Family and friends are best financiers for startups, says Kofi Amoabeng
The co-founder of erstwhile UT Bank believes the high interest charged by financial institutions makes it difficult for startups to access funds to operationalise their business ideas
Captain (Rtd) Prince Kofi Amoabeng, the co-founder of erstwhile UT Bank has advised startups to resort to friends and families to fund their business.
Amoabeng said the high-interest rate charged by financial institutions makes it difficult for startups to access funds to operationalise their business ideas.
Speaking with Kwaku Nhyira-Addo on Asaase Breakfast Show (ABS) Tuesday (14 December), Amoabeng said he started his business by resorting to friends and families for funding.
“Go to them, explain your business, what you want to do and explain the profit margins that you want to get and discuss with them what they are going to get in return for their investment, whether it is collateral or money, you don’t take them for granted, because there is an opportunity cost to investing in you as against investing in something else,” he said.
“Then your relatives or friends because they know you for a long time, will most likely do it if you are a man or a woman of integrity. But if you go to a complete stranger, of course, he is going to demand huge interest and going to require collateral because they don’t know you.”
He added, “So that is the way even Unique Trust started, I wrote personally to all my friends and relatives and I said if you give me GHC5 million or more, every month I will pay 5% on it because we were lending at that time at about 12% a month and we had a niche market, so if we pay you 5%, we had 7% to play with and we respected it …”
BoG warned my lending method was too risky
Captain (rtd) Prince Kofi Amoabeng, the co-founder of erstwhile UT Bank has said the Bank of Ghana warned him of the risky method of lending prior to the collapse of the bank.
Speaking with Kwaku Nhyira-Addo on Asaase Breakfast Show (ABS) Tuesday (14 December), Amoabeng said he started lending without collateral because he had wanted to operate the trust regime for lending.
” … When I started, you know the name was Unique Trust, my naive idea was that I was going to lend based on trust, not collateral. So the first few loans that I did, if I interviewed you, went to your business, hard proof of everything and I felt that you were genuine then I give you the money. I didn’t ask for collateral.”
“At some point when the Bank of Ghana (BoG) saw that there was a bit of turnover, they came around to inspect our books, and they took about eight books and set aside and said Amoabeng your lending method is too much risk because it looks you don’t go for collateral …”
“When you have clients of over a thousand, do you think you can go after all of them?”
The co-founder of erstwhile UT Bank believes small and medium scale enterprises (SMEs) must be open to a partnership but must tread cautiously in ceding the entire business to investors.
Fred Dzakpata
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