- Rather makes the bank a clearing house
Chief Executive Officer of the Private Enterprise Federation (PEF), Nana Osei Bonsu, has said that the current model the new national development bank is set to operate with makes the bank more like a clearing house rather than live up to its mandate of efficiently addressing long-term financing needs of the private sector.
The new Development Bank Ghana (DBG), as stated by authorities, will operate by providing credit lines to existing commercial banks at affordable rates, and the commercial banks will in turn on-lend to the private sector at rates cheaper than the prevailing lending rates.
This approach, according to Nana Osei Bonsu, will not guarantee credit to businesses at affordable rates as is being preached; because borrowers will still be subject to the same existing procedures of banks which have made credit difficult and expensive to access. This model, he thinks, rather makes the development bank look more like a credit house that is set up just to distribute resources to other banks.
“What the private sector’s looking for is a long-term pool of funding at affordable cost. If you are going to set up a development bank to provide that, you’ll hit the nail right on the head. But if you are going to provide a credit system that is going to ask for collateral, going to ask for various tangible assets that the private sector doesn’t have, you are going to fail.
“You are empowering this development bank to also resource other banks. It’s not a clearing house. They are in the business to provide funding to the private sector. It is not only credit that requires a requisite financing scheme for the private sector.
When you go for credit, the banks are gong to demand collateral; they are going to demand a whole lot of things that the private sector doesn’t have. The cost of credit based on our environment is going to be high, and is always high,” he said in an interview with the B&FT.
For him, a better approach is to channel the US$500million seed funding meant for the development into private equity firms which are actually established to build up businesses so as to make them profitable.
“What happened to private equity? What happened to breaking the US$500million and resourcing it to five different private equities and asking them to create partnerships which will bring in another US$1billion? Why do we always want to go through the route of dissipating the little resources that we have?
“I wouldn’t say it is a bad idea [to use commercial banks], but I think there are better ways of doing it. The better way, as I said, is that you take the US$500million and ask private equity people to apply. Whoever qualifies, you give them a mandate to create partnership counterpart money of 50 percent.
“The US$500million will yield an additional US$250million. Then you say, ‘go and invest in private equity or venture capital’. Those are the ones which build capacity and the technical competencies that our businesses don’t have. It is not the credit system.
“The development bank is not a clearing house. So, you are setting a development bank to become a clearing house and at the same time invest in the private sector? I don’t see how that is going to happen. You are stretching their capacity. What do we really want to establish? It is the availability of a long-term pool of funding at affordable pricing for the private sector,” he said.