Credit is the heart of every financial institution predominantly commercial Banks, universal banks, savings and loans, micro credits and rural banks. Loans are recorded on the asset side of the balance sheet unlike other services like deposits which are recorded on the liability side .The essence of credit cannot be overlooked considering banks contribution to the growth of the Ghanaian economy. Businessmen , individuals , corporate entities request for financial aids to help drive their businesses and the importance of financial institutions via credit has contributed immensely towards capital inclusion in the country where funds are mobilized through investments and deposits( surplus units ) and then lending to those who require it ( deficit unit ).
However, in spite of this enormous contributions and significance, I would like to share some important informations which requires more attention pertinently to micro credit institutions under tier 3 and 4.
Micro credit institutions are financial institutions that operates under one leg of banking primarily LOANS. We serve the indigenous communities mainly market traders who through fear and panic cannot go to the banks to open accounts, run it for a period of six months prior to accessing credit. Our essence in the financial market is essential considering the livelihoods and financial inclusion we have engendered with our sophisticated products, services and technology.
In view of this enormous contribution, our business poses a lot of risk and this article seems to address these bottlenecks.
Firstly, lenders reliably focus on credit reference bureaus as the ultimate solutions to lending. Though, reference bureaus are very important in the assessment stage of the borrower, it shouldn’t therefore be a source of final approval. This is quite challenging also because, CRB have not included all names in the informal sector onto their portal and also the absence of subscription of members on their portal due to cost or lack of education has a ripple effect on these institutions.
Secondly, micro credit institutions fail to consider their risk appetite prior to lending . Because of targets and competition, micro credit institutions do not painstakingly evaluate their risk appetite and tolerance levels prior to building a million portfolio which results in loan impairments and NPL.
In furtherance ,Micro credit institutions do not as part of their strategic objective undergo certain services like client sensitization and education on bookkeeping, savings , stock management and financial planning. Most clients have what it takes to qualify for a loan but as a result of lack of technical skills and experience to manage the funds given them . This results in unpaid loans , NPL’s and collapse’s of most institutions .
Moreover , post assessment has been one of the key factors that is ignored by micro credit institutions. After loans are given , it is the responsibility of these institutions to check whether the intended purposes have been met by the client . Where it hasn’t , a pragmatic step must be taken to anticipate credit risk and therefore devise strategies to aid recovery .
CONCLUSION
As regulated institutions, it is the collective onus of the association, regulators and members to ensure that , training and compliance becomes the main objective of their everyday business in order to arrest this growing problem which has led to many businesses folding up and others on the verge of bankruptcy and collapse. Let us protect the industry geared towards sustainability and profitability to keep many businesses, entities and traders active .
DISCLAIMER: The Views, Comments, Opinions, Contributions and Statements made by Readers and Contributors on this platform do not necessarily represent the views or policy of Multimedia Group Limited.
Tags:
- President Commissions 36.5 Million Dollars Hospital In The Tain District
- You Will Not Go Free For Killing An Hard Working MP – Akufo-Addo To MP’s Killer
- I Will Lead You To Victory – Ato Forson Assures NDC Supporters
Visit Our Social Media for More
About Author
