Seasoned banker and Managing Director of Microfin Rural Bank (MRB), Ishmael Kwesi Otchere, has called for an aggressive financial literacy campaign to forestall the likelihood of a “panic situation” in the microfinance sector that could impede the quest for improved financial inclusion in the rural economy.

Commenting on the recent wrangling in the microfinance industry and its implications on businesses, he indicated that there is bound to be a temporary panic reaction among the market’s targets -- who are mostly semi-literates and illiterates.

He told B&FT in an interview: “There is bound to be a panic reaction in the industry but that will be temporary; but when it does happen, it should be a wake-up call for industry players to be up and doing.

“The informal banking sector is growing, and there are bound to be such situations that will test the pulse of microfinances companies and rural banks in the country.”

According to Mr. Otchere, the situation calls for improved supervision from the sector regulator, the Bank of Ghana (BoG), to keep players on their feet, evidences the need for sustained financial education.

He added: “The ongoing explosion is bringing reactions from the various sectors, and that should keep the players -- microfinance companies and rural banks -- on their feet.

“Also, financial literacy will be key considering the target of microfinance businesses, as it will play a key role in achieving financial inclusion at the lower end of the pyramid.”

The country’s microfinance sector has been in the media spotlight over recent weeks, following the news of depositors’ funds’ misappropriation by a popular microfinance company and some deposit-taking fun clubs in the Brong Ahafo Region.

Various radio discussions pointed at the inefficiency of the central bank in effecting its supervisory role, and the fact that it -- the regulator -- provided “licence in principle” to the defaulting institutions.

But the banker warned that issuance of the provisional licence is not a guarantee or surety that the company is in good standing to bear all liabilities, and warned the public to be wary of “fictitious interest rates” and the fact that “the higher the returns, the higher the risk”.

He further implored communicators to be mindful of how they talk about the industry in order not to paint a gloomy image in the informal public’s mind.

He indicated: “Microfinance has been helpful with regard to the provision of credit facilities for people in the country’s informal economy, and the mobilisation of funds to help sustain the financial system”.

Talking on growth of the microfinance sector, he suggested mergers and acquisitions as a laudable idea that players can embrace to strengthen their business operations, especially with the increase in stated capital for microfinance companies.

“The one-man thing is affecting the industry; it’s about time players took strategic decisions that focus strongly on sustained operations of the business with regard to staff competence, expertise, and an eye for good returns on investment,” he said.