Managing Director Stanbic Bank Ghana, Alhassan Andani has advanced that generally Commercial banks by nature are not structured to fund startups.
According to him, considering how easy startups collapse worldwide, Commercial banks are very careful and selective when it comes to financing startups
Speaking at a PricewaterhouseCoopers (PwC) Post Budget Forum 2019, today November 19, 2019 in Accra, Alhassan Andani pushed for the establishment of some quasi-finance institutions to complement banks to fund startups.
“Essentially most of these banks are Commercial Banks, and we still need to deepen the financial inter mediation where we do have a Quasi or equity structured institution that compliments commercial banks to be able to make start-ups an easier option”
However, the MD of Stanbic Bank added that, those startups structured around very good off-takers i.e. startups in the telecom sector and the mining sector are most likely gets Commercial banks support by riding on the back of the off-taker.
He also lamented that “we have had a number of startups where we’ve gone to access concessionary funding from government, it will shock you that other people were not thorough or we didn’t get it right, the results have not been encouraging “
Ghanatalksbusiness Position on Startups Funding
Ghanatalksbusiness concurs with the statement made by the Managing Director of Stanbic Bank Ghana, Alhassan Andani in relation to commercial banks not being able to fund startups.
Statistics have shown that 80% percent of startups fail in the first four years hence reducing the appetite for commercial banks to support them with its limited liquidity.
Commercial banks by nature, have a mandate of providing a more ready access to depositor’s money on time. Therefore, since the success of startups cannot be easily predicted, commercial banks mostly do not want to risk depositor’s money by funding risky ventures including startups.
Also, the higher amount of commercial bank’s deposits is made up of the Current Account, Savings Account (CASA) which are ‘ready access’ deposits. CASA attracts a lower interest paid to customers (interest expense), therefore banks prefer a high CASA ratio among their customers’ deposit mix. The downside however is the limited ability for commercial banks to tie down money for a long period of time through funding startups which is riskier and also takes longer time to break even.
Insight for Startups
A major reason why startups fail few years or month after launching is;
- Unavailability of market for their product/ service
For a startup to survive and eventually become a conglomerate is to create or design product or service that the market yearns for and ready to patronize any day. Knowing what the market wants can be done through surveys and product testing.
Funding for startups has been an obstacle hindering the successes of a relatively good idea or product breaking through the market. Considering the risky nature of such startups it will be prudent for start-ups to go in for equity financing. Equity financing can take form of a corporately structured venture capital or private equity or informally structure through friends and family. They have tolerance for the long term cycle and the risk of business failure.
Equity financing takes place in a form through Venture capital or private equity or allowing Family and friends to invest in your idea or product