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Business News of Wednesday, 9 March 2016

Source: B&FT

Gov’t can’t afford to bail out DKM - Ken Thompson

The Managing Director of Dalex Finance Ken Thompson has described as a bad precedent overtures by government to jump to the aid of customers who lost their deposits in the collapse of a number of microfinance companies, notably in the Brong Ahafo Region.

During President John Dramani Mahama’s State of the Nation address delivered last month, some Members of Parliament urged government to consider going aiding the thousands of crestfallen customers of the failed microfinance companies.

But Ken Thompson, speaking on the Business Time TV programme powered by the B&FT and thebftonline.com and shown on Viasat 1 this Saturday, described the situation in the Brong Ahafo Region as quite unfortunate -- but was quick to add that government will be setting a bad example if it agrees to bail out the disgruntled customers.

“I think we are politicising the entire issue. Government cannot afford to bail out these customers. I don’t think so. I think this would be a bad precedent. I won’t support this, although the situation is a bad one,” he said.

Last month Finance Minister Seth Terkper told Parliament that the troubled microfinance company DKM Diamond Microfinance company, which is at the centre of what has now been described as a Ponzi scheme, diverted close to GH¢80million of depositors' funds into other subsidiaries.

In his presentation, Mr. Terkper said the beleaguered microfinance company was granted licence to operate in 2013 but has been embroiled in one violation after the other.

An investigation by the Financial Intelligence Centre revealed that the company collected GH¢115.2million from customers, but had only GH¢10.8million in its accounts at the time of investigation.

Following a huge public outcry, President Mahama chided the Bank of Ghana over the microfinance brouhaha -- saying the central bank needs to sit up and improve its supervision of the microfinance sector.

Notable among the companies are DKM Diamond Microfinance and God is Love Fun Club, which together with other MFIs were unable to account for over GH¢200million of customers’ deposits lodged with them.

In his State of the Nation address to Parliament last month, the President said the central bank -- which is regulator of the microfinance sector -- failed to effectively supervise some of the companies’ activities.

Since amendment of the Non-Bank Financial Institutions (NBFI) Act 738, which regularised the operations of microfinance institutions, there has been a proliferation of MFIs -- over 500 have been licenced, posing a challenge to the central bank by way of supervision.

The President told Parliament that: “These microfinance companies come under the direct supervision of the Bank of Ghana. Unfortunately, lack of effective supervision on the part of the central bank has resulted in many cases wherein microfinance companies licenced by the Bank have breached the rules of procedure they were supposed to follow, and have created supposed pyramid schemes that eventually came crashing down”.