The operations of savings and loans companies must not be confused with those of microfinance institutions as there are distinct features in their functions, says Dr Emmanuel O. Owusu, the President of the Ghana Association of Savings and Loans Companies (GHASALC).
He explained that Savings and Loans Companies were classified under the first tier of the Non-Banking Act, while Microfinance Companies were classified under the second, third, and fourth tiers.
He said lumping of the two sectors was affecting the image and fortunes of their businesses, given the recent reported cases of unethical practices by some of the microfinance providers leading to their closure by the Bank of Ghana.
He said the differences between the two sectors were that Savings and Loans Companies could operate deposit, current, and savings accounts; receive and clear cheques through sister banking institutions; and offer a wide range of credit facilities and money transfer services; but they not allowed to operate foreign accounts.
Microfinance companies on the other hand, provide similar services as savings and loans companies, but they are not allowed by the law to run a cheque account or clearing, operate foreign accounts for their clients or run money transfer services.
Dr Owusu, who was addressing the media, at an advocacy workshop towards addressing some industry issues in the financial sector, encouraged journalists to understand the mode of operations and the mandate of the two separate entities in order to enlighten the public.
He said the Association, which was the Apex body of Savings and Loans Companies, was worried about the misunderstanding of the public that the two institutions were identical.
He stressed that although Savings and Loans Companies had over the years come to be associated with the Microfinance sector given that they both provide critical services to micro and small businesses, especially in the urban and peri-urban areas, they belong to separate categories of financial service providers.
He, therefore, urged the media to help in rectifying the misconception.
Dr Owusu, giving an overview of Ghana’s financial services sector, said it had been classified into three main categories of banking, non-banking and microfinance institutions.
He said there were currently a total of 24 Savings and Loans companies registered under GHASALC with more than 400 branches countrywide.
Mr Isaac Arthur, the Council and Advocacy Team Member of GHASALC, said a study they conducted with financing from the BUSAC Fund, confirmed the lack of public understanding on the differences between Savings and Loans and Microfinance Companies.
He said the recommendations were that client education be stepped up to prevent them from the risk of falling into the hands of undisciplined financial institutions and fraudsters.