At the just ended Small and Medium Enterprise Finance Fair, key stakeholders (Government- represented by the Finance Ministry, Trade and Industry, Agriculture and The Public Private Partnership Ministry at the Presidency, The Bank of Ghana, Financial Institutions, Entrepreneurs, and allied Government institutions) pledged to work assiduously to bridge the funding gap for SMEs in Ghana. The new boss at the central bank, Dr. Abdul-Nashiru Issahaku was emphatic on the role the central bank will be playing in this renewed commitment; “The Bank of Ghana remains committed to promoting and scaling-up real sector lending to boost growth. While focusing on ensuring stability of the economy, the Bank will continue to pursue policies that contribute to growth by working with banks to provide incentives and encourage lending to productive sectors of the economy; and most importantly for banks to lend at reasonable rates, especially to SMEs.”
Former minister of Finance in the erstwhile Provisional National Defence Council (P.N.D.C) and National Democratic Congress government under Flt. Lt. Jerry John Rawlings, Dr. Kwesi Botcwhey also hinted on the need to engage all policymakers and stakeholders to find a panacea to this age-old dilemma facing businesses in Ghana. The problem is known, but what do we do to ensure businesses receive the necessary support to stimulate growth which in the long-run has a positive impact on the local economy? Every government past and present touts the crucial role SMEs play in contributing to Gross Domestic Product which is a standard measure of the standard of living of the citizens but little has been done to turn the talk into action. It’s a welcomed gesture to put together such a fair at this critical moment where the country is undergoing some program with the International Monetary Fund (I.M.F) but where do we go from here? Is it a problem of lack of appropriate policies to counteract the high interest rates making cost of borrowing extreme high and by default contributing to the high cost of doing business? What are the barriers to effective policy direction to stem this?
GOVERNEMENT
One particular policy incoherence I see is government duplicating too many of the same policies under different names but primarily having the same focus. Take for instance, the Youth Entrepreneurial Support, Micro and Small Loans Centre and GYEEDA, which all seek to make funding support available to small businesses (particular focus on youth enterprises-GYEEDA and YES). Such tendencies distort the focus by government in achieving its intended objectives. MASLOC is also virtually doing same what GYEEDA seeks to achieve. Such government policies which lack co-ordination could hamper the effective flow of funds to the needed areas.
Instead it would be more potent to have a centralised pool of funds from government to support indigenous enterprises but with different arms and agencies to target specific sectors like- Agriculture, women’s trade, youth entrepreneurship, Information Communication Technology etc. Call it a national SME Fund which will have all these identifiable agencies under it to coordinating efforts aimed at achieving economic growth.
Also, government through The Ministry of Finance, The Ministry of Trades and Industry and the economic advisory team should put in place the appropriate economic and trade policies to give some certainty to the local economy. This can be achieved by giving much attention and support to local entrepreneurs. The recent Made In Ghana Campaign-aimed at boosting patronage for local products and services should be championed in deed and drummed home to make the meaningful impact it seeks to achieve. It serves to give some assurances to local producers and service providers that their products and services will be given a fair advantage of patronage by government (a large consumer of goods and services in Ghana) and the private sector. This is particularly necessary in the midst of stiff and unfair competition by international trading partners. Also, government appetite for local borrowing should be curbed. This will enable the local banks offer the available funds to SMEs at affordable rates. Tighter fiscal measures is needed in this regard.
Uncertain and riskier economic environment makes the cost of borrowing very high.
BANK OF GHANA
Dr. Issahaku has emphasized on the need to reengineer financing modalities for SMEs, “given the dynamic business environment in which the SMEs operate, it should be a matter of priority for us to respond creatively by facilitating new financing modalities, or special windows, to complement the traditional financing options.” The part to be played by the BoG in this direction cannot be downplayed and it’s at least healthy that the boss at the central bank alludes to this role. The exposure these SMEs get in understanding other innovative financing solutions should be led by the BoG. Its oversight role on the banks and other financial institutions makes it appropriate. By this approach, occasional training in financing should be organized by the central bank to bring SMEs up to speed on the new and improved ways to raise finance and also rope in the financial services in to respond appropriately to the financing needs of the SMEs. Awarding and recognizing leading roles played by financial institutions bringing innovations to support SMEs in raising funds will be a good step in achieving this.
The recent debacles in the Micro-Finance sector has called for more rigorous monitoring and controls to tighten the ends to ineffective supervision and control. The monetary policies should be uptight, Policy rate decisions should be reasoned together with the businesses ability to borrow at reasonable rates for business. It should encourage banks to devise new and innovative solutions to cater for the financing needs of SMEs. Through these innovative means, financial inclusion will be achieved which is a good step in ensuring a more formal business climate where businesses and financial institutions coexist to stimulate growth in the local economy.
Commenting on the specific issue about the cost of SME financing, Dr. Issahaku outlined that there are two broad types of factors that often influence these: notably macroeconomic conditions such as rising inflation and depreciation of the cedi; and the second being microeconomic factors such as high non-performing loans and risks associated with financing SMEs in general.
“This underscores our commitment to stabilize the economy, which would have a direct effect on lowering the cost of financing,” he added.
The new boss knows what’s expected, action should back the talk to achieve this.
In the move to reduce the high cost of financing, uniform base rate model has already been introduced as a guidepost to all banks in a move to improve the framework within which they set their lending rates. Ultimately, there’s been some transparency and uniformity in quoting the base rates of the banks.
“As we work to restore macroeconomic stability with fiscal consolidation, government borrowing rates will continue to decline; and this will help drive down the high lending rates among banks,” he emphasized.
“We, on our part, will continue implementing measures to promote healthy competition in the banking system, driven by appropriate business models that can address financing needs of the banking public, especially SMEs.”
“The Bank of Ghana has equally been involved in a number of direct initiatives for SMEs in collaboration with the Ministry of Finance. These include the provision of subsidized lending schemes for SMEs, and
the establishment of investment funds to be accessed by SMEs,” he stated. The Venture Capital Trust Fund is one such scheme which is in operation making funds accessible to SMEs.
Dr. Issahaku disclosed that BoG would inject US$100 million into the agric sector to reduce the high risk associated with agro business, which prevents banks from lending to players in the agro sector. He further explained that, “this is a policy called ‘Ghana Agro Base Rich Sharing’, which was borrowed from Nigeria, where the Central Bank lends to players in the agric sector.”
Dr. Issahaku said: “The new policy would ensure technical assistance, insurance, foreign exchange, reduction in poverty, increase in exports and also digital financing.”
Businesses need funding, the government, financial institutions and the central bank all have a role to play to make finance affordable to business. The ripple effect of such a conducive business climate is healthy for all stakeholders and the local economy at large.
Author: Paa Swanzy-Essuman || p.swanzy@ghanatalksbusiness.com
