Microfinance companies, a major challenge for financial sector - Prof. Kwesi Botchway

Chairman of National Development Planning Commission (NDPC) is warning that microfinance institutions in the country could pose a major challenge for the entire financial sector if not better supervised.

The crisis bedeviling the microfinance sector, which has seen thousands of customers lose millions of their deposits Professor Kwesi Botchway said could eventually impact on the banking sector negatively.

He is, therefore, warning for urgent steps to be taken by the Bank of Ghana (BoG), against the backdrop that the entire system thrives on trust with customers.

Speaking with JOY BUSINESS the Former Finance Minister said stringent monitoring is critical to averting a possible spill-over.

"Microfinance institutions do need to be better supervised. They have expanded exponentially, this year were numbered 555 institutions.

"They can create problems for the entire banking system by weakening trust both in themselves and worse by extension the banking system generally," he said.

He cited Tim Geithner, the Treasury Secretary in the United States who at the height of the financial crisis in 2008 and thereafter said in his 'Stress Test' book that financial systems are built on belief explaining the derivation of the 'credit' from the latin meaning 'for believe'.

"Geithner says confidence is a very fragile thing and once it evacuates it is very difficult to bring it back, but as bankers, it is something you learn at your mother's knee and we take it for granted," Prof. Botchwey added.

Meanwhile, the Chief Executive of Dalex Finance, Ken Thompson, is advocating a reduction in Treasury Bill Rates in the country to enable Small and Medium Enterprises (SMEs) access cheaper credit for growth.

The current rate at which banks borrow to government he believes is stifling credit extension to SMEs.

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