The Chief Executive Officer of Intelligent Capital Group, Leticia Browne, has said the banking sector does not have the framework and capacity to finance Small and Medium Scale Enterprises (SMEs), hence government must create innovative funding mechanisms to cater for SMEs.
According to her, sustainability of businesses within the private sector, especially SMEs and startups require different sources of capital stream and at different times, which goes beyond what the banks provide and that is where the special vehicles like angel investors and venture capital funds are needed initially before the banks come in at the later stage when businesses are more formed and have regular cash flow.
“We cannot just rely on the banking sector to finance the needs of our SMEs and startups because they do not have the capacity to do that. That is not necessarily what they are there for, so we need to ensure that government is really thinking about creative ways to provide capital for innovation,” she said.
Ms. Browne made these remarks speaking to the media on the sideline of Ghana Most Respected CEOs Breakfast Series, organized by the B&FT, under the theme: “Business adaptability and sustainability in 2021; the role and impact of finance and technology.”
She emphasized that if government is able to play its role well, then private sector individuals and non-bank financial institutions will also be able to develop vehicles to allow for innovative financing, which comes at cheaper lending rates and also long term in nature, compared to what the banks offer.
Explaining the angel investor concept, she stated that it is used to refer to a high-net-worth individual or income earner who has disposable funds and wants to invest and instead of investing in T-bills and government securities decides to invest in a business, something the country needs at the moment and she has been developing same for the past few years.
“This kind of capital is patient because businesses do not need to pay back every month and may have to pay back in about five years’ time when the business has matured and made some additional profits, and so the angel investor gets returns on initial investment that gives him an opportunity to exit,” she explained.
Touching further on some of the reasons why banks are not able to provide funding to SMEs and startups, Ms. Browne indicated that banks are not agile, and only get agility when they partner with smaller organisations that are able to be adapt quickly and are innovative.
This, she said, is so because banks have a lot of governance policies, structures and protocols in place that do not allow them to do what they want to do or respond to the market in a way that the CEO may think he should.
“So, what they can do is to partner with smaller institutions that are able to be more agile because that lessens their risk whilst they provide the support to the smaller organization to embark on the project, and then, the bank is able to adopt some of the products and services that come out of the partnership into their core business so that it becomes a win-win situation for both parties,” she stressed.
She concluded that the country needs a robust financial ecosystem to support entrepreneurial value chain to thrive. However, entrepreneurs do not only need financial support but others such as business development, education & information, access to market, and leadership support.