Ghana’s specialised deposit-taking institutions (SDIs) remain critical to financial inclusion, particularly for low-income households, small businesses and people traditionally underserved by commercial banks.
But according to banking and corporate governance consultant Dr. Richmond Atuahene, the sector’s challenges go far beyond inadequate capital. He argues that the distress that has plagued parts of Ghana’s micro-banking sector has been rooted in a deeper combination of weak corporate governance, regulatory breaches, poor risk management, insider dealings, ethical failures and a growing departure from the sector’s original social mission.
These weaknesses, he warns, can undermine institutions from within long before their balance sheets eventually reveal the damage.
Weak Board Oversight
One of the most fundamental problems, according to Dr. Atuahene, is weak board oversight. Boards are expected to challenge management, scrutinise major transactions and ensure that risks are properly identified and controlled. However, passive or ineffective directors can allow management decisions to go largely unchallenged.
The result can be excessive risk-taking, weak internal controls, poor credit decisions and, ultimately, deterioration in the institution’s financial position. Dr. Atuahene therefore argues that SDIs need independent, competent and sufficiently skilled boards capable of holding management accountable.
Insider and Related-Party Lending
Another major vulnerability is lending to shareholders, directors, managers and companies connected to them. Dr. Atuahene notes that related-party and interrelated lending has been a significant factor in distressed SDIs, with some shareholders and managers allegedly obtaining large, unsecured loans without proper credit approval processes.
Such practices can breach prudential requirements, including single-obligor limits, while exposing depositors’ funds to concentrated risks. In practical terms, the institution can end up using customers’ deposits to finance the interests of its own owners and insiders.
Poor Risk Management
The consultant also identifies ineffective risk management as a major weakness. Some institutions have taken risks without adequately assessing borrowers, projects or the institution’s ability to absorb potential losses. Weak risk systems can allow bad loans and other exposures to accumulate until they threaten solvency.
For SDIs whose core business involves serving financially vulnerable customers, poor risk management can be particularly damaging because losses ultimately weaken the institution’s capacity to continue lending.
Mission Drift
Perhaps one of the sector’s most important structural challenges is what Dr. Atuahene describes as mission drift. SDIs were established to deepen financial inclusion and serve low-income earners, microenterprises and the unbanked. Yet some institutions have increasingly moved towards larger, more commercially attractive transactions.
Instead of providing relatively small loans that help traders, farmers and micro-businesses establish or expand their operations, institutions may pursue big-ticket investments in search of higher returns. The danger is that the very people SDIs were created to serve become crowded out by wealthier customers.
Excessive and Imprudent Risk-Taking
Weak governance and poor risk controls can create a culture in which institutions take risks without adequately considering their consequences. Dr. Atuahene argues that some SDIs engaged in high-risk transactions with depositors’ funds, raising questions about whether managers and owners fully understood, or respected, the nature of the SDI business.
The consequence can be severe capital erosion, rising bad loans and liquidity pressures.
CEO Dominance and Concentration of Power
Corporate governance can also be compromised when too much authority is concentrated in one individual. Dr. Atuahene points specifically to CEO duality, where the same person serves as both Chief Executive Officer and Board Chair.
Such arrangements can weaken independent oversight because the person responsible for managing the institution also occupies the position that should independently scrutinise management. This concentration of power can undermine internal controls and make it more difficult for boards to challenge poor decisions.
Shareholder Influence Over Management
Another governance concern is the excessive influence of dominant shareholders. Where ownership is concentrated among a few individuals or institutional investors, shareholders can exercise significant influence over who occupies key management positions and how institutions are run.
Dr. Atuahene argues that this can distort corporate governance when the interests of owners take precedence over those of depositors, employees, customers and other stakeholders.
Weak Credit Origination and Loan Recovery
The quality of lending decisions is another major concern. Poor loan origination and inadequate credit assessment can result in institutions lending to customers or projects without sufficiently determining their ability to repay.
When those loans subsequently become distressed, weak recovery systems can make matters worse, leaving institutions with impaired assets and depleted capital.
High Non-Performing Loans
The accumulation of non-performing loans (NPLs) has been another major source of distress. Dr. Atuahene notes that many distressed SDIs carried significant volumes of bad loans. These loans reduce profitability, increase operating costs and erode the capital needed to absorb losses.
Once capital becomes sufficiently weakened, an institution can move from being merely unprofitable to becoming undercapitalised and potentially insolvent.
Asset-Liability Mismatches
The sector also faces problems arising from mismatches between the maturity of loans and the projects they finance. For example, an institution may provide short-term financing for a long-term project. The borrower may then be required to begin repayment before the project has generated sufficient cash flow.
This can force the borrower to seek additional overdrafts or working-capital facilities, increasing financial pressure and potentially turning an initial financing mismatch into a repayment problem.
Persistent Regulatory Breaches
Dr. Atuahene identifies persistent breaches of Bank of Ghana prudential requirements as another critical weakness. Regulations exist to place limits on the risks financial institutions can take, but their effectiveness depends on compliance.
When institutions repeatedly disregard prudential requirements, the problem is no longer simply one of inadequate regulation. It becomes a failure of institutional discipline and enforcement.
Failure to Implement Supervisory Recommendations
Another concern is the failure of some institutions to adequately implement recommendations arising from regulatory examinations. On-site examinations are intended to identify weaknesses before they become existential threats. But if institutions fail to correct problems identified by supervisors, those weaknesses can become entrenched.
This effectively turns an early warning mechanism into a missed opportunity for intervention.
Gaps in Regulatory Supervision
Dr. Atuahene also points to weaknesses in the supervisory architecture itself. Gaps in oversight, stretched monitoring capacity and delegated supervision arrangements can make it difficult to identify deteriorating institutions early enough.
Such weaknesses may allow rising NPLs, related-party exposures and other risky practices to remain hidden or inadequately addressed for too long.
Delayed Regulatory Enforcement
Regulation is only as effective as its enforcement. Where regulators delay taking corrective action against institutions that breach rules, managers and owners may have more time to accumulate additional risks.
Dr. Atuahene argues that regulatory lapses and delayed enforcement allowed risky practices to spread across parts of the SDI sector before stronger reforms were introduced.
Weak Coordination Among Regulators and Institutions
The sector has also suffered from weaknesses in coordination and institutional linkages. Where information is fragmented between supervisory bodies and other institutions involved in the sector, emerging risks may not be identified or addressed quickly.
Effective supervision therefore requires not only strong individual regulators but also efficient information-sharing and coordination.
Inadequate Policy and Regulatory Frameworks
Dr. Atuahene further points to periods in which clear policies and guidelines for the operation of SDIs were inadequate. A poorly defined regulatory environment can create room for institutions to experiment with business models and activities that may not be consistent with the original purpose or risk profile of SDIs.
Clear rules are therefore essential to ensure that institutions understand both what they can do and what they must not do.
Ethical Failures
Beyond technical regulation, Dr. Atuahene highlights what may be an even deeper problem: ethics. Integrity, honesty, accountability, fairness and responsible conduct are fundamental to financial intermediation because institutions handle other people’s money.
But where managers or employees prioritise personal enrichment over fiduciary responsibility, depositors become exposed to decisions driven by private interests rather than institutional stability. The collapse of ethical standards can therefore transform governance weaknesses into financial losses.
A ‘Get-Rich-Quick’ Culture
Dr. Atuahene links these ethical failures to a wider societal problem in which wealth and status can become ends in themselves. Where excessive emphasis is placed on becoming wealthy regardless of how that wealth is accumulated, financial institutions can become vulnerable to fraud, corruption, nepotism and other forms of misconduct.
For the SDI sector, this creates a particularly dangerous environment because unethical behaviour involves not just private capital but often the deposits and savings of ordinary Ghanaians.
Weak Internal Controls and Possible Fraud
Weak governance, poor supervision and ethical failures can also create opportunities for fraudulent activities and manipulation of financial records. Dr. Atuahene cites the experience of distressed institutions as evidence of how weaknesses in internal controls can expose depositors’ funds to serious abuse.
Once internal controls fail, it becomes harder for boards and regulators to distinguish legitimate business losses from deliberate misconduct.
Proliferation of SDIs and Weak Oversight
Finally, Dr. Atuahene points to the proliferation of SDIs alongside weaknesses in supervision and regulatory coordination. A rapidly expanding number of institutions requires sufficient supervisory capacity to monitor them effectively. Where institutional growth outpaces regulatory oversight, vulnerabilities can accumulate unnoticed.
That creates a situation where problems are discovered only after they have become large enough to threaten depositors, shareholders and the wider financial system.
The Problem Is Bigger Than Capital
Dr. Atuahene’s central argument is that raising capital requirements alone will not fully solve the problems confronting Ghana’s SDI sector. Capital can provide a financial cushion, but it cannot compensate indefinitely for weak boards, insider lending, poor risk management, regulatory violations, ethical misconduct or ineffective supervision.
A well-capitalised institution with weak governance can still lose money. An adequately funded institution can still make reckless loans. And a strong regulatory framework can still fail if breaches are not detected and enforced promptly. For Ghana’s SDI sector to become genuinely resilient, the reform agenda must therefore go beyond the question of how much capital institutions hold.
