Microfinance companies seen as threat to commercial banks

The growing number of microfinance companies in Ghana is seen as a threat to commercial banks. Their growth has even reduced commercial banks’ share in total assets, according to the Bank of Ghana.

While the banking sector has not witnessed new entrants in 2013, the number of licensed microfinance institutions has more than doubled.

According to Bank of Ghana (BoG) figures, it has licenced 138 new microfinance firms in the first six months of 2013.

A deputy governor at Ghana’s central bank noted that as at the end of June 2013, the number of microfinance institutions it has licensed has risen from 90 in December 2012 to 228 by June 2013.

Traditionally, banks are known to focus largely on corporate as well as personal and consumer banking. Thus, the increasing number of microfinance institutions suggests a broadening of the scope of financial service provision at the micro level, he said.

Mr Millison Narh says the situation leaves a wide financial services gap, which has been referred to as the ‘missing middle’ and constitutes mainly Small and Medium Enterprises (SMEs).

“…the number of microfinance institutions licensed by the Bank of Ghana has more than doubled to 228 by June 2013, from 90 in December 2012,” Mr Narh told the country’s bankers during their recently-held Annual General Meeting in Accra.

The strong growth of these other institutions, Mr Narh told the bankers has reduced the commercial banks’ share in total assets from 89% in 2010 to 85%.

Unlike the banks, he argues, these “smaller institutions which are able to offer more competitive rates on deposit products to their customers are inching up their market share”.

“Clearly, this development should be a wake-up call to all banks since there are more funds that can be intermediated in the economy if the price is right,” he added.

According to Mr Narh, the increasing trend in acquisition of licenses by microfinance institutions signals the increasing demand by economic agents at the lower echelon of financial service provision.

He stated that the BoG is also closely monitoring the fast growing share of deposit-taking non-bank financial institutions (NBFIs) sector such as savings and loans companies and finance houses in the total assets of the financial system.

By Ekow Quandzie