Poor liquidity management skills affect microfinancing

The employment of non-qualified personnel and poor liquidity management skills, due to inexperience are the factors militating against the effective performance of microfinance institutions in the country.

The Deputy Head of Other Institutions Supervision Department at the Bank of Ghana (BoG), Mr K. S. Osei Bonsu, said this at the fifth annual general meeting of the Money Lenders Association of Ghana (MLAG) in Accra on the theme, “Managerial and liquidity challenges of microfinance institutions in Ghana: the way forward.”

Mr Osei Bonsu observed that funds mobilised by the institutions were not properly deployed and upon maturity, member companies could not find financial resources to pay back their clients.

He noted that managerial positions were very sensitive and required that people employed to take such positions were trained, skilled and experienced to be able to discharge their expected duties.

The deputy head pointed out that liquidity challenges resulted from the diversion of funds into unprofitable and unsustainable projects, as well as the charging of outrageous lending rates which did not allow clients to service loan facilities.

He said the interference of the board in the work of the management hindered the progress of the institutions, and that “Unnecessary board interference in management operations rendered the management of the institutions ineffective and also stifled their initiative.”

The way forward

Mr Bonsu said the way forward was to constantly review and monitor the business environment and enact relevant laws to ensure satisfaction of stakeholders, to enable the micro-finance sector to remain vibrant and sustainable.

He called for effective dialogue with operators on strategic and operational issues to ensure that microfinance became a point of reference globally.

Mr Bonsu emphasised that the BoG sought to nurture the microfinance industry and develop an everlasting partnership.

In a speech read on her behalf, a Deputy Minister of Finance, Mrs Mona Helen Quartey, said microfinance was perceived to be a lucrative business with high returns but when critical management and liquidity issues were underestimated,  the consequences involved affected all stakeholders negatively.

“Microfinance thrives on effective liquidity management. This is because lenders in particular are confronted with situations where short-term funds have to be used to finance activities with maturities”, she said.

She advised them to charge moderate interests on loans, saying “Money lenders have been noted for the exceedingly high interest rates they charge on loans given to their clients.”

The Chairman of the board of MLAG, Mrs Regina Kumi, said microfinance was a means of alleviating poverty by providing the poor with access to savings and credit services. 

She noted that one of the challenges of the association was their corporate name “Money Lenders”, saying the name had not been accepted in any literature relating to microfinance.

Mrs Kumi said the board had proposed a new name, “Micro Creditors” and was waiting for approval from the BoG and its member associations to implement it.

She expressed appreciation to the BoG, Ministry of Finance, partners and stakeholders of the association for their support over the years.