It was not my intention today, Tuesday, 16 April 2019, to write about the collapse of financial institutions, thus banks and microfinance, in the country. However, the latest difficulties being faced by Paa Kwesi Nduom’s bank (G. N. Bank) to honour the payment of its depositors’ money when they call at the bank for withdrawals as received on my WhatsApp page today has necessitated this publication. The spate of recent collapse of banks and microfinance institutions, some of which had turned out to be Ponzi schemes, is very alarming. I can actually not get my head around this problem. I am suffering sleepless nights over this issue that has the potential to put brakes on the economic development of the country.
Ghanaians who genuinely deposited their money with these banks and microfinance institutions now stand to lose part, if not all, of their money. I will not want to play a fool by depicting my ignorance in finance but I may have to ask a few questions in my aspirations to get to the bottom of why Ghanaians are dubiously losing their money through the collapse of the banks.
Since the era of the Provisional National Defence Council (PNDC) military junta government under the Chairmanship and later the presidency of Flt. Lt. Jerry John Rawlings, some banks have emerged in Ghana only to end up swindling their customers. Such banks that are on the outset with intent to dupe their customers are called Ponzi scheme banks.
Ponzi scheme is defined as "a swindle in which a quick return, made up of money from new investors, on an initial investment lures the victim into much bigger risks" and it is named after Charles Ponzi (died 1949), the organizer of such a scheme in the U.S. in 1919–20"
In Ghana, I wonder why most initiatives taken with good intentions end up becoming a curse. When former President John Agyekum Kufuor and his New Patriotic Party (NPP) government took over the reins of government from then outgoing President J. J. Rawlings and his National Democratic Congress (NDC) government, the country was beset with financial constraints. There was practically no funds in the State coffers. Therefore, President Kufour initiated several macrofinance policies to raise money to fulfil all the financial obligations of the economy and find solutions to meet the obligations. Subsequently, he initiated microfinance policies to enable job creation for the people to alleviate them of their economic hardships. In his farsighted efforts to resolve most of the economic problems of Ghana, all in the best interest of the citizens, he signed Ghana up for the Highly Indebted Poor Countries (HIPIC) Initiatives in Africa. Ghanaians are themselves the best judges to tell the benefits the country reaped from that initiative.
Going back on the microfinance which was intended for helping to create jobs for the people, little did we know that most of the proprietors would turn up to use them as engines to swindle Ghanaians hence becoming Ponzi schemes. What is a microfinance anyway? "Microfinance is a category of financial services targeted at individuals and small businesses who lack access to conventional banking and related services. Microfinance includes microcredit, the provision of small loans to poor clients; savings and checking accounts…"
I very well understand that a bank must hold cash and have liquid asset, keeping a fraction of the investors or shareholders money as well as that of depositors’ to run its day to day activities. At the same time, it must deposit a percentage of its money with the Central Bank as may be fixed by the Central Bank. Banks can borrow from the Central Bank and from their colleague banks etc. I am not here to discuss any deregulations the like and abuse of which brought about the 2008 credit crunch caused by the Lehman Brothers of USA and the Northern Rock in the United Kingdom.
What baffles me is the threshold sum of US$400 million set by the Bank of Ghana last year for any bank in Ghana before they can operate as fully-fledged bank. Without meeting that obligation, your bank will either be downgraded or folded. Before the banks that are currently collapsing and being consolidated with others into a single bank started operating, what was the threshold deposit needed from them? Were they able to fulfil the banking regulations and obligations by then? If yes, why should the newly set threshold provision of US$400 million become retrospective effective to lead to the collapse of banks which were probably once viable unless they were Ponzi schemes?
What happens if in the near future another Bank of Ghana Governor comes and decides to set say, US$1 billion as a prerequisite threshold? Will the current banks that have survived the US$400 million that find themselves unable to meet the newly set threshold fee be folded up? What is the cut-off threshold where nobody can decide to collapse banks because of their inability to fulfil or meet the demand?
Yes, banks cannot continue to operate if they are operating at a loss to cost their depositors their money so deposited with them as is unfolding in Ghana presently. Most of the microfinance institutions are set up only to dupe Ghanaians. One was in Kumawu. It duped the people and just closed its doors overnight when it was about to be investigated. I understand the wailing in Kumawu was ear-splitting. Many were those that lost their money. It is really sad to see poor people losing their money to these Ponzi schemers.
In some cases, I understand the government can step in to refund all, or part, of the depositors’ money for them but in others, it can’t. Where it can and cannot, depends on the statutory regulation in place as may be set by the constitution and the Central Bank.
Ghanaians must not hoard their money at home which option at the moment may sound credible. However, they must save their money with the orthodox banks like the Ghana Commercial Bank, Agric Development Bank etc. These banks are well established and have been in the country for decades. Their interest rates on savings/deposits may not be that much but it is better than going for the huge interest rates offered by the Ponzi banks that end up absconding with depositors’ money. We have to try to work with our money rather than thinking of depositing them with investment banks offering higher interest rates only to end up losing our entire capital money. Let us try to become entrepreneurs in our own little ways if we can.
The government must enlist people and the media to educate Ghanaians on why the banks and the numerous microfinance institutions are folding up. It must again advise the people on safe methods of saving their money. I shall advise that Ghanaians must become suspicious of any bank or financial institution that offers them unreasonably high interest rate on their savings. Such a bank or microfinance institution will with the passage of time do a runner with your money.
I stand for correction on this publication as I am not an expert in finance but only trying to understand why certain things are continually happening to Ghanaians in the financial sector, yet they continue to fall victims to them. I am only helping to create awareness.
Disclaimer: "The views/contents expressed in this article are the sole responsibility of the author(s) and do not neccessarily reflect those of Modern Ghana. Modern Ghana will not be responsible or liable for any inaccurate or incorrect statements contained in this article."
Reproduction is authorised provided the author's permission is granted.