US$4.8bn SME financing gap exposes Ghana’s credit challenge — A call for swift implementation of open banking, open finance reforms

Ghana's small and medium-sized enterprises (SMEs) are crucial to the country's economic transformation, yet a persistent issue hinders their growth: access to affordable and appropriate finance. The estimated US$4.8 billion SME financing gap highlights the gap between digital payments and financial technology progress and a deep, data-driven, inclusive credit market.

This financing gap has been a recurring concern in Ghana's financial discussions for years and was recently emphasized by the Bank of Ghana through a Draft Open Banking Directive for Regulated Financial Institutions.

Open banking, combined with a broader open-finance architecture, could be instrumental in addressing the SME credit challenge. The primary issue lies in the information gap between businesses needing finance and financial institutions required to assess risk before providing it. Many SMEs are challenging to assess using conventional lending models due to limited audited financial statements, lack of conventional collateral, and insufficient formal credit history.

Financial institutions price uncertainty into lending decisions because of limited reliable information, leading to higher interest rates, shorter loan tenors, larger collateral requirements, or outright rejection.

Open banking is more than a technological initiative. It's a potential game-changer for Ghana's financial ecosystem. By enabling customers to securely share financial information with authorized third parties through APIs, open banking can transform how SMEs are assessed for credit. Lenders could evaluate transaction patterns, cash-flow consistency, account activity, and other permitted financial information alongside traditional credit data.

This would lead to a more intelligent risk assessment, allowing fintechs to develop alternative credit-scoring models, banks to automate underwriting processes, and SMEs to receive lending decisions based on actual economic activity rather than solely on pledged collateral.

The Bank of Ghana's Draft Open Banking Directive is a timely step towards a more connected financial ecosystem. However, its implementation should be swift, clear, and well-coordinated. While open banking is essential, it should not stop at bank-account information. The financing needs of SMEs extend across various financial service providers, including banks, payment platforms, mobile-money providers, insurers, investment platforms, pension providers, and more.

The next step should be implementing an open-finance architecture that covers these multiple facets of financial ecosystems to fully leverage open banking's potential.