Banks want policy on SME financing

A clear definition of entities that constitute small- and medium-scale enterprise (SMEs), and the implementation of an appropriate policy and programme by the government that will encourage private capital engagement are required for turning SMEs into “catalysts for economic growth”, stakeholders in the banking and financial sector have said.

The 2013 Ghana Banking Survey, authored by PricewaterhouseCoopers (PwC) and titled “Harnessing the SME Potential”, revealed that 77 percent of banks have a deliberate focus on SMEs. However, it is their service experience with bigger corporates that they apply to SMEs.

The survey also revealed that banks set up to predominantly serve SMEs are now skewed towards the corporate sector.

Many studies have estimated that SMEs make up at least 90 percent of all Ghanaian businesses, classifying SMEs as micro, small or medium. The sector is also reckoned to be the main provider of jobs and income in the economy.

Governor of the Bank of Ghana Dr. Kofi Wampah, speaking at the launch of the survey, said “SMEs definition has been problematic. Turnover has been used, but other characteristics have been used, too.

“Challenges such as unstructured governance and default rates hinder them from being seen as bankable propositions. Banks ought to consider SMEs as partners in development and train them in management and finance.”

Oseini Amui, Assurance Partner of PwC, said the engagement between banks and SMEs going forward will be driven by deposit and transactional banking. “There is a lot to be done by banks in terms of risk management in order to handle SMEs,” he said.

The survey also found that Bank of Ghana (BoG) and Treasury interest rates exerted pressure on borrowing and lending. Since 2012, there has been an upward trend in the BoG’s policy rate, which rose from 13.5 percent to 15 percent last year and now stands at 16 percent.

Interest rates on 91-day and 182-day bills went up from 10.7 percent and 11.1 percent in December 2011 to 23.1 percent and 22.7 percent in December 2012. Average bank lending rates, however, declined marginally from 26.8 percent in December 2011 to 25.7 percent in December 2012.

Dr. Michael Agyekum Addo, Chief Executive Officer of the KAMA Group of Companies, said banks should not put impediments in the way of SMEs in their bid to do business with them.

“The environment in which banking takes place is intimidating. There is no human touch from many bank employees. Banks must come down to the level of SME operators if we are to harness the potential of the sector.

“Entrepreneurship is the new revolution and banks and government must put measures in place to ensure that entrepreneurs and SMEs get the needed support to grow,” he said.

To address the financing difficulties facing SMEs, a senior economist, Kwame Pianim, said: “government should be prepared to bear some risks of lending to the SMEs in order to see the growth of the sector.”