Question

The bank of Ghana has scheduled a forum to discuss the current state of microfinance institutions (MFIs) in the country. you are expected to submit a paper at the forum focusing on two broad areas, namely financial needs of the poor in the Ghanaian society and risk management practices of MFIs.

a)Explain four factors that affect financial services needs of the poor in Ghana.

b) Discuss five types of risk that MFIs face in their operations.

Answer 1

Answer:

a)

Four factors that influence the financial needs of the poor in Ghana:-

i.Interest rates:

Interest rate charged by the financial organizations is a central point influencing the financial necessities of helpless people groups of Ghana. The greater part of the bank in the zone charge higher pace of interest for giving finances which are past the limit of these minimized group of Ghana.

ii. Higher collateral security:

The institutions by and large interest a higher amount of collateral security before giving any financial guide. A huge segment of populace in the Ghana district is amazingly poor and can't fulfill the guidelines of these institutions.

iii.Transaction costs:

Cost charged by the financial institution is another main consideration that impacts the financial assistance needs of poor people. In the event that the sum charged for working an account and doing exchanges is very high, at that point they would incline toward for economical methods.

iv.Saving level:

The saving traditions of populaces is likewise the deriving powers for the interest of financial administrations. Consequently, on the off chance that they are prone to make sure about increasingly more sum, at that point they will demand more for financial administrations.

b)

5 kinds of risks of that MFIs face in their activity:-

i. Credit Risk :

This risk basically envelops risk emerges out of non-payment of interest sum and loan obligations by borrowers. MFIs awards assets to underestimated groups of society without collecing any collateral security. This represents an extraordinary risk of default customers and improves the chances of bad debts.

ii. Liquidity Risk:

Liquidity risk is essentially the powerlessness of MFIs to meet their commitments convenient. These institutions for the most part face liquidity crunch and can't satisfy their everyday money necessities. It adversely influences the interests of partners of MFIs as it neglects to satisfy their prerequisites. These risks are looked by these institutions because of inefficient administration of funds and absence of appropriate planning for utilization of money.

iii. Market Risk:

Market risk are those risk which happens because of changing business sector financing cost and adversely influences the acquiring or earning capacity of these organizations. At times, because of the change in values of assets and liabilities, these institutions are required to pay more interest rate on the sum gathered by them as stores from their clients than what they are really charging from their borrowers. These value or price fluctuations now and again lead to immense financial misfortunes to these organizations.

iv. Operational Risk:

These dangers emerges because of mistake or faults in the operational activties of these institutions. Absence of insufficient technology, obsolete frameworks, well - trained labor, and inward extortion would all be able to add to a lot of unexpected misfortunes for MFIs.

v. Natural Risk:

Another significant risk for this kind of institution is from various rivals in their condition. Different other money related organizations grants loans to individuals on the lower interest rate when contrasted with MFIs. Likewise changing approaches of the legislature, foreign exchange rate, and inflation rates represents a threar to the tasks of MFIs.