Government and the Bank of Ghana are collectively evaluating their options with regards to the intended – and direly needed – restructuring and balance sheet cleansing of the Special Deposit taking Institutions (SDI) industry comprising the various genres of non-bank financial intermediation companies in the country. This was revealed on Monday by the Governor of the Bank of Ghana, Dr Ernest Addison, while announcing that the central bank’s Monetary Policy Committee (MPC) had decided to retain its benchmark Monetary Policy Rate at 16 percent for at least another two months.

The central bank Governor revealed that they already have GHc900 million stashed away in a special, dedicated escrow account which conceivable would be enough to clean up the troubled micro-finance industry. However, the central bank itself prefers a holistic approach to the clean up of the SDI industry, which would also address the even bigger financial troubles facing the other genres of deposit taking financial intermediaries, comprising savings and loan companies and the rural and community banks.

The problem here though is that this would require some GHc7 billion, which neither government nor the BoG can afford for now. Government itself acknowledges the BoG ‘s point that a clean up of the Micro-finance institutions (MFI) industry, without an accompanying strengthening of the balance sheets of the other genres would have only limited positive impact, but the constraint to implementing a holistic solution remains severe financing shortfalls.

Indeed, financial analysts agree with the nature of the dilemma, because of the strong inter-connectedness of the balance sheets of the various genres which consequently creates systemic risks. For instance, some MFIs have funds placed with savings and loans (S&L) companies and so failure to clear up the financial shortfalls of the latter would make it difficult to resolve those of the former. Another example: a borrower may be unable to pay its debt to an MFI, thereby placing it in jeopardy simply because that debtor’s funds have been locked up as an inaccessible deposit placed with a rural bank.

Such interconnectedness means that the most efficacious solution would be one that addresses all the genres in a holistic manner. Besides this, the BoG Governor admits that the biggest financial holes currently are in the S&L industry rather than the MFI industry – the most vivid example being that of First Allied Savings and Loans – and indeed this is why the bill to resolve the entire sector is several times larger than that for resolving just the MFI sector.

The most obvious option for resolving the problem – the issuance of bonds, to back up purchase and assumption agreements with relatively strong institutions – requires government funding which it currently would be loath to part with, even on a deficit financing basis. So far, a similar strategy used to restructure the universal banking sector has cost government some GHc11 billion and as yet has only produced GHc730 million in recoveries. This has comprised deficit financing that has contributed to the sharp acceleration in accumulation of the public debt over the past 18 months which increased by the equivalent of eight percent of Gross Domestic Product over the one-year period up to March this year.

There is also the issue of the refunding the deposits of MFIs that have already collapsed. Last year, government paid verified depositors with the Diamond Micro-finance – which collapsed spectacularly in 2016 – and Dr Addison confirmed the intention to do same for verified depositors off similarly duly licensed MFIs which had already gone under.

However, the issue of balance sheet cleansing seems to be getting priority over the ongoing, but sluggish recapitalization of the various genres of SDIs, most of which have failed to meet deadlines that expired last year. Under the new minimum capital requirements, rural banks are supposed to recapitalize to a minim um of GHc1 million, S&Ls, 15 million, and MFIs, GHc2 million. So far however, the majority of MFIs and a large proportion of both S&Ls and MFIs have failed to meet the new requirements.