BoG urges businesses to unlock collateral for easier access to credit

The Bank of Ghana (BoG) has called upon businesses, especially small and medium-sized enterprises (SMEs), to utilize the country's collateral registration system to enhance their accessibility to credit and secure more favorable loan terms from financial institutions. This move can foster business growth in terms of profitability and enhance their financial systems.

Alexander Koomson, representing the Head of the Collateral Registry Department at BoG, highlighted that insufficient awareness of Ghana's credit infrastructure is one of the obstacles preventing businesses from fully utilizing their assets to obtain financing. During a sensitization program on the "Borrowers and Lenders Act, 2020 (Act 1052)" and the functions of the Collateral Registry Department in Kumasi, the program was part of BoG's ongoing engagement with stakeholders.

The attendees comprised business owners, entrepreneurs, traders, manufacturers, and representatives from the Association of Ghana Industries (AGI) and the Ghana National Chamber of Commerce and Industry (GNCCI). Koomson elaborated that the passage of Act 1052 and the establishment of the Collateral Registry Department aimed to tackle persistent issues in the credit market, such as inadequate acceptable collateral, information asymmetry, and weaknesses in enforcing security interests.

He emphasized that limited awareness of this credit infrastructure system and the governing processes might undermine the intended purpose of this regime. The BoG is dedicated to continuous stakeholder engagement and public education to bolster trust and confidence in the credit system. Koomson explained that credit plays a vital role in a business's lifecycle, supporting expansion, strengthening value chains, and contributing to job creation and inclusive industrial growth.

However, he noted that access to credit has traditionally been hindered by businesses' inability to provide suitable collateral and shortcomings in the systems governing secured lending. The Collateral Registry Department, set up following the enactment of Act 1052, aims to establish a framework for registering security interests in movable and other eligible assets, enabling businesses to leverage their assets for borrowing.

The Ashanti Regional Chairperson of the GNCCI, Edward Yaw Afriyie, pointed out that the sensitization program was crucial as many businesses were unaware of their rights and obligations when interacting with lenders. He emphasized that a better understanding of the law would enable entrepreneurs to comprehend lending agreements, collateral requirements, and the available mechanisms under the Act.

The timing of the engagement was significant considering recent monetary policy developments and lending conditions. Koomson acknowledged that lower interest rates could potentially boost business expansion; however, the benefits of such changes might not be immediately apparent to SMEs when seeking financing from banks. "The gap between the headline and what actually occurs at the bank counter, or in the hands of a lender assessing our collateral, remains a gap that prevents far too many businesses from securing the financing they need to grow," Koomson stated.

William Agyei-Manu, the Agricultural Sector Chairman of the AGI, urged entrepreneurs to focus on the technical presentations on Act 1052 and the Collateral Registry. Drawing from his entrepreneurial experience, he noted that accessing funding could be particularly challenging for SMEs looking to expand into new markets. He emphasized that businesses often own assets but might struggle to use them as collateral due to incomplete documentation, land-title issues, or other registration challenges.

Agyei-Manu encouraged businesses to properly document and register their assets, stressing that financial literacy and knowledge of the credit system are increasingly important for improving access to finance.