Microfinance scheme

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Oct 2006
Ghana , October, 06 2006 - Weeks ago, the $50 million microfinance scheme was launched by the President. I don't know why we keep quoting the figure in dollars. Properly put, the President launched a ¢455 billion microfinance facility. And since that time, people have been calling and calling; everybody wants some of the money to expand their businesses. That is a good thing, because we are in a golden age of business.

TRADITION

Actually, this microfinance scheme has been going on for some time. It has been managed by the Microfinance and Small Loans Centre. When you cut this name short, they call it MASLOC. So the MASLOC, people have been talking about, this is what it means: 

What the ¢455 billion facility is going to add to the existing scheme is that, now, more money could be given to people. Also, the amount of money an individual can get is now bigger than before. This is definitely good news for small businesses.

You see, traditionally, our banks and commercial lenders pay attention or give their money to big businesses only. There is a reason for that. Big businesses or companies normally have an address in a particular building. They are registered with the Registrar General"s Department. They have a bank or banks with which they do business.

So, the banks are not afraid to give their money to such big businesses because if they don’t pay back, the banks can go and sell the company’s property for the money.

 Also, a big company would normally not close down their premises and run away because of a debt. In fact, the banks themselves would usually not lend more money to a company than the worth of its assets.

THE NEED

Because of this situation, life has been very hard for small and petty businesses; they can’t get credit. I don’t know whether the banks are to blame. You know the way our people do their business. They don’t register, and they don’t keep proper records.

They also don’t like dealing with the banks because there is a feeling that the banks are for rich people. If you ask most small and petty businesses about their bank accounts, they would ask you, "which bank account?”

As a result, small businesses rather prefer to go to informal lenders to borrow money. Unfortunately, most of these wayside lenders have no fear of God. So they charge outrageously high interests.

On the informal lending market, there is something called “snake and its child”, which means, if you borrow (say) ¢1m at the beginning of the month, you pay back ¢1.5m at the end of the month. That is an interest rate of 50 percent per month, or nominally, 600 percent per year; which compares with about 24 percent per year by the banks. That is why I say, those wayside lenders have no fear of God in them.

But let’s face it, many of these small and petty businesses are a source of livelihood for millions of our folks. It is the 'small small’ money they have been getting that they use to take care of their families. In my case, if I tell you how my mother paid for my school fees before I managed to complete school, you would be shocked. And I know it is like that for many people.

GOVERNMENT INTERVENTION

Now, everybody knows that as for this government, it is the poor people they are always trying to help most. I mean, if you look at the Capitation Grant, the Health Insurance Scheme, the Youth Employment Programme, etc, nobody would tell you that this is a government for needy people.

So, when the government saw that such small businesses had been left at the mercy of the “snake and its child” people, they decided to do something about it. This is  what the Microfinance Scheme is all about. We thank government for that.

HOW MUCH?

I know many people are not interested in all the plenty talk about microfinance or whatever. All they want to know is how they can also apply for the cash. As for cash, people like it ‘well well’.

Well, to begin with, businesses or individuals who want up to ¢6m must apply in groups or cooperatives. The total for the group should not exceed ¢150m. The money must be paid back within twelve months. If some members of the group don’t pay, the burden would fall on the other members.

Businesses or individuals who want more than ¢6m may apply individually or in groups. In either case, the ceiling is ¢150m.

If applicants in this category apply in a group, each person cannot access more than ¢10m. Such applicants would satisfy more conditions, and their use of the money would be more closely monitored. The credit would be given on short terms basis (up to 18 months) or on medium term basis (18 to 36 months).

HOW TO APPLY

At the moment, those who want the money could apply to the relevant ministry. If you are into farming, then your ministry is the Ministry of Agricultural. If what you are doing is related to tourism, then the Tourism Ministry is your place, etc.

If you are a woman, then you have a special advantage because you can go to the Ministry for Women’s Affairs. As you know, there is no Ministry for Men’s Affairs, something I find hard to understand.

Where the ministry determines that the applicants need training, they would be assigned to accredited trainers who would give the needed entrepreneurial training.

After that, the applicants would be connected  to a bank, or a rural bank or a microfinance institution (like a credit union) where the money would be borrowed.

Actually, the Microfinance Scheme is district-based, and that is what would happen ultimately. All interested businesses shall apply at the district level. Every district shall have designated Scheme Centres that would attend to applicants and do what the ministries are doing now.

INTEREST RATES

It would have been a good thing if these loans were interest-free. But if that happens, the money would reduce in value over time, so that, after some time, those who get it cannot use it for the very things earlier beneficiaries used it for. Hence, to protect future beneficiaries, it is good that some interest is paid on the money. So what interests would people pay?

Up to ¢2m, the interest is 10 percent. Between ¢2m and ¢6m it would be the Bank of Ghana Prime Rate (currently 14.5 percent). Between ¢6m and ¢20m, the interest would be the same Bank of Ghana Prime Rate. And then between ¢20m and ¢150m the interest would be the Bank of Ghana Prime Rate plus 2.5 percent (which currently would be 17 percent).

FINAL WORD

My final word is that those who benefit from the Scheme should try and pay the money back on time. As for some people, immediately, they hear of something like this, what they think about is how they can get some of the money and spend it. They don’t think about how they are going to pay it back. That is not good.

 The Scheme managers have put in place measures to track beneficiaries and ensure that defaulters who try to be smart are punished. But let’s pay back what we borrow and help make the thing work so that it would be there forever, so that many more people can also enjoy the thing in the years to come.



 

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