The chair of the Micro Credit Association Ghana, Benjamin Turkson Junior, has attributed the high rate of loan defaults in the microfinance sector to weak risk assessment by lenders rather than dishonest borrowers. Speaking at the association's Annual General Meeting in Ho, he argued that many lending institutions approve loans without properly scrutinising whether applicants have the capacity and willingness to repay. This, he believes, is a major contributor to the high default rates in the sector.
According to Mr Turkson, if financial institutions tightened their internal checks, they would naturally attract more reliable customers and see fewer defaults. He emphasized that a solid risk management framework is essential for identifying good clients to lend to. This approach, he believes, would benefit both lenders and borrowers. By adopting a more rigorous assessment process, lenders can minimize the risk of defaults and create a healthier lending environment.
Mr Turkson urged lending institutions to make fuller use of credit reference bureaus licensed by the Bank of Ghana. These bureaus keep records of borrowers' repayment history, which lenders can check before approving new facilities. He warned that institutions that fail to consult these records before lending are exposing themselves to unnecessary risk. By leveraging these bureaus, lenders can make more informed decisions and reduce the likelihood of defaults.
The Microcredit Association Ghana chair also cautioned prospective borrowers against treating credit casually. He advised that if borrowers plan to take a loan and not pay, they will find it difficult to access future facilities as their records will be reflected in the credit reference bureaus. This, he believes, will promote a culture of responsibility among borrowers and encourage them to honour their loan obligations.
While emphasizing the role of lenders in preventing defaults, Mr Turkson acknowledged that some borrowers do deliberately dodge repayment. He described the relationship between lenders and customers as an ecosystem that cannot function if either side fails the other. Both lenders and borrowers depend on each other for the sector to thrive. Steady repayments allow microfinance institutions to stay afloat, grow their services, and extend credit to those who need it.
Mr Turkson's comments differ from those of other industry leaders who have called for tougher measures against defaulters, including criminal sanctions. In contrast, he advocated for patience from lenders when customers run into genuine repayment difficulties. He urged institutions to pursue outstanding debts strictly through the courts rather than informal pressure, which can lead to further complications.
The Microcredit Association Ghana's Annual General Meeting in Ho provided a platform for stakeholders to discuss the challenges facing the sector. With Mr Turkson's emphasis on lender accountability and responsible borrowing, the association aims to promote a healthier and more sustainable lending environment in Ghana. By addressing the root causes of loan defaults, the sector can work towards a more stable and prosperous future.
Key points
- Weak risk assessment by lenders, not dishonest borrowers, is fuelling loan defaults in Ghana's microfinance sector.
- Microcredit Association Ghana's chair urges lenders to make fuller use of credit reference bureaus to minimize risk.
- The sector's health depends on a balanced approach that holds both lenders and borrowers accountable for their actions.
