While there has been increasing pressure from stakeholders on micro finance institutions in the country to quote realistic returns on investments (RoI), the absence of a system to regulate has made some of them still use high RoIs in wooing unsuspecting investors.
This practice has resulted in several issues in the microfinance industry: with some of these institutions promising as much as 30% monthly returns on investments but end up folding up, or being shut down by the BoG for overwhelming defaults in payments to its customers or investors.
Speaking to the media, Executive Secretary of the Association of Micro Finance Companies (AMFC), Joseph Donkor expressed the view that although it was an issue of great concern, the body cannot regulate the rate of returns on investment fixed by each company because they are operating in a free market.
He noted that “when it comes to interest rates, we don’t have a controlled interest rate regime in the country. The rate is determined by demand and supplyâ€.
However, he said the association has continually urged its members to quote achievable rates in order to avoid putting themselves under unnecessary financial pressures (which often cost their survival in the industry).
Mr. Donkor called for a higher level of sensitization of the Ghanaian business public to improve their understanding of the financial market.
“I think people must be made to understand that you cannot get such high returns just in a short period. It cannot work here in the micro finance industry,†he said.
He reiterated the commitment of the AMFC to work with the Bank of Ghana in improving activities in the micro finance industry as well as the financial sector in general.