By: Fred
Yaw Sarpong, Daily Express
Even though the establishment of Microfinance
companies in Ghana is to help small businesses to get capital for their
business activities, at the same time these companies are reaping heavily from
these small businesses by making lot of money from them.
The interest rates charges by these companies
are more than what the commercial and universal banks are even charging.
These companies’ interest rates are more than
double of what even Ghana Commercial Banks and other big banks charged their
clients.
While the both commercial and universal banks in
Ghana are charging interest rate of between 20% and 25% per annum, these
microfinance firms charge between 4% and 6.5% per a month.
This makes the microfinance firms gain more from
these small businesses. While commercial and universal banks are charging
between 20% and 25% per annum, the microfinance companies are charging between
48% and 78% per annum.
The worse part of this interest rate calculation
is that, instead of the microfinance companies to use reducing balance method
to calculate the interest rate on loans for the small businesses and other
clients, they rather use straight line to calculate their interest rates.
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 most microfinance firms in Ghana, 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 reporter 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.
Executive Secretary of Ghana Association of
Microfinance Companies (GAMC), Mr. Richard Amaning explained that it is
important for their customers and Ghanaians to know that, they are working for
profit but lost.
‘People have to understand that the business we
are doing involve a lot of risk and we take all these into consideration.
Because our business involves high risk, we make sure that we do not lose the
focus of our business entirely,’ said Amaning.
According to him the interest rate on money lend
to them by commercial and universal banks are on the higher side, and they
cannot chose to give it out to their client on the lower side.
Our interest rates are moderate because we take
into consideration a lot factors when given out loans to our clients. ‘Most of
our clients borrow money and they never comeback to pay back,’ he added.
Mr. Kofi Kapito, the Leader of Consumer
Protection Agency in Ghana told Daily Express that he will investigate about
this issue and will come out strongly against it when find out the companies
are reaping heavily from Ghanaians. He stated that he has held a lot but yet to
know the detail.
Rev. Dr. Emmanuel Ameevor, the
Managing Director of Gentrac Investments Limited, he confirmed this interest
rates charges and indicated that some of his colleagues are causing harm to the
microfinance industry and customers as well if care is not taken.
He urged clients to demand the
details of their loan repayment, whenever they apply for a loan, especially
with regard to reducing balance and straight line methods interest rates
calculations.
Madam Comfort Badu Mensah of Adom Ventures
at Mallam in the Ga South Municipal Assembly said that even though the interest
rate charge on her loans is high, she prefer going to these microfinance firms
than universal and commercial banks.
‘My bank has understands my business
and am coping with their terms as well,’ she added.
But Mr. Daniel Asamoah, who operate
a shop at Accra Central complaint bitterly that he has had problems with two
micro finance companies and one universal bank in Accra. ‘’These financial
companies nearly collapse my business,’’ he told Daily Express.
‘I realized I was still paying
interest rate on a loan I took three (3) years ago. Looking at my record I was
supposed to finish paying the loan two (2) years after, but they continue taken
money from me till I got to know about it,’ said Mr. Asamoah.
Bank of Ghana (BoG), the regulator of the
banking industry is worried about the influx of Microfinance companies in Ghana.
According to the regulator, some of them are operating even without license,
while some of them are not obeying the rules and regulations of the sector.
Email: sarpong007@gmail.com
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