DKM Diamond Microfinance owns two illegal financial institutions

By: Fred Yaw Sarpong- Daily Express

The DKM Diamond Microfinance Limited is the owner of two newly illegal financial institutions in the Brong Ahafo Region, Daily Express can confirm.

The two illegal financial institutions are Care for Humanity International and Financial Giants and they are referred to as fun clubs. These two illegal financial institutions are based in Nkoranza and Techiman and the Board of Directors are the same as those behind DKM Diamond Microfinance Limited.

The DKM Diamond Microfinance Limited started operating Care for Humanity International and Financial Giants, after the Bank of Ghana (BoG) has placed a moratorium on its operations, Daily Express can report.

These two illegal financial institutions (fun clubs) are operating illegally, as per the Bank of Ghana Act, 2002 (Act 612), the Non-Banking Financial Institutions Act, 2008 (Act 774) and the Banking Act, 2004 (Act 673) as amended.

The Daily Express also discovered that after the Bank of Ghana’s withdrawal of the Approval of Principle Letters (APLs) from the 70 microfinance institutions to prevent them from operating, seven (7) financial institutions (fun clubs) within Brong Ahafo and Ashanti regions were also identified operating illegally. These institutions were collecting monies from the members of the fun clubs as deposits.

The seven financial institutions are Perfect Edge Group, its operates in Sunyani, Nkoranza and Techiman; Buoyant Investments- Nkoranza and Techiman; Little Drops Helping Hand Association- Nkoranza and Techiman; and God is Love Fun Club- Nkoranza, Techiman, Sunyani, Berekum, Kintampo, Goaso and Ejura.

The others are Perfect Business Fun Club, Sunyani; L.P.M Eye Adom Fun Club, Sunyani; and Creative Fun Club, Koforidua.

                                 Mr. Raymond Amanfu, Head of Banking Supervision at Bank of Ghana 

                                                    

Mr. Raymond Amanfu, the former Head of Other Financial Institutions Supervision and the current Head of Banking Supervision at the Bank of Ghana told the Daily Express that, at the time the central bank was trying to sanitize the microfinance sector by clearing the sector of non-compliant institutions, they were faced with other illegal financial institutions (fun clubs).

The Daily Express gathered that, as of the time the central bank placed moratorium on DKM operations as a result of offering customers unrealistic interest rates between 50% and 55% per quarter on deposits, the management of the company was allegedly channeling monies through Care for Humanity International and Financial Giants illegally, and at the same time offering unrealistic interest rates to customers.

Per the Bank of Ghana’s analysis, the company is expected to offer between 17% and 24% interest rates per quarter on deposits.

Most microfinance firms in the country charge between 5- 6% interest rates per month on loans. In a year, they charge between 60-72% interest rates on loans to their customers. These are far above what the commercial banks charge which ranges between 30% and 40% interest rates on loans per annum.

The Bank of Ghana said DKM seriously flouted the central bank’s prudential regulations and was operating something close to a ‘ponzi scheme’. The central bank defines a ‘ponzi scheme’ as a fraudulent investment operation where the operator, an individual or organization, pays returns to its investors from new capital paid to the operators by new investors, rather than from profit earned by the operator.

In order to protect depositors and the general banking system in its area of operation, the Bank of Ghana placed a moratorium on DKM operations, according to the tenets of the Banking Act, 2004 (Act 673) as amended.

The regulator then requested the Financial Intelligence Centre (FIC) to freeze DKM accounts together with its affiliate companies through a High Court order last year. The affected affiliate companies were DKM Mining Limited, DKM Transport Limited, DKM Shea Butter Limited, DKM Gas Filling Station and DKM Cement Depot Limited.

“DKM Diamond Microfinance Company Limited had been misreporting to the Bank of Ghana and not been keeping accurate and reliable accounts of all transactions in its books, thereby violating Sections 53 and 71 of  Act 673 as amended,” according to the regulator.

The central bank is of the view that the institution was overexposed to its affiliates in violation of Section 43 (1) and (2) of Act 673 as amended with regard to single obligor limit. There were no proper credit documentation on the exposures and they were unsecured.

Statistics available at the central bank indicate that DKM had the total depositors’ fund of GHc115.24 million. Out of the figure, GHc48, 32,282.75 have been paid to the customers as claimed by the company. The BoG has requested the company to provide evidence of such payments, but it is yet to furnish the central bank, Daily Express can confirm.

                                  Some customers of DKM Microfinance Company Limited

Customers of DKM Diamond Microfinance Limited and other sanctioned microfinance institutions have demonstrated several times against these companies, the central bank and even the Government. DKM alone has over 500 customers across the Brong Ahafo Region. Most of these customers have deposited monies ranging from GHc100 to over GHc50,000.

The customers of which majority are the youth from Sunyani, Berekum, Nkuranza and other parts of the Brong Ahafo Region attacked some government officials in in the region. One of such officials is the District Chief Executive for Nkoranza North, Mr. Kwadwo Adjei Dwemoh.

Mr. Amanfu later told Daily Express that the central bank had initially written to the Inspector General of Police (IGP) to report the activities of these illegal financial operators and the Police was acting on certain information given them.

The Bank of Ghana in collaboration with the Financial Intelligence Centre (FIC) has started freezing some accounts belonging to some of the companies after it was established that they (microfinance companies) were operating outside the confines of the banking laws, he added.

According to Mr. Amanfu, an amount of GHc65.6 million belonging to the God is Love Fun Club has been frozen. About GHc49.5 million of the said amount is deposited at Unibank while GHc16.1 million is at Barclays Bank.

However, he stated that the accounts of the Perfect Edge Group have been de-frozen by the orders of a High Court. “Repayments to clients have commenced and by the court order are expected to be completed and reported back to the court on 2nd February, 2016,” he told the Daily Express.

The central bank also did freeze the accounts of Buoyant Investment and Little Drops Helping Hand Association. But Daily Express can confirm that the Bank of Ghana has de-frozen these companies’ accounts and the depositors are been paid, even though there are still complaints of unpaid claims.

Christopher Amega Dunu, the Public Relations Officer of DKM Diamond Microfinance told Daily Express in a telephone interview that “the problem has been caused already and we are trying to fix it. I cannot say anything further.”

Mr. Collins Amponsah, the President of the Association of Microfinance Companies told Daily Express that even though there are some companies operating illegally, the association is not relaxing on its efforts to expose the illegal ones among them.

“We have agreed to work with the Bank of Ghana to review some of the conditions for licensing Microfinance Institutions,” he told Daily Express.

Meanwhile, the Bank of Ghana has increased the minimum paid up capital for microfinance companies and money lending companies from GHc500,000 and GHc300,000 respectively to GHc2,000,000.

All existing Microfinance Institutions (MFIs) have up to December 2018 to meet the capital requirements, while fresh entrants would be required to pay GHc2 million.

Currently, there are 546 MFIs operating in the country with approved licenses from BoG. Out of this figure, there are 468 microfinance companies, 67 money lending companies and 11 financial NGOs.

Currently, the Bank of Ghana (BoG) is awaiting the fulfillment of final approval requirement from 22 additional microfinance institutions before issuing approval licenses to them. The number of MFIs will increase to 568 if the central bank gives final approval to the 22 companies.

The Bank of Ghana has promised to review the entire process of licensing new microfinance institutions; intensify its intelligence network and all of its regional offices are being resourced with staff to improve surveillance of the microfinance landscape.

It also intends to strengthen its collaboration with law enforcement agencies to deal swiftly with illegal financial services providers; and also to intensify public education consistent with BoG/GoG financial literacy objectives in partnership with the media.