Dr. Johnson Asiama
The Bank of Ghana (BoG) has disclosed a sharp decline in the microfinance sector’s share of the country’s overall banking sector from 15 percent in 2017 to 8 percent in 2024.
The development contained in a newly revised operational guidelines by the Bank of Ghana (BoG) for the sector, said the decline reflects not only a shift in market structure but signals a broader weakness of the sector’s role in promoting financial inclusion.
It also indicated that the decline may also affect the private-sector that seeks to expand access to credit for low-income households and Micro, Small and Medium-sized Enterprises (MSMEs), which traditionally form the core clients of microfinance institutions.
In its assessment, the BoG noted that the reduction in the footprint of the sector also points to declining public confidence, following years of operational and regulatory challenges that have reduced the growth of microfinance.
The Central Bank identified persistent fragmentation, weak capital bases, poor corporate governance, operational inefficiencies, and major structural weaknesses that has also been compounded by high interest rates.
Analysts attribute the sector’s declining share to a gradual loss of competitiveness compared to commercial banks and other regulated financial institutions compelling the Central Bank to embark on some reforms to restructure the microfinance sector.
According to the Bank of Ghana, recapitalisation drive as part of the reforms will improve governance standards, and enhance the capacity of institutions, reposition microfinance to drive financial inclusion as well as protect depositors.
Although the reforms are expected to strengthen the sector over the medium to long term, industry observers and financial analyst have said that compliance may be challenging for smaller operators, which may likely lead to mergers, acquisitions or exit the market.
By Ebenezer K. Amponsah