120% collateral requirement shuts businesses out of credit — AGI

Eric Defor, Chairman of the Economic Affairs Committee at the Association of Ghana Industries (AGI), expressed concerns over the difficulty businesses encounter in obtaining bank loans, despite improved liquidity in financial institutions and declining interest rates. He attributed the problem primarily to banks' insistence on high collateral requirements, often demanding security worth around 120% of the borrowed amount.

Defor urged the government to address these constraints when presenting the 2027 Budget to Parliament. While acknowledging some government interventions, such as VAT reforms and the Bank of Ghana's control over key economic indicators, Defor emphasized that access to affordable credit remained a significant issue for industry. He questioned whether the funds available in banks were reaching businesses to support their production needs and noted that the presence of funds does not guarantee loan approval at reasonable terms.

Defor pointed out that while banks have become more financially stable due to the repayment of debts under the Domestic Debt Exchange Programme (DDEP), the lending conditions continue to frustrate businesses. He highlighted the stringent collateral demands as a major barrier to accessing finance, noting that borrowers are often required to provide security valued nearly at 120% of the loan amount.

Defor called for clearer guidance on which sectors are receiving bank credit, expressing worry that some institutions might be directing available funds into government securities instead of lending to businesses. He stressed that reliable data was essential to track the flow of funds, particularly considering the Bank of Ghana's liquidity management operations, which also impact the funds available to commercial banks.

Defor's remarks follow businesses' anticipation of the 2027 Budget for measures that can enhance access to finance and support investment in production. Although reduced interest rates and lower production costs may provide some relief, he suggested that the benefits would be limited if businesses continue to face tough lending conditions.