The Processes for Applying and Securing A Microfinance Operating Licence in Ghana

Introduction

To obtain a License in Ghana for the operation of the business of microfinance (moneylending), one has to go through a three-pronged process.

The applicant, with the assistance of Legalstone Solicitors LLP, would have to ensure that the regulatory regime in 3 key government of Ghana agencies is adhered to. These are as follows:

1. Registrar General’s Department of Ghana
2. Ghana Investment Promotion Centre
3. Bank of Ghana (BoG)

Registration with Registrar General’s Department

To operate a Microfinance (Moneylending) business in Ghana, one of the conditions that the Banks and Specialised Deposit-Taking Institutions Act, 2016 (Act 930) provides, is that an entity must be a limited liability company. The Companies Act, 2019 (Act 992), governs the organization of companies in Ghana. Companies in Ghana may be either public or private (not more than 50 members or debenture holders) and unlimited, limited by shares or limited by guarantee.

Since the Act, that is Specialised Deposit-Taking Institutions Act, 2016 (Act 930), demands that the special purpose vehicle for the acquisition of a license shall be a private limited liability company, our focus shall be limited to such type of company.

Private Company Limited by Shares– This is an incorporated company with share capital that cannot offer its shares to the public. This is the most popular company structure in Ghana. Generally, a member’s liability is limited to the amount unpaid, if any, on the shares they hold. The Company’s board of directors manages its day-to-day activities.

The following steps must be followed to establish a Private Limited Liability company with the purpose of operating a microfinance business in Ghana.

To begin with, the promoters must decide who will act as the company’s first directors. A company incorporated and registered in Ghana must have a minimum of two directors, both natural persons over 18 years, one of whom being ordinarily resident in Ghana. By virtue of section 173 of the Companies Act, 2019 (Act 992), the following persons are excluded to be appointed as a company director in Ghana.

1. An infant
2. A person adjudged to be of unsound mind
3. A body corporate
4. A person convicted for fraudulent offences, including persons convicted for offences involving fraud or dishonesty and any other stipulations under section 177 of the Companies Act, 2019 (Act 992)

The directors must also appoint the company secretary, who may be a natural person or a body corporate. As part of the new prescription by the companies act, among the persons qualified to be appointed a company secretary is a barrister or solicitor in good standing in the Republic of Ghana.

The directors are also mandated to appoint the first auditors of the company.

The company must choose a business name and must confirm whether the business name is available for use by the company.

The company must as well register with the Ghana Revenue Authority for the issuance of tax identification number (TIN)

The Constitution of the company must be prepared. The Constitution must be signed by one or more of the initial subscribers in the presence of an independent adult witness and must state:

1. The name of the company
2. The company’s objects or authorized business
3. That the company can enter into a legally binding agreement
4. The name of the first directors of the company
5. That the powers of the directors are limited in accordance with the law
6. The number of shares in which the company is registered
7. The number of shares each subscriber will own on incorporation and the amount payable for the shares
8. A declaration that the liability of the members of the company is limited

Where the Registrar is satisfied that the application for incorporation of a company complies with this Act, the Registrar shall, after payment of the prescribed fee, certify under the seal of the Registrar that the company is incorporated and, in the case of a limited liability company, that the liability of the members is limited. From the date of incorporation, the company becomes a body corporate by the name contained in the application for inclusion. It is capable of performing the functions of an incorporated company.

Legalstone Solicitors LLP would be responsible for ensuring that your organization meets the above-stated requirements for the registration of the Company at the Registrar General’s Department.

Registration fees

For incorporation of the company to be completed, a fee (capital duty) charged at the rate of 0.5% of the company’s stated share capital, and the registration fee must be submitted to the Registrar of Companies.

Registration with the Ghana Investment Promotion Centre (GIPC)

After the said certification from the Registrar Generals Department, we will apply for a certificate of compliance from the Ghana Investment Promotion Centre (GIPC). The Ghana Investment Promotion Centre Act, 2013 (Act 865), requires all entities with foreign participation to register with the centre. Registration with the centre guarantees some benefits to the foreign shareholder, including guarantees against expropriation, investment guarantees, transfer of capital, profits, and personal remittances. This Act, more importantly, sets the minimum capital requirement for the entity as well as the benefits of an automatic work quota that comes with it.

The law requires that, where all the equity of the company is wholly held by the foreign investor in a company incorporated to offer services, the investor must invest a minimum of not less than FIVE HUNDRED THOUSAND UNITED STATES DOLLARS (USD500,000.00. The minimum capital requirement for money lending business (which is the business of services) under the GIPC Act shall be US$500,000.00.

However, where the foreign investor intends to engage in the business of services and the said foreign investor has a Ghanaian partner, the foreign investor is required to invest a foreign capital of less than TWO HUNDRED THOUSAND UNITED STATES DOLLARS (USD200,000.00) in cash, or capital goods relevant to the investment or a combination of both by way of equity participation and the person who is a citizen of Ghana must hold not less than 10% of the equity.

The minimum capital requirement under the GIPC Act must be contrasted with that under the Bank of Ghana regulations. The Bank of Ghana demands companies under TIER 3 to have a minimum capital of not less than GH¢2,000,000 [Two million Ghana Cedis only]. To this extent, whether the yet to be incorporated business shall be mandated to meet the Bank of Ghana approved minimum standards.

Presently the minimum foreign capital requirement is as follows for the category of business indicated:

Joint Venture:                                                                         US$200,000.00

Wholly owned foreign business (Services):                              US$500,000.00

General trading company:                                                        US$1,000,000.00

The applicable fees for registration of the business are as follows:

Joint venture (i.e US$200,000.00 minimum foreign equity):                    US$2,000.09

Wholly foreign (i.e US$500,000.00 minimum foreign capital):               US$3,200.15

General trading company (i.e US$1,000,000 minimum foreign capital):  US$6,000.27

Incentives and Benefits Under the GIPC Act

The GIPC Act provides for substantive protection and benefits including the following:

1. Customs Import Duty Exemptions (There are custom duties exemption for Plant, Machinery, Equipment, and parts thereof).
2. Various Tax benefits (Subject to some conditions)
3. Investment Guarantees (Free Transferability of Capital, Profits and Dividends and immigrant quotas depending on the amount of paid-up capital of the enterprise
4. Automatic expatriate quotas (subject to some conditions). For instance, a company with a paid-up capital of up to $200,000 shall be entitled to one (1) automatic work quota, whiles a company with a paid-up capital of up to $500,000 shall be entitled to two (2) automatic work quota.
5. Registration with the GIPC entitles a corporate entity to cafeteria Dispute Resolution Mechanism, including arbitration under UNCITRAL arbitration rules. Also, where there is any bilateral and multilateral investment protection agreement to which Ghana and the investor’s home country are parties, the established dispute resolution mechanism shall be available to the investment. The dispute mechanism could include Investor Treaty Arbitration under ICSID Convention. The GIPC Act also afford parties recourse to any other national or international machinery for the settlement of investment dispute agreed to by the parties.

Conditions for the Application of the License from the Bank of Ghana (BOG)

Restricting Eligibility to Licensed Corporate Bodies

1. No person other than a body corporate incorporated in Ghana shall be eligible to apply for a Licence to carry on the business of deposit-taking microfinance institutions.
2. No person shall carry on the business of microfinance unless the Bank of Ghana licenses it.

Restrictions on shareholding

1. Shareholding of deposit-taking microfinance institutions such as microfinance companies, Susu companies, deposit-taking, and profit-making Financial NGOs (FNGOs) (TIER 2 institutions) shall be restricted to only Ghanaians.
2. Shareholding in non-deposit taking microfinance institutions such as money lenders and non- deposit-taking FNGOs (TIER 3 institutions) may be exclusively Ghanaian, exclusively foreign or jointly Ghanaian and foreign. Foreign capital should be registered at the Ghana Investment Promotion Centre.

3. There shall be at least two (2) shareholders, with none of the shareholders holding not less than 10% of the total number of shares. The Bank of Ghana has the right to request for dilution of shareholding.

Interview

The Other Financial Institutions Supervision Department located at the Cedi House [Bank of Ghana Annex] may first interview the applicant. A licensing fee of GH¢1,000.00 [one thousand Ghana Cedis] or so determined by Bank of Ghana, would be paid if the application is approved for the issuance of the license.

 Application for Licence

Every application for a license shall be made in writing to the Head, Other Financial Institutions Supervision Department Bank of Ghana, Accra for consideration and shall be accompanied by:

[a] a true certified copy of the Certificate of Incorporation and company’s Regulations or other Instrument, relating to the proposed business, or by or under which any person proposing to carry on such business was established. The registered name of the company should include either ‘Microfinance, Money Lending, or FNGO as the case may be or the type of license being applied for.

[b] full particulars of and detailed and precise definition of activities it proposes to carry out.

[c] details of the registered place of business, principal place of business accessible to the public, and suitable for the services contemplated and a description of other places where it proposes to do business and the areas it proposes to serve.

[d] Names, addresses, occupations, and corporate affiliations of persons who hold or would hold significant shareholdings directly or indirectly in the proposed venture and the respective values of such holdings or proposed holdings.

[e] Duly completed Personality Note Form (PNF) by at least five [5] directors (two (2) of whom should be independent directors), shareholders and key management staff of the said business, the majority shareholder should not be the board chairman and the Chief Executive Officer of the company.

[f] Tax Clearance Certificate of Directors, shareholders, and key management personnel.

[g] Curriculum Vitae of Directors, Shareholders, and Key Management Personnel.

[h] Financial data, including financial statement and feasibility reports, which should contain, among others the following:

1. a business plan and financial projections (income statement, balance sheet, and cash flow) for the first five (5) years of operations.
2. Details of assumptions upon which the financial projection has been made.
3. Objectives and aims of the proposed Microfinance Institution.
4. Justification for the establishment of the Microfinance Institution
5. The organizational structure of the company setting out in detail the functions and responsibilities of the top management team.

[i] Other information that relates to the viability of the business.

[j] Information on capital and documentary evidence of sources of funds.

[k] Information on other matters that applicant considers relevant for the determination of the application and

[l] Such other additional information or particulars which the Bank of Ghana deems appropriate or may require for the determination of the application and

[m] Evidence of payment of a non-refundable processing fee of GH¢500.00 or as determined by the Bank of Ghana.

[n] Evidence of request for Police clearance for shareholders, directors, and key management staff.

Minimum Paid-Up Capital

Tier 2 and 3 Companies

All Tier 2 and 3 entities (comprising microfinance companies and moneylending companies) excluding FNGOs shall require not less than GH¢2,000,000 [Two million Ghana Cedis only] as minimum paid capital.

All FNGOs shall require not less than GH¢300,000 [Three hundred thousand Ghana Cedis only] as minimum paid capital (owners’ contribution).

NOTE: Not more than 25% of the initial paid-up capital shall be spent on property, plant, and equipment (capital expenditure). That is, at least 75% of the initial paid-up capital shall be in liquid cash resources to support operations. 

Approval in principle

The Bank of Ghana may issue an ‘approval-in-principle’ for six months to the applicant on such terms and conditions as it may consider necessary and appropriate if it is satisfied that:

[a] the applicant would carry on the business with integrity, prudence, and the required professional competence; and

[b] the applicant has the capacity to raise the initial paid-up capital required to hold a license.

NOTE: Approval in Principle DOES NOT CONSTITUTE a final license, as such applicants CANNOT commence operations.

Pre-operating Conditions

The Central Bank may issue the final approval and license to the applicant after satisfying itself that the following pre-licensing conditions have been met:

1. Minimum paid-up capital – the company has raised the minimum paid-up capital
2. Premises: The company

[a] has provided evidence of title deeds/lease agreements

[b] has approvals by relevant authorities

[c] has adequate business premises, staff operating area, ventilation, lighting, etc.

[d] Display of name of the company as contained in the certificate of incorporation and logo where appropriate

      iii. Has demonstrated security of the premises, including the adequacy of alarm systems, fire extinguishers, vaults or safes, etc.

1. Has in place up to date insurance covers – fire, burglary, fidelity guarantee, cash, etc.
2. Has in place up to date serviced fire extinguishers supported by a fire certificate.
3. Possesses operational plans and policies approved by the Board.

      vii. Has accounting and operating manuals, appropriate management information systems (computers, necessary software), internal controls and training manuals, etc.

      viii. Has in place adequately trained and sufficiently experienced staff as well as competent key personnel.

1. Has submitted its first-year pre-operating financial statement of affairs and budget.
2. The minimum paid-up capital/shareholders’ funds of the relevant category being applied for is acceptable, and the source is verifiable and found to be satisfactory to the Bank of Ghana.
3. Has met any other conditions imposed by the Bank of Ghana

Other Mandatory Institutions

Once a business successfully undertakes the above-stipulated steps, it acquires the legal status to operate as a corporate entity in Ghana. Be it as it may be, the established corporate entity is by law mandated to register with other institutions.

These institutions include the following:

A. The Ghana Revenue Authority

All incorporated companies are by law demanded to register with the Ghana Revenue Authority. The registration is essential for the payment of taxes. On registration, the company shall be issued with a tax clearance certificate.

B. Register with Social Security and National Insurance Trust (SSNIT)

The Social Security and National Insurance Trust (SSNIT) is a statutory public Trust charged under the National Pensions Act, 2008 Act 766 with the administration of Ghana’s Basic National Social Security Scheme. Its mandate is to cater for the First Tier of the Three-Tier Pension Scheme. The Trust is currently the largest non-bank financial institution in Ghana. The law demands all incorporated entities to register and make a contribution for their employees towards their retirement. It is a mandatory act.

An entity seeking to register with SSNIT must provide the institution with the following information.

• • Tax Identification Number for the company/ business entities
  • Profile of Directors or Local Managers
  • Copies of the Directors’ or Local Manager’s valid ID (e.g. Voter’s ID, passport, driver’s license)
  • Directions to Taxpayer’s Premises using the Ghana Post (GPS).
  • List of employees with their SSNIT numbers, basic salaries, and contributions.

Once satisfied, SSNIT will issue a confirmation letter with the company’s registration number and a certificate of membership to signify registration.

C. Register with Environmental Protection Agency (EPA) for Environmental Impact Assessment Certificate. 

The law demands entities whose activities have adverse environmental effects must apply for an environmental impact assessment certificate from the Environmental Protection Agency (EPA). For instance, in the Mining Industry, the Environmental Protection Agency (EPA) is responsible for ensuring that mineral rights holders observe environmental safety precautions during the mining phase. The EPA was established under the EPA Act. In accordance with Section 18 of the Minerals and Mining Act and the Environmental Assessment Regulations 1999 (LI 1652), the holder of a mineral right requires an environmental permit from the EPA in order to undertake any mineral operations. The Environmental Assessment Regulation sets out the main legal framework used by the EPA to regulate and monitor mineral operations.

The regulation requires the applicant to prepare a scoping report setting out the scope or extent of the environmental impact assessment to be carried out and includes a draft term of reference that indicates the essential issues to be addressed in the environmental impact statement. The holder of a mineral right granted an environmental permit must submit an annual environmental report in respect of the mineral operations to the EPA.

D. Apply for Business Operating Permit from the Metropolitan, Municipal or District Assembly

The law demands incorporated companies to pay and obtain permits from the District, Municipal or Metropolitan Assembly where the activity of the corporate entity is centered or situated. This is a mandatory act.

The processes for registration with the Metropolitan, Municipal or District Assembly include the following.

• Purchase of application form from the Cash Offices of the Metropolitan, Municipal or District Assembly
• Completion of the application form and submitting it to the Revenue Mobilization Officer (RMO) at the Assembly.
• A copy of the certificate of incorporation must be attached.
• Registration Certificate from other recognized bodies as may be applicable.
• Tax clearance certificate from Ghana Revenue Authority (GRA).

Once the completed forms are submitted, a joint team from Finance Department, Environmental Health Division and City Engineer’s outfit will inspect the premises of the applicant within 5 business days of submission of application. The inspection team shall subsequently make recommendations to the Assembly within 2 business days from the day of their inspection. Upon approval by the Assembly, the license shall be issued to the applicant at a prescribed fee.

E. Open a Business Account

An incorporated entity that has to meet the minimum capital requirement and issued with the GIPC Certificate shall have the right to operate a corporate account and enjoy all the benefits that come with it, including transfer of funds out of the jurisdiction. The opening of the accounts requires completing the accounts opening pack and attaching to it the registered documents of the company including the GIPC Certificate.

F. Register with the Data Protection Commission

The Data Protection Commission (DPC) is an independent statutory body established under the Data Protection Act, 2012 (Act 843) to protect individual and personal data privacy by regulating the processing of personal information. The Commission provides for the process to obtain, hold, use, or disclose personal information and other related issues bordering on personal data protection. All organizations that collect personal data from individuals must register with the Commission to have a license to collect such information and know-how to use them. The Data Protection Act 2012 established the Data Protection Commission (DPC) to protect individual and personal data privacy. The DPC’s statutory powers, functions and duties derive from the Data Protection Act 2012 (Act 843) and the Constitution of Ghana 1992. All organizations that collect personal data from individuals must register with the Commission to have a license to collect such information and know-how to use them.

G. Tax Liabilities for Doing Business in Ghana. 

It is crucial for every start-up business to understand Ghana’s tax structure to aid them in fulfilling their obligation to the government.

The Ghana Revenue Authority (GRA) is the mandatory and regulatory body for assessing and collecting taxes on behalf of the Government. The Ministry of Finance (MOF) oversee the activities of GRA.

A start-up business, either a sole proprietorship, partnership or a limited liability company, should bear in mind that there are taxes on what you earn, taxes on what you buy, and taxes on what you own. In Ghana, taxes consist of Direct and Indirect Taxes. An example of direct tax is the income tax, and an example of indirect taxes are the consumption taxes/goods and service, customs and excise duties.

Direct Taxes are the taxes on what you earn which comprises the examples below.

• Individual/Personal Income Taxes: This is levied on the wages, salaries, investments or other forms of income an individual earns. Example include Pay As You Earn (PAYE) tax.
• Company/Corporate Tax: A corporate income tax (CIT) is levied on business profits unless exempted explicitly in the law, companies (both resident and non-resident) are required to pay tax on income relating to business and investment, derived from, accrued in, brought into or received in Ghana after the necessary adjustment are made.

In Ghana, companies have to file returns four months after their accounting year, and it is also required that they make quarterly tax payment on the current year’s income based on provisional assessment.

Depending on the sector, the following corporate tax are imposed by the government on some sectors.

Mining: 35%

Petroleum: 35%

Hospitality: 22%

General Corporate Business: 25%

• Capital Gains Taxes: This is a tax on the profit or gains realized on the sale or disposal of an asset either than trading inventory. Companies are required to pay tax on gains made on the realization of chargeable assets. Chargeable assets include land (which is not for agriculture in Ghana), buildings, shares, goodwill, and business assets.

Indirect Taxes are taxes levied on goods and services rather than on income or profit.

• Goods & Services/Consumption Taxes are taxes on what you buy, or services rendered to you and are taxes levied on retail sales of goods and services. It is known as the Value Added Tax (VAT), which are indirect taxes paid by consumers on some goods and services to the state through registered individuals or businesses. The current rate is 12.5%, excluding the National Health Insurance Levy (NHIL) of 2.5%, Ghana Education Trust Fund (GETFUND) levy of 2.5% and Covid – 19 Health Recovery Levies of 1%.
• Customs and Excise Duties are imposed on the importation of goods at the port of entry and certain manufactured goods produced or imported into Ghana.

Legal Notice

The contents of this publication, current at the date of publication set out above, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your particular circumstances should always be sought separately before taking any action based on this publication.

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