Collaterals hinder SME loan access

Some Small and Medium Scale enterprises have identified the need to provide collateral as one major hindrance in accessing loans.

Many of such companies across the country have constantly complained about increasing difficulty in getting loans.


Lenders have described the SMEs as a very risky group of companies to do business with, hence the high interest rates slapped on them and the collateral demands imposed on them whenever they try accessing loans.


In relation the trend, one of the lenders in the financial services industry, Unicredit Ghana Limited has challenged industry players to find flexible ways to engage the SMEs and help them access loans.


The Marketing and Service Quality Manager Jocelene Buckman is also of the opinion that the credit reference bureau would in the long run, help minimise the difficulties of SMEs in accessing loans but noted that the need for collateral will, in the interim, be a prominent necessity.


She is rather advocating that financial institutions would have to help the SMEs to manage such challenges. “Collateral is an integral part of our system especially because we don’t have a very good credit referencing bureau so collateral forms part of the security so we cannot rule it out completely. But we have to be a little flexible, find out what the customer has and see how best we can factor that into the loan processing because if stick to fixed asset it will limit a lot of people because not everybody can deliver on that”.


She said: “It is important industry players look at individual situations and see how best they can process the loans without strictly [making] collateral demands”.

Earlier this year, the President of Association of Ghana Industries (AGI), Nana Owusu-Afari, told Accra-based Radio Station Citi FM that that local businesses are collapsing at a faster rate than before due to excessively high interest rates charged by the commercial banks.


"There is high cost of money for doing business and inability for locals to compete with foreign businesses", Owusu-Afari said.


Trends during the last two decades have witnessed the number of commercial and investment banks operating in the country increase from 11 in 1990 to 27 in 2010.


Over the same period, inflation dropped from over 40 percent in 1990 to 8. 58 per cent in December 2010, whilst the Bank of Ghana policy rate declined from 30 percent to 13. 5 percent.


The issue of access to credit in 2011 has remained topical and financial institutions are still hoping to improve the situation but industry players also say the Bank of Ghana will play a huge role in that.