Call Us Savings and Loans Banks � GHASALC

Savings and Loans companies are to engage the Bank of Ghana (BoG) to adopt a different name that will distinguish their operations substantially from microfinance institutions.

The Ghana Association of Savings and Loans Companies (GHASALC) believes that changing the nomenclature for classifying their operation to ‘Savings and Loans Banks’ or ‘SME Bank’ would carve a distinct image for the sub-sector, helping the public to better understand the different shades of financial institutions in order to restore confidence in a rather competitive market.
 
This recommendation was among a plethora put forward after a study commissioned by GHASALC and sponsored by the Business Advocacy Challenge (BUSAC) Fund to provide insight into the effect of including Savings and Loans companies (S&Ls) among microfinance institutions on client perception and operational performance of S&Ls. 

The BoG classification

The Bank of Ghana has classified S&Ls, together with other providers such as Rural and Community Banks, as Tier 1 Microfinance Providers (Bank of Ghana’s Notice to Banks, Non-Bank Financial Institutions and the General Public (Notice No. BG/GOV/SEC/2011/04).

The categorisation, some operators believe, had created the impression that ‘savings and loans companies are microfinance institutions. As a result the S&Ls are seen by a section of the public purely as microfinance providers’ and in some instances are equated to microfinance companies, which belong to the Tier 2 providers.

The membership of GHASALC, therefore, thinks the situation had not served their interest well, as they had been painted with the same brush as microfinance institutions (MFIs), some of which have recently faced various challenges.

S&Ls suffer unintended effects

The study found that although the S&Ls did not suffer any direct limitations in product and service offerings as a result of the operating rules and guidelines, the licensing of operators in Tier 2 as deposit taking institutions had increased the number of MFIs which were now aggressively operating in the same market as S&Ls.

In addition, the S&Ls were therefore suffering the unintended effects of the BoG guidelines due to the misapplication of deposits by the Tier 2 microfinance institutions.

“The misapplication of deposits mobilised by some of the microfinance companies has dented the image of Savings and Loans Companies and other actors in the microfinance arena, resulting in massive withdrawals and declining client confidence,” the study found out.

Other measures

Besides name change, the study also called for continuous engagement between the various microfinance associations and BoG to work towards the sanitisation of the sub-sector to ensure that their critical role in enhancing financial inclusion was not compromised.

GHASALC would also engage the regulator in advocating for increased range of services offered by S&Ls companies through changes in regulation.

“GHASALC is encouraged to work with the regulator to demand an increased range of services to distinguish it from other MFIs; change in regulation to among others introduce ceilings on what S&Ls companies can do under various scenarios of capital requirements, so as to manage the differentiations between the microfinance institutions in Tier 2 (and below) on one hand and savings and loans companies on the other hand,” the study stated.

About S&Ls companies

Savings and loans companies are financial institutions that specialise in accepting savings deposits and giving out credit facilities to micro, small and medium enterprises (MSME) and the low-income segments of the population.

The Ghana Association of Savings and Loans Companies is the umbrella body for all S&Ls companies, providing advocacy and other services, as well as promoting networking among them. There are 24 savings and loans companies with over 404 branches country
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Source: Graphic