Investing is one of the surest ways of accumulating wealth. Investments are good for personal reasons and on the national level, they are good for sustainable wealth creation and eradication of poverty. Government and investment houses have all done their bits to encourage people to invest. However, investor confidence has dwindled in Ghana for the past two years because investors have investments locked up while they are struggling to meet their basic needs. The regulator and some industry players have done some publications on the possible causes of the crises.

It is, therefore, a public knowledge that the crisis came from the negligence of several players – the investors, the regulator, the asset management firms, among others. This article is aimed at throwing more light on the causes of the crisis and how they can be prevented going forward. It touches on how financial inclusion started, what went wrong, what the investors, regulator, players in the investment sector, Institute of Chartered Accountants Ghana (ICAG) and audit firms should have done and lessons for the future.

How Financial Inclusion Started

Successive governments in Ghana have done their best to improve financial inclusion in Ghana due to its importance in economic development. After Ghana’s independence in 1957, the financial sector was dominated by financial institutions owned by the state. However, with time, the financial sector was liberalized to allow the establishment of private institutions such as microfinance, banks, investment houses, to name but a few. Consequently, many microfinance institutions sprang up and were all scattered around the market centres and reached many unbanked people.

What Went Wrong?

Standard investments come with promised rates of return. These rates of return differ from one investment organization to the other. Firms playing in this space were fighting to increase their market share and would prefer to quote rate slightly than their competitors.  Most investment firms especially microfinance institutions in the started quoting very high rates of return on investment and were not able to pay investors back. They took or gave out  loans at very unrealistic rates, usually at very high-interest rates. In those times, many investors preferred sending their monies to microfinance institutions because they were guaranteed high returns on their investment.

Investors at the time were mostly focused on the return side of the pendulum, thereby placing less premium on the risk aspect of the quote and for that matter perhaps forgetting the one big and popular saying on investment which is “the higher the risk, the higher the returns”.

This trend continued for a while and some investment house (Asset Management Firms) that faced competition from their counterparts in the microfinance space had to also start quoting high-interest rate on investments to meet customer demands. In doing this, some started investing investor funds in the microfinance space.

What Should Have Been Done

The various players in the investment sector should have taken precautionary measures to protect the sector. This section thus looks at what each of these players should have done.


Due diligence

It is important that investors are particular about where they place their investments. They need to check if the company they are investing with is licensed in the first place. They can then move a step further to verify from the regulator whether the company they are seeking to invest with is in good standing with the regulator.

Evidence of investments

The investor owes himself or herself the duty of ensuring that he or she has adequate evidence of investment. Some of these evidence are receipts received from the company they invested with, certificates covering investments, are they signed by the authorized persons?

Track the investments

Money is difficult to come by so when investing the investors should ensure that they are aware of everything about the investment. They can track their investment through monitoring every news item on the investments. The investors should provide correct contact details when investing and updating them regularly so that they can receive updates on the investments. When the investors have all their contact details correct with the firm they are investing with and they are not getting updates on their investment, they can insist on the firms notifying them or better still, take their investments from the firms. It is surprising that some investors still sent money to firms that were struggling when they struggle with public information. It means people are not tracking their investments enough.

Risk return profile

The next thing to check is the returns they are receiving on the investment, how realistic it is given current rates of similar investments on the market. The investors can equally ask questions on where the company is investing to ascertain if the investments are permissible.

Test the liquidity of the investment house

There are many firms that have billions of assets under their management but what percentage of these assets are actually liquid or are recoverable without stress? The investors can only know whether the company is liquid when they test their ability to pay but trying to terminate their running investments before maturity or they can decide not to roll over their maturing investments.

It is sad to know that some investors often keep rolling over their investments because of the high-interest rates that are being offered to them. It is important for investors to note that the high rates quoted on their investments do not tell the full story. Investors should, therefore, be proactive and test their liquidity. The firms may probably offering high rates to take the mind the investors off their liquidity problems.


Diversification is the process of allocating capital in a way that reduces the exposure to any one particular asset class or risk. This also applies where an investor decides to share his investment among several investment firms. For instance, an investor with a net worth of about GHS1 million can spread this with four or more firms. This is necessary so that if something goes wrong with your investment house, you don’t lose everything. The banking and investment sector clean-up has revealed so many things that investors overlooked when placing investments.


Investor protection is a major role of the regulator. They issue licenses to financial service sector players and are thus mandated to supervise them to ensure they do the right thing. The number of licensees of the Securities and Exchange Commission (SEC) kept increasing over the years but the number of employees of the commission to supervise them were not increasing at the same rate.

What is law without enforcement?

The Securities Industry Law  2016 Act 929 spells out all best practices, requirements, duties of licensees, prohibited activities, penalties etc. One of the sanctions often used by the regulator is the issuing of penalties to non-conforming firms within their jurisdiction. Revocation of licenses is a last resort kind of action. SEC seldom uses that power. It is widely believed that if SEC was revoking licenses of firms on a case by case basis, it would not have degenerated to the mass revocation of license in 2019.

Poor supervision / Surveillance

SEC requires its licensees to furnish it with quarterly reports, half-yearly reports and even annual reports and are thus privy to some infractions. If SEC had acted early enough, several funds would have been saved.

SEC also normal does onsite audits from time to time. If these on-sites audits were effectively done, they could have detected some of the infractions and then act swiftly to prevent the crisis we are in now.

Do they have the required human resource to meet the growing number of firms under the purview?

SEC has employees with the richest profile profiles on in its key department and they have enviable experience profiles. The challenge is not about their expertise but the number of licensees that they are supervising. The numbers are increasing and SEC needs to recruit more employees preferably those in the industry would have worked in three or more firms. Bringing these people on board would help them better understand infractions and how they are carried out at the blind side of the regulator.

Players in the space 

Getting people to invest has been relatively difficult over the years. It took the SEC some investor education and even the investment banking firms a great deal of marketing budget to create awareness about investment products how they can serve as an avenue for wealth creation. People who brought funds for investment did so because of the trust and confidence repose in these firms. But most of these firms sadly abuse this trust and gambled with investor funds through risky investment decisions.

Poor risk management                              

Essentially, risk management occurs when an investor or fund manager analyzes and attempts to quantify the potential for losses in an investment, such as a moral hazard, and then takes the appropriate action (or inaction) given his investment objectives and risk tolerance.

Most of these firms that have gone down have undoubtedly managed risk poorly over the years and the cumulative effect is what we are all experiencing now.

Bad corporate governance

Corporate governance is the system of rules, practices, and processes by which a firm is directed and controlled. Corporate governance essentially involves balancing the interests of a company’s many stakeholders, such as shareholders, senior management executives, customers, suppliers, financiers, the government, and the community. Since corporate governance also provides the framework for attaining a company’s objectives, it encompasses practically every sphere of management, from action plans and internal controls to performance measurement and corporate disclosure.

No matter the level of expertise in a firm, when good corporate governance is not practised and there is no accountability, it can lead to financial distress like we are currently witnessing.

Related party transactions

In business, a related party transaction is a transaction that takes place between two parties who hold a pre-existing connection prior to the transaction. An example is how a dominant shareholder may benefit from making one of their companies trade to the other at advantageous prices.

For example, A bank owning an investment banking firm and then getting funds from them at a cheaper rate/ cost usually below market rate.

ICAG and Audit Firms

In September 2019, the Institute of Chartered Accountants (ICAG) announced sanctions meted out to four audit firms for shortfalls in their professional duties to comply with the required International Auditing Standards. The four audit firms fined GH¢2.2 million over banks collapse.

Are the fines and penalties enough for these firms? How about withdrawal of licenses of accounting practitioners whose actions and inactions led to the banking and investor sector crisis?

Investors rely heavily on audit reports for their investment decisions. In the recent crisis, these reports failed to expose the financial frailties in these investment institutions. Even though it would be difficult for investors to sue these firms for professional negligence and inappropriate audit opinions, these professionals need to act in good faith, so people do not lose faith in subsequent audit opinions.


Investors have lost confidence in the banking and investment industry. The blame cannot be put on the doorstep of one player. The regulator, the investment houses, the auditors, the investor should share in the blame. The good news is that the past was gloomy and painful but it can shape the future for the better if lessons from the past guide the present and the future. The regulator needs to tighten their regulations. It is not enough to impose fines on the failing institution. Licenses of market players that are not acting in good faith and threaten the stability of the market can and should be revoked to protect the integrity of the market.

The regulator should increase market surveillance and audit to prevent the chaos experienced in 2018 and 2019.

Even licenses of Investment Representative that are not compliant with SEC regulations can be withdrawn. SEC needs to employ staff that have worked in the investment banking space for years and have probably moved from at least 3 firms in the same industry to expose them to some bad practices on the market that they may not be privy to.

Investors need to also learn from all that has happened so they diversify their investments, do better due diligence, track their investments and be mindful of their risk-return appetite. They need to read more and engage the regulator when in doubt.

Investment houses have a lot of work in the area of risk management, good corporate governance, avoid related party transactions, they should only invest in permissible asset classes and work better on liquidity management.

The Institute of Chartered Accountants (ICAG) needs to do more work in the area of ensuring that their licensed practitioners are auditing according to auditing standards and professional requirements. They need to liaise with the practitioners to train staff of getting proper audit evidence to enable them to give correct audit opinions.

Investment is good and would continue to be good. We cannot stop investing because of the crises that happened. There are several legitimate and compliant firms an investor can transact with. Investors should keep an open mind and ask questions when in doubt and remember that a company can be in good standing today but would not be in good standing tomorrow. Invest! But be a proactive investor.

Disclaimer: Views expressed in this article are the personal views of the author and does not reflect the views of the organization she works for.