‘Banks still shun SMEs in Ghana ’

Despite the muchapplauded growth in Ghana’s banking sector, banks in the country still shy away from lending to small and medium scale enterprises, Nii Moi Thompson, a World Bank consultant, has said.

Thompson said it is quite frustrating and unimpressive that the credit market in the country is still largely inaccessible despite the reforms that have been undertaken in the last few years.

Speaking on the challenges of urban economies at a World Bank/Government of Ghana round-table discussion in Accra, the consultant stated that the financial system in the country was not supporting the growth of businesses as expected, and consequently did not impact much on the development of the country’s economy.

In addition to Ghana’s energy problem which has made the cost of doing business quite high, Thompson said "lack of credit facilities hindered the growth of businesses and dragged behind the course of development".

Joe Abbey, executive director of Accra-based Centre for Economic Policy Analysis (CEPA), who shared similar concerns, noted that banks in Ghana are yet to make themselves relevant to the development aspirations of the country.

"The country’s financial services sector must be dealt with. This is an area crying for reforms", he said.

"The current rates on deposits are so low that they hardly encourage people to save translating into shortfalls in loanable funds and high interest rates. Borrowers and lenders must be brought together through an effective financial intermediation system", he stated.

The CEPA boss was also worried that banks warehoused huge amounts of money which they still invested largely in government securities.

"Even after abolishing the secondary requirements, banks still hold significant proportions of their deposits with the central bank.

"The banks cannot simply say they operate in a risky lending environment and keep their resources. This is simply unacceptable," he lamented.

Abbey stated that heightening competition among banks was not enough, but there was the need to reorient the banks’ focus for them to realise the need to go into financing investments and growing businesses.

Available data from the Bank of Ghana, the country’s central bank, indicate that deposit money banks’ credit to the private sector has seen much improvement, growing by 40.5 percent in December 2006 and 56.2 percents at the end of March 2007.