Skip Navigation

Financing SMEs critical for economy – Prof Abor

Nov. 29, 2016, 3:27 p.m.

THE Dean of the University of Ghana Business School (UGBS), Professor Joshua Yindenaba Abor, has called for the proper structuring of Ghana’s financial services sector to afford small businesses the requisite resources and incentives to grow.

According to him, “Ghana’s private sector is not growing the way we expect it to grow because of several challenges, one of which is access to finance.

“We can support our small businesses to grow by structuring our financial system in ways that make access to financing easier,” Prof Abor said in his inaugural lecture at the University of Ghana, Legon, last Thursday.

The Dean of the Business School was speaking on the topic ‘Financing Private Enterprise Growth in Africa: How do we drive the real economy?’

“Majority of small and medium enterprises complain that finance is a major obstacle to their growth so question is how we support that aspect of the business sector,” he asked.

He said the International Monetary Fund (IMF) in a report on the third review of its programme with Ghana revealed that growth in credit to the country’s  private sector declined sharply in the first half of 2016, from 33 per cent a year earlier to 9 percent.

It added that banks’ average lending rate increased from 28 percent to 33 percent, signaling a tightening in credit conditions.

According to economists, the drastic reduction in credit to the private sector is the direct result of the deliberate policy of the Bank of Ghana’s tight monetary policy aimed at reducing the liquidity in the system with the view to stabilizing inflation and the exchange rate. 

Banks in the country are being more careful and selective in their credit appraisals due to high levels of Non-Performing Loans (NPLs). The industry average now stands at 19 per cent.

Prof Abor stressed on the need to develop small businesses and make sure that they have proper records and good governance systems in place.

He called for deliberations on how to design financing schemes to meet the peculiar needs of SMEs so that “if the small business doesn’t have huge assets to present as collateral can we look at their trade if there are in exports; can we look at the expected cash flow; find out if they are viable based on which we can provide some support so they can grow.”

Prof Abor was unhappy about the practice of leaving such small businesses to slug it out there without any guidance or support in the form of advisory services.

“There is the need to be involved in what they do; you don’t just provide the credit and you leave them; just as the venture capital companies do, beyond the equity investment they are also interested in providing management and technical advice,” he pointed out.