May we never forget what happened in the month of May and August of 2019. On the 31st of May 2019, a press release announcing the revocation of licenses of 231 regulated financial institutions (39 micro-credit and 192 microfinance companies) was sent out by the Bank of Ghana to the general public. Never had such a scale of mass insolvency resolutions been seen in Ghana’s economic history. On August 16th, 2019, a new set of revocation announcements followed; 23 savings and loans, and finance houses, their assets dissipated whilst liabilities passed on to the taxpayer. Just as lessons were learnt during previous financial crises, I do not doubt that lessons have been learnt in this one as well. But the question remains, were those lessons based on an exhaustive analysis of the problem?
The conclusions arrived at, based on situational assessments conducted by policy-makers and prudential authorities, are reflected in the slew of regulatory directives that were issued post-crises. The problem, according to official reports, was manifold; it ranged from weak corporate governance and internal controls to poor risk management and unauthorized diversion of assets through related party transactions, amongst others.
Legitimate as those reasons are, one cannot help but recognize the paucity of regulatory self-accountability in the entire scheme of things, which in itself raises further questions as to whether the officially proclaimed causes of the crises are all there is, or there are more lessons that need to be learnt.
For instance, were there weaknesses in how supervisors assessed micro-prudential risks? Was the framework for off-site reviews and on-site examination sufficiently risk-sensitive and predictive? Answering these questions requires a fearless confrontation of the traditional sacred cows within this policy domain and a focus on improving the regulatory and supervisory framework used by the prudential authorities.
The full article was published in the Business and Financial Times (B&FT) weekly newspaper. A free copy will be sent to you via email or WhatsApp upon request.
