Ghana globally competitive in SME financing by banks

The 2019 Small and Medium-sized Enterprises (SME) Competitiveness outlook developed by the International Trade Centre (ITC) indicates that despite the conventional wisdom in Ghana that banks are not providing much financing and investment to support operations of SME’s, in actual fact they are providing a high degree of investment relative to about two-fifths of the countries examined in the survey.

The report presents what it calls an “SME Competitiveness Grid” which allocates scores to the various sizes of enterprises in Ghana – small, medium and large – for various aspects of business services available to them using key indicators such as a country’s Gross Domestic Products (GDP) per capita, current account surplus, deficit and share of GDP, Tariff preference margin and many others.

In Ghana, small businesses are scored at 36.0 percent with regards to investment financed by banks which is well above the threshold score of 22.4 percent below which the availability of a business service is assessed as weak.

However, the SME’s score in this regard is far lower than the 52.7 percent for medium sized enterprises and 69.8 percent for large corporations. This indicates that small enterprises have far less access to bank financing than their medium and large sized counterparts.

The survey regards any score over 67.3 percent as strong and in Ghana, only large sized firms are assessed to have strong access to finance, although medium sized enterprises come close.

Out of the 85 countries surveyed spread across the globe but comprising middle and low income countries, Ghana scored better than 34 with regards to investment financed by banks under small business sector while 50 scored better than Ghana.

Instructively Central and South American countries scored the highest in this regard with Chile scoring 85.6 percent, Dominican Republic 86.0 percent, Nicaragua 68.7 percent, and Guatemala 61.7 percent as prime examples.

Conversely, sub Saharan African countries fared poorly, but with exceptions such as Kenya which scored 65.2 percent, Mali 61.9 percent and Lesotho, 56.6 percent. Surprisingly, Liberia scored a relatively high 46.6 percent but neighbouring Nigeria recorded a low 15.8 percent.

Medium and large
With regards to the medium sized enterprises sector, Ghana performed better than 44 countries, out of the 85 counties examined in the outlook; whiles the performance of 55 countries regarding investment in large sized enterprises financed by banks were below Ghana’s.

This indicates that activities in Ghana’s banking sector gravitates heavily towards financing of formalized business activity making it increasingly possible for medium and larger businesses to attract the needed investments from various banks.

It is deemed that SMEs contribute to the Sustainable Development Goals (SDGs) through the jobs and wages they provide to their respective employees; their business practices; the sector in which they operate as well as their contribution to the national economy.

Financial institutions in most cases do not extend substantial credit facility to SMEs, most especially in the developing countries to either expand their business or make direct investment owing to the lack of information on SME creditworthiness which in turn leads to high perceived risks.

This recent outlook is therefore making a strong case on the need to encourage continuous investments in the country’s small business sector in order to realize the SDGs.

It is in this regard that the ITC is advocating that local financial institutions namely banks, insurance providers and microcredit agencies playing effective role by providing information on SMEs such as credit history, that is necessary to accurately assess performance risk.

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