Money talks, but lately in Ghana it’s been singing – a rather expensive tune. Our beloved SMEs are feeling the pinch, the kind you get when it’s your turn but the waakye joint has run out of shito. The scarcity of credit in our Ghanaian financial jungle is putting a damper on the entrepreneurial safari, and it’s time we explore why.
If you’ve been keeping tabs on the lending scene in Ghana, you might have noticed some financial institutions hit the brakes on lending faster than a tro-tro driver avoiding potholes. Our central bank, in its valiant attempt to wrangle the dramatic currency depreciation we witnessed last year, has been pulling out all the stops. If the exchange rate this year is any indication, we might be declaring victory; but let’s touch wood and cross our fingers because, well, ebi Ghana we dey.
Unsurprisingly, the cost of this ‘victory’ (assuming we’re not celebrating prematurely) has been steeper than a hill in Kwahu. The policy rate, which used to be a mild-mannered 14.5% this time 2 years ago, has done a full U-turn and doubled to a whopping 30% base rate as of Nov 2023. Along with it, we’ve got a minimum capital reserve threshold that’s high enough to make most seasoned economists reach for their dusty copies of Mervyn King’s ‘The end of Alchemy’.
The Capital Conundrum:
In the face of soaring policy rates, Ghanaian businesses – especially SMEs – are struggling against strong tides for access to capital. As the policy rate takes an elevator to the top floor, borrowing costs for businesses are following suit – turning affordable financing into a unicorn for SMEs. Meanwhile, financial institutions are now stepping carefully over risk as one would if they were walking on burning coals. The stage play of bank lending is properly set to be dominated by the cost of capital, which affects anything from consumer loans to that dream business loan you were eyeing.
As lending costs soar, businesses are caught in a Catch-22. On one hand, today’s rising cost of capital is eating into profits – making the SME landscape less attractive than yesterday’s fufu at sunrise. On the other hand, there’s such a shortage of credit that you might as well be sitting in a tro-tro in Lapaz traffic – you’re not going anywhere in a hurry.
Navigating the Fiscal Landscape:
So, how do we get through this financial roller-coaster without losing our lunch? The balancing act of curbing inflation while supporting industry growth requires some finesse – that word Philip Kayode has been throwing around. For starters, financial institutions could use some creativity; more than hard cash, we need to demonstrate a genuine interest in the well-being of our SME partners. A little hand-holding, frequent business-health checks backed by acceleration and business development support might be all the manna some SMEs need to get through this Exodus. Ultimately, government intervention is key to lightening the financial burden on businesses. Targetted policies and incentives could be the punchline that eases a weekend hangover into a Monday-ready juggernaut.
In summary, grappling with high policy rates and lending costs is much like manoeuvring through a traffic circle without any traffic lights – demanding but not undoable. As we collectively navigate this fiscal terrain, the resilience and adaptability of our SMEs will undoubtedly be pivotal in our economic recovery. In the meantime, we must heed the cabin call to fasten our seatbelts because this fiscal flight is only just taking off; brace yourselves for an intriguing Christmas season ahead.
Oliver McStill is a banking professional with 10 years of experience in credit management. He is currently working as a lead credit underwriter for a leading global bank based in the United Kingdom. His opinions are entirely his own and do not represent any employer or organisation he is affiliated with.
