Even though the cleanup exercise of the banking and microlending sector by the Bank of Ghana is not yet done, I believe the most tumultuous episodes are behind us. According to Bloomberg, the exercise has resulted in “the number of lenders cut by almost a third to 23, second-tier lenders reduced to 25 from 40, finance houses to 11 from 19, and micro-finance and micro-credit lenders to 168, from 554.”
Hardly any part of the financial sector has been unaffected. Large fund managers have experienced serious liquidity challenges, financial stocks on the GSE are down 9% YTD, some audit firms have been fined by the Institute of Chartered Accountants, Ghana (ICAG) and many businesses related to the banks are going through difficult times.
The government has raised about GH¢12 billion in bonds to cover the liabilities of the assumed banks and more is expected if the depositors are to be recompensed in full. The economic costs have been largely covered but I want to share a few stories about the costs of the banking crises from the perspective of investors and employees of the affected financial institutions.
It is difficult not to know or to have heard of someone who is unable to retrieve money from a fund manager. If you heard it in the news, it might not seem like such a big deal but seeing people stranded, embarrassed, unable to pay rent, medical bills and school fees is a humbling experience. There is simply no value of money that can be placed on the human suffering that the liquidity crisis has caused.
I am left to question if regulators could not have helped the fund managers unwind their long positions gradually as they supported redemptions. The idea that it is the fund managers who are bearing the costs of the liquidity crisis is wrong; the investors are the ones being punished. Investors trusted their monies with fund managers licensed by the Securities and Exchange Commission (SEC), why should they suffer any costs for doing that?
On the other side are the employees of financial institutions that have been closed down. Over here the cynicism is even more pronounced with respect to their fate. One would think that the employees have done something wrong for accepting a job and going to work 8 to 5 like everybody else. Pointing to the loss of jobs is not seeking to excuse anybody, it is simply a matter of fact. People have lost their livelihoods. Households are going to feel the pinch of losing an income earning parent just as schools are reopening and there are school fees to be paid and school supplies to be bought.
These past two years have been sad ones for people in Ghana’s financial industry. I have heard several stories from people who have either had their funds locked up or have lost their jobs. Even more frightening are the number of people who have sworn never to invest again in any kind of scheme. Now I am not claiming to have solutions for what remains a complex problem. I only want to make the case that when we are tallying the costs of the crisis, we include the personal costs borne by the people involved and not just the monetary sum borne by the taxpayer.