IFC expands financing for small Ghanaian businesses
Small businesses in Sub-Saharan Africa are often limited in their growth as they cannot keep up with demand and access finance for the necessary supplies, machinery and other inputs. In Ghana, the lack of national identity card system, a credit information bureau, and a collateral registry makes lending to smaller businesses clients a riskier activity for commercial banks.
A number of IFC [International Finance Corporation] interventions in Ghana, in partnership with the Swiss State Secretariat for Economic Affairs, have helped to improve the country’s financial infrastructure to increase access to finance to small business as a key driver of job creation.
After the enactment of the Borrowers and Lenders Act in 2008, the Bank of Ghana, with the support of IFC, established a collateral registry which has recently been upgraded into a web-based electronic registry, which started operating in June 2012. Previously, the lack of a secured lending regime represented a key constraint for access to credit, as bank lending was mainly used real estate as collateral – an asset many small businesses in the country do not have.
Following IFC’s intervention, the volume of financing for small businesses has increased significantly: more than 36,000 loans have been registered by financial institutions in the collateral registry since its creation in March 2010. As of June 2012, these loans account for almost $3 billion in financing secured with movable property. More than 5,000 SMEs and around 22,000 micro businesses and individual entrepreneurs have received loans.
Constance Swaniker founded Accents & Art Ghana, a design firm that produces furniture and other home accessories. Following increasing demand for her products, she was able to access her first loan by pledging her machinery as collateral. This allowed her to expand her business and hire more than 30 people from the local community.
At the same time, IFC’s Africa Credit Bureau program is helping to increase availability of credit to businesses by supporting the development of credit reporting systems which help financial institutions to provide loans to more businesses. As a result, most banks and financial institutions in Ghana consistently submitted quality data to the private credit bureaus licensed in Ghana and are increasingly using the resulting credit reports made available by the bureau for risk management. In August 2012 alone, one of the bureaus received 20,000 inquiries from lenders.
Previous projects to increase access to finance for small business in Ghana include the IFC Africa Leasing Facility which was also supported by SECO. Since the start of the program in 2005, the number of new leases registered increased more than fivefold to 1,745 in 2010, while the value of these new leases increased significantly from over $15 million to $128 million. The number of institutions engaging in leasing increased from five registered independent leasing companies to over 50 in 2011.
When Ghana’s Odart Stevedoring switched from renting expensive machines that load containers onto ships, to leasing the equipment, the impact was immediate. “Business boomed up, we engaged more people, trained more people,” says Kojo Arthur, Odart’s director.
SECO is one of IFC’s most important donor partners in Sub-Saharan Africa and globally. In IFC’s last two financial years alone, SECO has provided over $15 million in support to IFC’s Advisory Services programmes in Sub-Saharan Africa with a focus on access to finance and investment climate.
Source: IFC