trust and confidence in the sector.
Greater governmental and Bank of Ghana’s effort is necessary to achieve this.