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BoG gives reason for increasing minimum capital for microfinance inst.
The Bank of Ghana says it increased the minimum capital for microfinance intuitions because it wants to protect depositor’s funds.
The central bank raised the minimum capital required to operate a microfinance to 500,000 from 100,000 Ghana cedis for deposit taking intuitions. That of non- deposit taking firms would also require 300,000 Ghana Cedis.
However, existing institutions have up to 2016 to fully meet the requirements.
Head of Banking Supervision, in-charge of Micro Finance and a Rural Bank, Raymond Amanfu tells Joy Business they want to ensure that institutions that are well capitalized operates in the sector.
"For us there must be a link between how much you can mobilize and what is your commitment to the business. A lot of these microfinance institutions are branching out without the needed capital...putting depositors at greater risk."
Mr. Amanfu also explained why they are charging additional capital for every branched opened by any Microfinance institution.
"The capital that we set out was meant for an office, if you are going to branch out you incur more fixed cost, you are incurring more risks - credit risk, operational risk and you have to get capital to cushion you on that. So we are saying that the more you expand the more risk you are taking."
The Bank of Ghana has currently licensed 258 companies to operate as Microfinance Institutions, while 57 awaiting collection of licenses to commence operations.
The new guidelines also requires microfinance institutions with 1 to 5 branches to have an additional paid up capital of 100 thousand Ghana cedis for each. While those with more than five branches with also have to pay 200 thousand for each.
The Bank of Ghana added that the new guidelines would apply immediately for new entrants however Tier Two Microfinance are to raise their paid-up capital to 250,000 Ghana cedis by June 30, 2015, and 500,000 Ghana Cedis by 30th June 2016.
All licensed and provisionally approved Tier 3 Microfinance Institutions are to raise their minimum paid-up capital to 150,000 by 30th June, 2015 and GH300 thousand 30th June, 2016.
The regulator is asking the microfinance institutions to have 10 percent of their total deposit saved with a universal bank and 20 percent invested in government bonds or securities .
They are also required not to grant loans more than five percent of their paid up capital as unsecured loan and 10 percent for secured loan.
The microfinance instructions are also being advised to seek prior approval from the central bank before opening any branch, failure to do so could see that branch being closed down.
The Bank of Ghana also says they would not hesitate to close down any institution that fails to comply with these new requireme
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