The Development Bank Ghana (DBG) has announced plans to introduce a partial credit guarantee product to the market this year, as part of plans to encourage more investments in high-risk sectors of the economy like agriculture.
The partial credit guarantee product will allow financial institutions, particularly banks, to invest in risky sectors such as agribusiness while sharing the risk of the investment with banks. The move is in line with DBG’s plan of encouraging commercial lenders to use their own funds to invest in high-risk areas while spreading the risk burden.
“We don’t intend to use only our funding to intervene in the market. We also want to encourage the Participating Financial Institutions (PFIs) or banks to also use their own funding to invest, and one way of doing that is to share the risk of the investment with them,” Michael Mensah-Baah, DBG’s deputy Chief Executive Officer (CEO), explained.
Mr. Mensah-Baah added that the partial credit guarantee product’s introduction was necessary to encourage local banks’ investment into sectors they are not interested in while allowing them to use their balance sheets. The move will also enable DBG to signal banks it is in favour of the risky assets that could positively impact the economy, such as agribusiness, which are believed to be areas where the impact can be more significant.
He disclosed this to B&FT on the sidelines of a Development Finance Series round-table meeting it organised in collaboration with the University of Ghana Business School (UGBS)
Commenting on the issue, the Managing Director and CEO of Consolidated Bank Ghana Ltd. (CBG), Daniel Addo – who was also present at the roundtable meeting, said the partial credit guarantee will allow for sharing the risk of financing; and that it will enable the PFIs to unlock liquidity while being shielded from credit risk.
DBG plans to invest GH¢500million in four key commodities – including soya bean, maize, rice and poultry – by the end of 2023. This move is in line with its plan to improve food security in the country by investing in key commodities.
Cumulatively, DBG will have invested about GH¢800million by the end of 2023 in various sectors since its launch in June 2022. The bank has so far provided technical assistance to over 1,000 local businesses while offering loans of up to GH¢300million.
The bank aims to make long-term, competitively priced loans available to small- and medium-sized businesses in Ghana to relieve the bottlenecks affecting availability of such loans. DBG uses a wholesale banking model, providing funds to eligible financial institutions that can in turn on-lend the funds to targetted industry sectors; including agribusiness, manufacturing, ICT and high-value services.
To scale up its impact, DBG is embracing digitalization by using its new digital platform, the Ghana Integrated Financial Ecosystem (GIFE), to deliver financial literacy capacity building to students. The platform is being developed in collaboration with the Monetary Authority of Singapore, Bank of Ghana and DBG, and it will enable the end-to-end capability required by local businesses.
DBG’s collaboration with UGBS seeks to enhance understanding in development finance, thought-leadership, thus showcasing the expertise of DBG’s leadership, corporate social responsibility, and research and policy reforms.
Through the collaboration, DBG hopes to stimulate and share research, incorporate best practices and initiate new thinking in the field of development finance. The bank will also support the award of degrees in development finance to graduate students, offer internships to MSC Development Finance students, and provide scholarships for underprivileged candidates interested in development finance.