SMEs are the backbone of Ghanaian economy – Ken Thompson

Kenneth K. Thompson, Chief Executive Officer of Dalex Finance, on Monday asserted that Small and Medium Enterprises (SMEs) are the backbone of the Ghanaian economy, representing about 85 percent of businesses largely within the private sector.

He said SMEs contributes about 70 percent of Ghana's Gross Domestic Product (GDP) and in terms of formal sector employment, they account for just over half of all fulltime employment, with the percentage likely much higher in the informal sector.

Mr Thompson told the Ghana News Agency in an interview at Sunyani in the Bono Region during an encounter with a section of the media, stressing that non-Bank Finance Institutions (NBFI’s) have been in business since the early 90s.

“The early successes of UT Financial Services, co-founded by Joseph Nsonamoah and Prince Kofi Amoabeng in 1997 as Unique Trust Financial Services accelerated the sectors growth.

“Private capital, sensing opportunity to make decent returns, ‘poured’ into the sector. Other institutions, for example those licensed by the Securities and Exchange Commission also ‘stretched’ the scope of their licence and joined the party,” he said.

Mr Thompson who is a financial expert explained that “over time, look and feel became 'more' important than substance. Many people became 'wall street' bankers.

“Limousines, first class travel to chase 'non-existent' deals, high salaries and perks with Wall Street offices to match became de rigueur. Meanwhile most transactions were either direct or indirectly linked to government and others simply ‘fuelled’ delusions of grandeur”.

He revealed that the sector got crowded, the economy slowed down, government was unable to pay its debts in full and or on time and transactions dried up, competition amongst financial institutions for business and deposits to refinance their exposures grew.

He said firms took more and more risk and the cost of funds kept rising. Some executives went rouge, concocting credit files and coaching borrowers to steal from their employers and clients.

“As if that was not bad enough, the recovery of loans was made torturous by systemic weaknesses. A weak land registration system, no address system, diversion of funds by SMEs and a creaking contract enforcement infrastructure contributed to a rise in loan defaults,” he said.

Mr Thompson noted that, Commercial Banks do not lend to SMEs, as they focus on government business, large corporates and multinationals, stressing that “One of the main reasons they do this is their lack of confidence in the SMEs ability to manage their operations effectively, so as to be able to repay the loans they access”.

He said in some cases this was genuine, but the main reason was that banks can make money more easily, breathing down the neck of an irrepressible entrepreneur to ensure they repay their loan was too stressful in a suit and tie.

He said in a high interest rate environment, the incentive for Commercial Banks to fund SME’s was even much less. “It is easier for the Commercial Banks to purchase government bonds or lend to government indirectly through parastatals and watch their money grow.

“Government business is good business. The government will always pay and hardly complains,” he said.

On ways to revamp the sector, Mr Thompson noted that a lot has been done and a lot more can be done to strengthen NBFI’s, stressing that the Bank of Ghana Corporate Governance Directives, calibrated over time, will strengthen corporate governance.

He also called on institutions also to work extra hard to get rid of the perception that they were run by rouges.

Mr Thompson also called on the judicial system to dispatch commercial cases expeditiously; “These actions will increase investor confidence, attract funds to the financial sector and ultimately reduce the cost of operations and the cost of loans to SME’s.

He said Ghana will not develop if we do not have a strong and vibrant financial sector to support SMEs. The more we work together to strengthen it, the better for all.