Access Bank/Graphic Business SME Clinic - Why SMEs need more support

BY: Maxwell Akalaare Adombila
Some participants in the event
Some participants in the event

Micro, small and medium enterprises (MSMEs) are to economies what children and the youth are to nations.

Just as children and the youth are the next leaders of every nation and the world in general, MSMEs are the next big businesses and multinational companies, requiring all the support there is to enable them to flourish quickly and unhindered.

But as is to be expected, many of them fall off the ladder of growth quite often and quickly. The rest have to surmount myriad of challenges to be able to stand, grow and contribute meaningfully to national development.

Some of those that survive also become stunted and stay as small businesses forever while a few transition through the phases to become big.

Failure rate

Various researches estimate that the SME failure rate in Ghana is above 60 per cent in the first five years.

This means that of every 10 start-ups, six of them are likely to collapse in the first five years of operation.

As alarming as this may sound, it has persisted for decades in a country where public sector jobs are fading, the population is expanding rapidly and the poverty rate is rising.

The size and potential of SMEs make it even more ironic.

As the foundation of every economy, SMEs in Ghana account for more than 80 per cent of all businesses, contribute more than 70 per cent to the value of national output, measured by gross domestic product (GDP) and employ more than half of the economically active population.

Indeed, also the biggest employers, providing jobs to millions of people within the working age.

With all these magnificent benefits and huge potentials, the big question then is why do countries, including Ghana, allow SMEs to fail?

Of interest too are the causes of these huge failures and how those factors are being tackled.

The reasons for the failure rates are many but many economic and social researches concur that most SMEs fail due to lack of access to and high cost of credit, lack of skills, low or no access to market and poor feasibility studies prior to setting up.

Issues around lack of discipline and disorderly operations also feature, although access to and cost of credit have been among the leading five challenges.

Credit constraint

Money is the lifeblood of every economy. For businesses, it could double as their water.

Yet, the World Bank states that businesses in Ghana have less financial resources than the economy deserves, creating a shortfall that cost the country valuable businesses, jobs and growth.

In a paper titled: ‘Improving access to finance for Ghanaian SMEs: Is there a role for a new development finance institution?’, which was published in June 2019, the World Bank said general credit to the private sector had been consistently lower than expected from Ghana’s structural characteristics.

It said the situation had deteriorated in recent years due to several factors, including banks’ reduced risk appetite arising from the economic slowdown and strong deterioration in asset quality, the closure of problem banks and high levels of public sector borrowing that make investment in government securities highly profitable.

SME worse hit

The bank observed that SMEs faced higher credit constraints as banks tended to lend to a limited number of firms, prioritising large borrowers.

“Many small firms are not profitable enough to be able to repay loans at the current market rates and tenors.

“They also have difficulties securing working capital given the late payment practices of private and public sector buyers,” the Bretton Woods institution said in the paper that heralded the setting up of the Development Bank Ghana (DBG), which it played an instrumental role in.

The World Bank concluded that the MSME financing gap in Ghana was estimated at 13 per cent of GDP – about $6.1 billion in 2017.

Graphic Business/Access Bank intervention

To address these challenges, various initiatives have been put in place to help give SMEs a good start.

The latest one is the unique partnership between the Graphic Business, the country’s first read on business and economic issues, and Access Bank Ghana Limited, provider of bespoke banking services, that took off in 2020.

Known as the SME Clinic, the project is aimed at handholding SMEs through the various stages with expertise and financial support for them to be able to survive and expand into bigger businesses.

It blends capacity building through seminars, frequent reviews of their operations and advisory with funding packages, thus making it unique from the various initiatives said to be targeted at small businesses.

Beyond using its banking halls nationwide to support the small businesses, the Graphic Business/Access Bank partnership features regional seminars, where SMEs converge though leadership, hands-on interactions on how to deal with the daily challenges limiting their progress.

Three of such seminars have been held in the Greater Accra, Ashanti and Western regions, with others scheduled for the other regional capitals and key hotspots for SMEs.

Collateral free

As part of the initiative, Access Bank introduced a collateral free loan that allows it to lend to qualified SMEs without requesting a guarantee.

For people familiar with the access to credit constraint facing businesses and SMEs in particular, taking off collateral is such a relief and the interest in the facility tells it all.

In the first two years, the bank said it disbursed more than GH¢50 million to 6,500 businesses.

As the two continue to invest in this laudable idea, it behoves SMEs and businesses in general to utilise the knowledge properly to their own benefit and that of the economy.

Access Bank also needs to finalise its partnership with commercial lenders to expand the portfolio of funds available to SMEs under the collateral free loan.

As for the education through the Graphic Business and its sister platforms, they are a constant to the publications’ bouquet.

Entrepreneurs need to start mirroring them in their decision-making processes and their general operations on a day-to-day basis.