Governor pursues policies to grow SMEs sector

Dr. Abdul-Nashiru Issahaku, Governor-Bank of Ghana (BoG), has pledged to collaborate with banks in pursuing policies that will contribute to growing the country’s small and medium size companies, and provide incentives to encourage lending to productive sectors of the economy.

“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,” he said.

Dr. Issahaku was speaking at the maiden SME fair under the theme ‘SME Financing in Ghana — Enhancing Access and Reducing Costs’ and  explained: “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 SME fair marked his first public engagement as Governor, and was aimed at drawing SMEs in touch with banks, public agencies, and Non-Bank Financial Institutions (NBFIs) in order to expose them to available innovative financing solutions.

He confirmed that SMEs continue to play a critical role in promoting economic growth and sustaining economies globally, adding that the sector stimulates domestic demand through job-creation, innovation, and competition; thus, they are often a driving force behind any resilient national economy. 

“Prioritising SME development is critical for promoting inclusive economic growth, and that is why we continually urge banks to revise and develop new banking solutions and models to serve this market segment to engender greater financial inclusion,” he said. 

Commenting on the specific issue about the cost of SME financing, he 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 stabilise the economy, which would have a direct effect on lowering the cost of financing.”

Dr. Issahaku indicated that the Bank, in collaboration with the Ministry of Food and Agriculture (MOFA) and AGRA, has been working tirelessly to design and implement a Ghana Incentive-Based Risk Sharing System for Agricultural Lending (GIRSAL). 

This scheme, he said, was originally developed by AGRA and has already been piloted successfully in Kenya and Nigeria. It will have a number of strategic pillars based on risk sharing, technical assistance, insurance, bank incentive mechanisms, bank rating, digital financing and non-financial services. 

The broad aim is to leverage substantial flows of investment funds in support of agriculture across the value chain. The modalities toward implementation are currently being designed within a framework of consultations with stakeholders such as AGRA, Ministry of Food and Agriculture (MOFA), Ministry of Finance (MoF), Ministry of Agriculture, FINGAP, APSP etc. 

It is expected that GIRSAL will have several benefits, such as increased agricultural productivity and production, thus reducing the food import bill and saving foreign exchange; increased exports of agricultural products to generate additional foreign exchange, reductions in poverty and ensuring food security, as well as increased incomes for farmers and other value chain actors.

Regarding how to reduce the cost of financing, a uniform base rate model has been introduced as a guide for all banks in a bid to improve the framework within which they set their lending rates. This has resulted in more transparency and uniformity in the way base rates of banks are quoted. 

“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. 

“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.”

He added that the Bank’s emphasis over the years has been to build an appropriate credit infrastructure to support credit delivery, which should in turn help lower the ratio of impaired loans and address the risks in lending to SMEs.  These include establishment of the collateral registry, licencing of Credit Reference Bureaus, and the establishment of Commercial Courts. 

“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 subsidised lending schemes for SMEs, and the establishment of investment funds to be accessed by SMEs,” he stated.

Rashid Pelpuo, Minister of State in charge of Private Sector Development and Public Private Partnership, said it is government plan to develop and grow SME businesses into becoming global companies -- adding that the fair’s essence is to deepen government’s commitment to promoting SME companies.

“The engagement and feedback of stakeholders in this SME fair will be invaluable in designing policy solutions for enhancing SMEs’ access to finance, their growth, and hence their contribution to economic development,” he remarked.