Increasing SME portfolio allocation won’t eliminate funding gap – Banker

The Group Head Retail Banking, Bank of Africa, Alex Agyei-Amponsah has said Banks increasing financial portfolio for Small and Medium Scale Enterprises (SMEs), as directed by the government in the 2022 budget would not eliminate the funding gap challenge of the sector.

According to him, although banks would adhere to the policy direction, it would not remove the real challenges that made most SMEs unattractive to banks.

“The portfolio allocation will be made but if the challenges remain unresolved, this policy directive will never be utilized”, he said

Mr Agyei-Amponsah said this at the Ghana National Chamber of Commerce and Industry (GNCCI) Seminar on the 2022 National Budget in Accra adding that the main reason for the financing gap, is the inability of SMEs to meet the credit prerequisites of banks.

“For a bank to lend to any business, adequate information is required to make a judgement call on the extent of risk and how that risk can be mitigated and priced into the credit. The absence of a domestic credit rating agency makes it difficult to efficiently price credit and other debt-instruments”, he said.

To help to smoothen the current information asymmetry between SMEs and lenders (Bankers), he said the Ministry of Finance and Bank of Ghana must establish credit rating agencies.

“Banks, as lenders, should have the comfort of professional independent assessment of businesses, and SMEs that achieve good ratings will have incentives for good governance in the form of reduced risk perception and credit cost”, he explained

“It is therefore refreshing to have heard the Minister of Finance announce Government’s intention to facilitate the establishment of a Domestic Credit Rating Agency (DCRA) with the objective of reducing information asymmetry between market participants (borrowers, lenders, and regulators); the agency will also promote an improved credit-culture, risk-based lending, and equitable pricing of debt instruments”, he said.

According to him, DCRAs will encourage SMEs to keep proper and accurate records as the reward for improved access and better priced credit will be a huge motivating factor as well as a compel SMEs to minimize Cash transactions.

In a remark the President of the GNCCI, Mr Clement Osei-Amoako the government to reconsider the decision to impose 1.75 per cent levy on mobile money and other electronic transactions that exceeded GH¢ 100.

According to him, the proposed levy will further worsen the plight of businesses particularly SMEs because most of them carry out monetary transaction through mobile money.

He said to increase revenue, the government should rather focus on finding innovative ways of widening the tax net, ensuring tax compliance, as well as addressing the rising levels of tax exemptions which do not commensurate business growth.

He suggested that government should widen the tax base through a reduction in the tax rate to a level affordable to the average taxpayer to avoid seeing tax payment as a disincentive.

He said this could be done through the indirect tax system, example sales tax and value added tax (VAT).

“Despite recent declines, interest rates in Ghana remain amongst the highest in the world. Although the energy situation has improved considerably over the last few years, energy cost to businesses remains too high.

“Struggling businesses pay much higher for energy in order to subsidise households. In Europe and China, households pay higher energy cost to subsidise industry,” he said.