Gov’t eyes independent credit scoring system to streamline accessibility

Vice President Dr. Bawumia in a group photograph with some members of GUTA

By Kizito CUDJOE

The government plans to introduce an Individual Credit Scoring System by May 2024 in a bid to streamline credit accessibility for both businesses and individuals.

The pioneering initiative, which was announced by Vice President Dr. Mahamudu Bawumia, is anticipated to address long-standing challenges faced by both lenders and borrowers by enabling a seamless credit ecosystem, where financial institutions can make informed lending decisions swiftly and efficiently.

Access to credit has been a significant challenge for many businesses in the country, particularly small and medium enterprises (SMEs). According to available data, SMEs are estimated to constitute 85 percent of businesses – employing 80 percent of the workforce and contributing 70 percent to the gross domestic product (GDP).

For instance, the UN Resident Coordinator in Ghana, Charles Abani, recently pointed out that SMEs can only access a mere 0.41 percent of the capital they need for expansion.

Mr. Abani noted that sources of SME financing in Ghana, such as private equity and venture capital (PEVC), amount to approximately US$25million annually—a stark contrast to the US$6.1billion financing demand.

Furthermore, in a 2019 report, the World Bank emphasised structural weaknesses in the country’s credit infrastructure, pointing out the absence of a well-functioning national identification system for individuals and enterprises as a key impediment to credit appraisal and financial service provision.

However, while addressing members of the Ghana Union of Traders’ Association (GUTA) in Accra, Dr. Bawumia alluded to the country’s lack of critical infrastructure necessary for operating a credit system comparable to those in Europe and America.

He noted that the notable aspect of the upcoming initiative is that the country will now have a distinctive national identity system, a unique addressing system and a fully integrated national database system.

He reiterated that these foundational elements are essential parts of the critical infrastructure required to establish a robust credit scoring system similar to those in more developed economies.

He noted that the integration of these systems will improve the accuracy and efficiency of credit assessments, allowing financial institutions to promptly make informed lending decisions.

The introduction of the Individual Credit Scoring System is expected to mark a significant leap toward financial inclusion, among others. With easier access to credit, entrepreneurs and SMEs can fuel expansion, invest in innovation, and create jobs, thereby stimulating economic growth and driving progress.

The Vice President, also the flagbearer of the New Patriotic Party (NPP), indicated that this showcases the government’s dedication to tackling business challenges and its commitment to fostering a business-friendly environment if elected in the upcoming elections.

In addition to some of the policies he plans to introduce in his administration, in response to concerns of traders on the current tax regime, Dr. Bawumia said he will operate a ‘flat tax system’ akin to what is practised by Estonia, if elected as President.

Estonia, in northeastern Europe, has no corporate income tax on reinvested and retained profits (and a 14-20 percent corporate income tax rate on distributed profits, to be changed to unified 22 percent from January 1, 2025).

This means that Estonia’s corporate income tax system allows companies to reinvest their profits tax-free, and grow their business much faster without additional burdens.

Also, it has a flat 20 percent tax (22 percent from January 1, 2025) on individual income. The tax is not applied in the case of distributed dividends that have already been taxed with a corporate income tax.

To make it possible to operationalise a similar tax system in Ghana, the Vice President promised to grant all businesses and individuals tax amnesty.

In response to other concerns raised by the traders, such as the influx of foreigners into trades reserved for locals and the increasing charges for shipping lines and demurrage, he mentioned that these issues have been promptly referred to a committee for resolution.

Dr. Bawumia mentioned that these interventions, among others, were informed by interactions with members of GUTA which serves as an umbrella body for trade associations, totalling 84 across the country.

In his welcome remarks, the President of GUTA, Dr. Joseph Obeng, urged the Vice President to assist in reducing the escalating cost of doing business in the country. He highlighted the burden of paying numerous levies, fees and charges in the process of clearing goods at the ports, making import duty payments unbearable.

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