In order to make available funding to businesses, especially to entrepreneurs and startups, Senior Partner at AB & David Law Firm, David Ofosu-Dorte, says the central bank should introduce an index that allows for non-collateralised lending.
Non-collateralised lending, also known as an unsecured loan, doesn’t require any type of collateral; thus, instead of relying on a borrower’s assets as security, lenders approve unsecured loans based on a borrower’s creditworthiness. Such unsecured loans include personal loans, student loans and credit cards.
Speaking at the CitiTV/FM Cedi Summit in Accra, the senior partner highlighted an increasing trend of lending money not on the basis of a collateral, but on the basis of what he calls non-collateralised lending.
“It’s about time the likes of Bank of Ghana began to let us have indices which allow those in that sector – especially, youth, entrepreneurs and startups – to access money without necessarily having collateral,” he said.
In the mobile money space, non-collateralised lending has been highly effective. For instance, one of Ghana’s MoMo lending platforms, Qwikloan – an innovative financial solution by Letshego Ghana and MTN Mobile Money (MoMo) – provides short-term, unsecured, quick and convenient loans to subscribers of MTN MoMo; which are currently at 42 million loans count in total since inception.
In terms of disbursements, the platform does an average of GH¢10million in loans a day; roughly GH¢300million a month – a total of about GH¢2.6billion per year.
This has largely been achieved due to the deployment of algorithms which seek to understand customer behaviour, repayment behaviour – thus being able to schedule loans and repayments in ways that ensure collections remain optimal.
“What we’ve then seen is that because they [customers] don’t use their wallets often, they are now also qualifying for lower amounts. And so those are the learnings, and we need to immediately reprogramme our algorithms to take care of that,” Chief Executive Officer of Letshego Ghana, Arnold Parker, said in an earlier interview on the subject matter.
If a borrower defaults on a secured loan, the lender can repossess the collateral to recoup the losses. In contrast, if a borrower defaults on an unsecured loan, the lender cannot claim any property. But the lender can take other actions, such as commissioning a collection agency to collect the debt or taking the borrower to court. If the court rules in the lender’s favour, the borrower’s wages may be garnished.
Currently, credit bureaus in Ghana work hand in hand with lenders to serve borrowers; however, these credit bureaus may not have enough updated information on borrowers they can send to lenders upon request.
There are three credit bureaus operating in the country: namely Dun and Bradstreet Credit Bureau Ltd.; HudsonPrice Data Solutions Limited; and XDSData Ghana Limited. These all operate with a licence from the Bank of Ghana. They may issue different scores for an individual, even though they judge the scores on the same credit report information.