The Executive Director at the Centre for Financial Literacy Education (CFLE) Africa, Peter Kwadwo Asare Nyarko, has underscored the need for enterprises to acquire financial literacy skills to increase their access for finance.
One of the common challenges faced by the small and medium-sized enterprises (SMEs) in Ghana is access to finance for expansion, but he said through financial literacy, businesses become aware of avenues of funding, acquire the right skillset to produce financial reports properly and implement accurate financial management policies to enhance their chances of obtaining credit from lenders.
Mr. Nyarko noted that financial literacy is crucial to potential investors, hence, “a company with proper records possesses a good credit score” and has an upper hand in getting support, compared to a company that lacks the required skills in handling finances.
SMEs have been described as the backbone of Ghana’s economy, representing about 85 percent of establishments and largely within the private sector. They contribute about 70 percent of the country’s gross domestic product (GDP). The sector comprises mostly of informal enterprises and few formal businesses.
According to Mr. Nyarko, poor financial literacy leads to poor financial management practices, which often leads to financial mistakes. With that said, he concluded that there is a direct relationship between financial literacy and the performance of SMEs.
On his part, Head of Financial Market and Innovation Unit at the Financial Sector Division of the Ministry of Finance, Benjamin Torsah-Klu, explained that through financial literacy, businesses acquire risk management skills or transfer their risk to other persons by taking up insurance policies, and also get a life plan for their employees. In doing so, he said they are able to mitigate some of their risks.
He added that education on financial literacy is needed by all individuals in a company, irrespective of position but the Finance Department of every company needs it the most.
“Every department needs financial literacy; the top-most is the Finance Department since they handle money. Other departments that rely on the Finance Department must also acquire some basic skills about finances, such as when to take money, and how to use it effectively and efficiently,” he explained.
Ensuring that everyone is equipped with the financial literacy skills, Mr. Torsah-Klu proposed that the subject should be included in the education system, commencing from the upper primary level through to the Senior High School stage.
As organisations do their best in organising training programmes to educate businesses on financial literacy, Mr. Nyarko advised SMEs to go the extra mile and learn more on their own by enrolling for online courses, reading books related to finance, and ensuring that they implement all the principles.
The month of April marks the National Financial Literacy Campaign month. It is, among other things, aimed at creating awareness about the importance of financial literacy and strengthening individuals’ financial capabilities to promote responsible financial behaviour.