Microcredit association chair blames weak lender risk assessment for loan defaults

The National Board Chairperson of the Micro Credit Association Ghana, Benjamin Turkson Junior, has attributed loan defaults in parts of the microcredit sector to weak risk management systems among some lending institutions. He has urged financial institutions to strengthen their assessment of prospective borrowers and establish effective mechanisms to evaluate their creditworthiness before approving loans.

Speaking in an interview at the Association’s Annual General Meeting in Ho, Mr Turkson argued that lenders must take greater responsibility for ensuring that loans are advanced to customers with the capacity and willingness to repay. “I have always personally developed a philosophy where I say we don’t have bad borrowers, but we have bad lenders,” he said.

He maintained that a sound risk management framework would help financial institutions identify reliable borrowers and reduce the incidence of loan defaults. “If your risk management framework is very solid, definitely you are going to get good clients to lend to them,” he said. Borrowers urged to honour repayment obligations Despite his criticism of lending practices, Mr Turkson acknowledged that some borrowers deliberately fail to meet their repayment obligations.

He stressed that lenders and borrowers depend on each other, urging customers to honour their commitments to ensure the sustainability of financial institutions. “We are an ecosystem where we need each other to survive. We need the customers. The customers also need us,” he said. He explained that loan repayments enable financial institutions to maintain their operations, expand their services and continue providing credit to businesses and individuals.

Lenders urged to use credit reference bureaus Mr Turkson also called on lending institutions to make greater use of credit reference bureaus licensed by the Bank of Ghana to assess the borrowing histories of prospective customers. He said the bureaus maintain records that can help lenders identify applicants with previous loan defaults before approving new credit facilities.

He warned that borrowers who fail to repay their loans risk damaging their credit records and may find it difficult to access credit from other financial institutions. “If you are planning to take a loan and not pay, then know that your next facility you are not going to get it because your records will be out there,” he cautioned. He further encouraged all lending institutions to submit relevant borrower information to the credit reference bureaus to strengthen the system and improve access to reliable credit information.

Calls for patience and legal loan recovery The Micro Credit Association Ghana chairperson also urged lenders to exercise patience when customers experience repayment difficulties and pursue outstanding debts through established legal procedures. He said a lawful approach to loan recovery would help protect the interests of both financial institutions and borrowers.

“I think we follow through the legal process to recover our loan, and that will bring peace to both the institution and the customers,” he said. Mr Turkson appealed to lawmakers to understand the challenges facing the microc