Opportunities for SMEs
Most Small and Medium Enterprises (SMEs) are not able to provide the requisite collateral for loans. Those who manage to get loans often get them at higher interest rates.
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Various stakeholders acknowledge this challenge that SMEs in Ghana have been experiencing. Indeed several forums have been held and continue to be held, all aimed at finding innovative means to obtain cheaper ways for SMEs of getting money.
SMEs also borrow from the few institutions that give loans as other large businesses, a situation most entrepreneurs deem unfair. To them, SMEs must be made to borrow at cheaper rates to enable them expand their businesses.
Interest rate bank facilities continue to surge with the daily interbank interest rate by the Bank of Ghana website on June 5, 2014 being 24.05 per cent.
Relevance of SMEs
It is quite difficult to get available data on SMEs. However, statistics from the Registrar General's Department suggests about 90 per cent of companies registered are micro, small and medium enterprises.
SMEs are said to provide about 85 per cent of manufacturing employment, contribute about 70 per cent to Ghana's GDP, and therefore have an impact on economic growth, income and employment.
In the 2014 budget statement, SMEs are acknowledged to be “the bulwark of creating jobs and mobilising the informal sector”.
However, funds created to address their limited access to financing and reducing the cost of borrowing has not been sustainable.
The budget said the government is setting up a new SME fund to boost support for SMEs. The activities of the fund will be overseen by a Board of Trustees and a professional fund management company. This management structure will improve the processes of credit appraisal and recoveries in order to make the fund a sustainable revolving fund.
Also, the 2013 budget statement hinted that it would revamp existing credit schemes alongside new schemes, such as the Youth Entrepreneurship Development Fund, to provide funds for start-ups and SMEs.
Development experts say that the growth of an economy is in question if it cannot create jobs for its people, hence the need for investment by public and private investors. By doing so, economic opportunities will widen to transform Ghana’s economy and also develop the private sector to be able to create jobs and enhance livelihoods.
Challenges in accessing funds
Financial institutions and banks have often been encouraged to give the needed attention to the SMEs.Though some claim to have opened up to these SMEs, majority do not seem to be doing anything to support their growth.
Also, SMEs themselves do not seem ready to be supported. Issues of poor governance practices, lack of risk management practices, poor record keeping and the fusion of business with personal ownership.
The Governor of the Bank of Ghana, Dr Henry Wampah, at a forum advised SMEs to bring formality into their operations through addressing their governance weaknesses, improving record keeping and honouring obligations promptly to attract the services of banks.
He said the SMEs housed a large number of companies and provided employment to several people and were also a major driving force of development for any economy, hence the need for them to reform their operations to improve their business.
Funding relief
In recent times, there have been a lot of credits in the system, all aimed at supporting SMEs in the country and providing cheaper sources of funding for SMEs. These come at a time when interest rates on bank facilities are surging.
The Italian government has given Ghana a soft loan of GH¢86.68 million (€22 million) out of which GH¢34.9 million (€10 million) has been earmarked for the SME sector.
Already, eight local companies have received GH¢13 million (€3.3 million) of the amount to help them finance their operations, with the remaining GH¢26.4 million (€6.7 million) still available for other SMEs that meet the eligibility criteria.
The European Union (EU) has also made available €80 million to Ghanaian entrepreneurs from the European Investment Bank (EIB), under its programme to leverage investments across the country.
The fund, approximately GH¢315 million, has been set aside by the EIB to support investments into small and medium enterprises (SMEs) which are engaged in exports from Ghana.
Subsequently, Societe General Ghana has received the first tranche of €20 million (about GH¢80 million) from the facility for onward lending to SMEs.
The 10-year facility (the Investment Facility Resources (IFR) is part of the benefits the EU offers members of the African, Caribbean and Pacific (ACP) group of states which have signed a non-reciprocal trade treaty, the Economic Partnership Agreements (EPAs), with the European Union and its member states under the Cotonou Accord of 2003.
The EIB is the long-term lending bank of the European Union (EU) and it is owned by the 28 member states of the EU.
Again, the French government has, through its agency, French Development Agency (AFD), offered a lifeline to SMEs in Ghana by introducing a risk-sharing instrument to underwrite part of the risks when banks lend funds to SMEs.
The 100-million euro fund meant for developing economies, especially African, can guarantee up to 50 per cent of risk when it comes to portfolio guarantees and up to 75 per cent in single deal guarantees.
This means SMEs and other private sector businesses in agriculture, agribusiness and manufacturing activities that fall within the AFD operational area can access the guarantee through their banks.
According to the Resident Manager of AFD, Mrs Amélie July, and the Deputy, Mr Xavier Muron, the instrument which started in Ghana earnestly about two years ago had been running well with the current portfolio of guarantees standing at €5.8 million.
Again, since the AFD signed its first guarantee agreement with Societe-General Ghana a couple of years ago, 140 SMEs have benefited from the portfolio guarantee, while five companies have accessed loans under the individual (single) guarantee.
The loans are restricted to capital investments such as purchasing equipment, expansion works and other such expenditures. However, it is only the local French banking subsidiary, Societe-General, which has taken advantage of the financial instrument at the moment.
Way forward
Government, in a non-partisan manner, has often invited interested companies to apply for these facilities which are expected to help them realise their full potential yet, the space between these funds and SMEs is still wide.
Perhaps because they are sometimes not able to the meet the eligibility criteria which requires that they must be fully-fledged Ghanaian companies registered with the Registrar General’s Department, they are left out.
They are also expected to have sound accounting record while having the ability to generate employment for the people.
Indeed, Ghanaian SMEs are now exposed to greater opportunities than ever for expansion and diversification across the sectors. While developed global markets may be shrinking on account of the financial and economic crises prevailing, Ghana’s market size is growing and opportunities within Africa are also beginning to look attractive for SMEs in manufacturing, food processing, pharmaceutical, information technology and agro and service sector, among others.
Banks must see the SMEs as development partners and develop relationships with them by nurturing their businesses, as well as providing them the convenient environment to develop their businesses.
Further, SMEs that benefit from these facilities that are available must ensure that they keep to the schedule of repayment and work with the team of experts managing the project.
This is the only way to guarantee the sustainability of the financing schemes and revolve them to benefit a lot more of enterprises.