Develop resilient strategies to manage shocks – non-bank financial institutions advised

A Banking Consultant, Dr Richmond Atuahene, has advised non-banking financial institutions (NBFIs) to develop resilient strategies to help mitigate against shocks and adverse impacts during periods of economic turbulence.

That is in view of the current macroeconomic level challenges, which, according to him, had made the running of businesses in the country very difficult.

The banking consultant mentioned, for instance, the high inflation of over 50 per cent; unpredictable local currency; high monetary policy rate of 29.5 per cent; the continuous up-ward adjustment in utility prices; introduction of some ‘nuisance’ taxes; among other things, as some of the challenges that make doing business in the country extremely unfriendly.

Whenever there are challenges, you have to develop a resilient strategy to be able to meet the challenges,” he said and added that despite the headwinds, all is not lost because in the midst of these challenges, some businesses are thriving.

Dr Atuahene was speaking at a microfinance forum held in Accra on Tuesday (April 4) on the theme: “Building Resilient and Sustainable Non-Bank Financial Institution’s Sectors in the Wake of Current Economic Challenges.”

The forum, organised by the Ghana Microfinance Institutions Network (GHAMFIN), brought together all NBFIs to share their collective achievements, challenges and elicit useful feedback from stakeholders as well as the regulator and policy maker towards developing a more robust and sustainable sector.

Strategies

He said resilience and sustainability of NBFIs can be enhanced through good corporate governance practices, effective board oversight, and upgraded technological infrastructure.

Again, he mentioned improvement in long-term investment human capacities; technical expertise and competencies; mindset changes; enterprise risk management; and information technology; improved communication and awareness; or action plans to address certain hazards such as what he described as ‘heat action plans’ and recover from shocks.

In terms of the workforce, he said training and skill development can play a key role by updating procedures and practices for deposits mobilisation, efficient credit delivery and loans recovery using information technology.

However, such a transition in any NBFIs sector requires an enabling environment of business-friendly policies, laws, lower inflation, reduced monetary policy rates and reasonable taxation schemes, as well as a stable, risk-aware and transparent financial systems,” he said.

Dr Atuahene said poor corporate governance was one of the major causes of the collapse of some banks and NBFIs in 2017.

To prevent future occurrences, he advised NBFIs should adopt good corporate governance practices which are essential for small and medium businesses, as they set the standards of ethical behaviour and created transparency in decision-making.

Effective board directors

He said for resilient and sustainable business, NBFIs required an effective board of directors, adding that “NBFIs are expected to play a pivotal role in helping executive management adapt their organisations to the country beyond the current economic crisis and oversee how resilience is built into all aspects of the NBFIs businesses.”

 Robust enterprise risk management

Dr Atuahene said “NBFIs must prioritise their enterprise risk management process to stay on top of numerous critical risks they face every day. NBFIs’ risk management goes beyond compliance, as banks must be aware of strategic, operational, pricing, liquidity and reputational risks.

These risks to NBFIs are dynamic, requiring a powerful and flexible risk management programme.”

The Executive Director of GHAMFIN, Yaw Gyamfi, said currently, growth in the industry is slow due to the decrease in the numbers that purchase loans.

When the country starts having challenges, everybody begins to look at how to sustain their finances. We take deposits from the public. Unfortunately, as we speak, we are not getting the deposits as much as expected and all these are affecting the industry.

In terms of the loans, you know, when you give out loans and the interest is so high, it also deters others from taking their loans. So, even though we haven’t done any empirical study to check whether the numbers are reducing, what we are seeing is that institutions are not giving as much loans as expected,” he said.

He said microfinance institutions were hopeful for the recovery of the economy for people to access loans to enable them to have better returns out of it.

Irrespective of the challenges that we are going through, I must say that there is still light at the end of the tunnel, and we are anticipating that in a few months, the tables will turn and we will have a better space to work,” he said.