By Fred Sarpong
Some Micro Finance and Savings and Loans institutions in the country seem to be making lot of money from Ghanaian businesses and some individuals who go for loans from these institutions.
Investigation by this paper shows that what these non-bank financial institutions do is to collect more money from these clients through the payment of interest rate charges on loans.
Business Week gathered that instead of these financial companies to use reducing balance method to calculate the interest on loans to clients, they rather used straight line method.
With straight line method, the actual interest rate goes up, but with the reducing balance; the actual interest rate remains the same.
For instance, if a client borrows GHc15, 000.00 for a period of six month at a monthly interest rate of 4%, the principal monthly repayment will be GHc2, 500.00 plus a fixed monthly interest charged of GHc600.00.
With this the client will be paying GHc3, 100.00 as monthly repayment. Instead of the interest charged of GHc600.00 will be reducing in each month when use reducing balance, it rather remains the same with straight line method.
Going by this straight line method, as used by some non-bank and some universal banks as well, the principal balance for the client will be reducing, but the actual interest charged rather continue to rise. At the end of the six month period the client end up paying about 24% actual interest charged.
With regard to the reducing balance, the interest charged and monthly repayment reduces on each month, as the actual interest charged remains at 4%, even at the sixth month, unlike the straight line method where interest charged remains the same and the actual interest charged increases at each month.
This paper finds out that majority of these financial institutions do not explain the detail of interest payment on loans to their clients. Similarly, many clients also refused to seek the detail of their loans repayment structure.
In an interview with Rev. Dr. Emmanuel Ameevor, the Managing Director of Gentrac Investments Limited, he confirmed to Business Week and added that his colleagues within the financial sector are causing harm to Ghanaians and if care is not taken, some industry players.
He adviced that it is important for clients to demand the details of their loan repayment, whenever they apply for a loan. Some companies contacted refused to comment on this issue. However, Business Week is still investigating and will come out with the names of those companies using the straight line method to dupe Ghanaians.
Madam Rose Ansah-Yeboah of RAY Ventures at Teshie, a suburb of Accra complaint bitterly that she has suffered similar problem from two micro finance companies and one universal bank in Accra. According to her these financial companies nearly collapse her business, until she hired a professional accountant who managed to explaine the nitty-gritty of interest rates to her. ‘Since then I have not encountered such problem again.’ She added. RAY Ventures deal in provisions and food stuffs.