In a bid to shed light on the critical issue of “reducing the cost of capital in Ghana,” distinguished individuals, industry experts, and entrepreneurs came together at a recent event to discuss the challenges and potential solutions surrounding the cost of capital for micro, small, and medium enterprises (MSMEs).
One of the central highlights of the event was a poignant real-life story shared by Kow Abaka Essuman, the legal counsel to the President, during his time as an attorney who had worked in private practice. He detailed a distressing tale of a businessman who had engaged his services after being sued by a financial institution for defaulting on a loan. This businessman’s plight underscored the pressing issues surrounding the cost of capital in Ghana.
The businessman had initially applied for a loan of GHC10 million, a sum he believed was crucial to bring his ambitious business plans to fruition. Regrettably, the financial institution approved a mere 40% of his request, granting him only GHC4 million. To secure this loan, the businessman had to put up property valued at over GHC15 million as collateral. This gamble was a means to achieve his entrepreneurial dreams.
He did manage to complete his project despite numerous obstacles; however, challenges arose, making it exceedingly difficult for him to repay the GHC4 million he had borrowed. Now, the financial institution that held his property as collateral sought to seize it. What struck Essuman was not only the financial burden faced by the businessman but also the troubling realisation that the financial institution’s intentions were not to support the venture but to ensnare it in a crippling cycle of debt, rendering it unsustainable.
This heartrending tale exemplifies a much larger issue that is widespread in Ghana and numerous parts of the world – the exorbitant cost of capital. Access to affordable capital is a fundamental requirement for economic growth, job creation, and the nation’s prosperity. Nevertheless, when financial institutions impose sky-high interest rates, demand excessive collateral, and prioritize their own profits over the success of the businesses they should be empowering, dreams of many entrepreneurs are crushed, and the country’s economic growth is stymied.
The event, which witnessed a gathering of prominent figures, economists, and financial experts, emphasized that access to finance remains a significant challenge for early, growth, and pre-revenue businesses. However, it’s not merely the access but the cost of capital, the gaps in deal structuring, and the readiness of MSMEs to access capital that compounds this issue.
In his keynote address, Essuman also urged for transparency and accountability within the financial sector. He stressed the importance of ensuring that loans are granted not only for profit but also to foster genuine economic growth.
Furthermore, the discussions delved into the need for increased competition in the financial sector to provide entrepreneurs with more options and better terms for their businesses. The experts highlighted the necessity of advocating for government policies that support entrepreneurs and small businesses, including favorable tax policies, grants, and low-interest credit facilities.
The event concluded on a hopeful note, with a call to action for the entire community, including government, financial institutions, and entrepreneurs, to work collaboratively in reducing the cost of capital in Ghana. By fostering an environment that supports business growth and economic development, the attendees aimed to empower entrepreneurs, encourage innovation, and create an atmosphere where dreams have the opportunity not just to be realized but to flourish.
This event marked a significant step towards addressing the cost of capital in Ghana and unlocking the potential that lies within the nation. It highlighted the need for a concerted effort to provide affordable and accessible capital for businesses, ensuring that they can thrive and contribute to the nation’s growth and prosperity.
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