Banks Wait Too Long to Fund Startups, Says GNCCI CEO: A Call for Early-Stage Financing in Ghana

The Chief Executive of the Ghana National Chamber of Commerce and Industry (GNCCI), Mark Badu-Aboagye, has issued a sharp critique of the country’s banking sector, accusing lenders of a counterproductive “wait-and-see” approach to financing new and emerging companies. His central argument is that banks often refuse to provide crucial early-stage capital to startups and small and medium enterprises (SMEs) until these businesses have already struggled, grown, and proven their resilience—precisely the stage where financing is less critical for survival and scaling. Speaking on Joy News’ PM Express Business Edition, Badu-Aboagye contended that this systemic risk aversion stifles innovation, job creation, and economic diversification from the outset, demanding a fundamental reassessment of how the financial sector assesses and supports high-potential ventures.

Key Points: The Core of the GNCCI CEO’s Critique

The interview highlighted several critical and interconnected issues within Ghana’s startup financing ecosystem:

• Misplaced Risk Aversion: Banks broadly categorize the entire business community, especially startups, as inherently high-risk, leading to excessive caution and a reluctance to fund bankable projects based on their merit.
• The “Struggle First” Paradox: A prevalent banking strategy is to intervene only after a company has survived its riskiest early years without formal financing, defeating the purpose of financial support for growth and innovation.
• Lack of a Tiered Financing Ecosystem: Unlike more mature markets, Ghana lacks robust alternative financing channels (e.g., angel investors, venture capital, development grants, NGO support) to shepherd startups through their infancy before they qualify for traditional bank loans.
• Market Sentiment Impact: Some businesses are deliberately delaying borrowing, anticipating future interest rate declines, a behavior that can paralyze necessary investment for firms with urgent operational needs.
• Structural Credit Access Problem: The critique points to a deeper, systemic issue: the mismatch between the financing needs of a vibrant SME sector (which forms the backbone of Ghana’s economy) and the risk-return models of conventional commercial banks.

Background: The Critical Role of Startups and SMEs in Ghana’s Economy

To understand the gravity of Badu-Aboagye’s remarks, one must contextualize the economic landscape. SMEs are universally acknowledged as engines of growth, employment, and innovation. In Ghana, their contribution is immense. According to data from the Ghana Statistical Service and the World Bank, SMEs account for over 70% of all businesses and contribute significantly to GDP and employment, particularly for the youth. However, this potential is consistently hampered by a chronic financing gap.

The Central Bank of Ghana and various development partners have long identified access to finance as a top constraint for SMEs. Traditional banks, operating on a model of asset-based lending and stringent collateral requirements (often property), find startups and young firms unattractive. These businesses typically lack extensive credit histories, physical assets to pledge, and consistent profitability records—the very hallmarks banks use to mitigate perceived risk. This creates a classic chicken-and-egg problem: businesses cannot grow to become “bankable” without finance, but banks only lend to those that are already “bankable.”

The High-Cost, Low-Access Reality

Ghana’s banking sector, while capitalized, has historically struggled with high non-performing loan (NPL) ratios, which has made risk management a paramount concern. This caution is amplified for SMEs. Interest rates, though moderating, have remained relatively high compared to regional peers, further increasing the cost of capital. The combination of high collateral requirements, high costs, and lengthy approval processes effectively bars a vast segment of promising startups from the formal financial system, forcing them to rely on personal savings, family funds (the so-called “love money”), or expensive informal lenders.

Analysis: Deconstructing the “Wait-and-See” Banking Model

Badu-Aboagye’s accusation of a “wait-and-see” posture is not merely an opinion but a diagnosis of a flawed risk-assessment paradigm. This behavior can be analyzed through several lenses:

1. The Psychological and Institutional Risk Bias

Banks, as risk-averse institutions, are psychologically and regulatorily incentivized to avoid defaults. The memory of past NPL crises makes loan officers and managers highly skeptical of narratives without tangible, historical proof of revenue and repayment capacity. A startup, by definition, is a narrative of future potential. This inherent uncertainty triggers a default “no” response. The CEO’s plea is for banks to develop the capacity to evaluate the quality of the narrative—the business model, market traction, management team, and innovation potential—rather than relying solely on historical financial statements.

2. The Missing Risk-Sharing Infrastructure

In ecosystems where startups thrive, risk is distributed. The GNCCI CEO correctly notes that in other jurisdictions, startups are not left to the mercy of commercial banks alone. A typical journey involves: seed funding from founders and angel investors; venture capital for scaling; and finally, debt financing from banks once predictable cash flows are established. Ghana’s ecosystem lacks this depth. Venture capital and angel investing are nascent and limited in scope. Government-backed credit guarantee schemes, while existent (e.g., under the National Board for Small Scale Industries), often suffer from bureaucratic hurdles and limited awareness. Without this intermediate layer, banks are asked to take on the riskiest, earliest-stage debt—a role they are structurally ill-equipped and unwilling to play.

3. The Innovation-Deterrence Feedback Loop

The consequence of this financing gap is a self-reinforcing cycle. Ideas that could lead to technological advancement and new industries (the very projects GNCCI says banks should seek) die in the seed stage or progress at a glacial pace. This reduces the overall pool of mature, successful companies that banks *would* eventually lend to. It also drives talent and innovation underground or abroad, as Ghanaian entrepreneurs seek greener pastures. The economy remains dependent on a few established sectors and commodity exports, missing out on the dynamism of a tech-enabled, diversified private sector.

4. The Interest Rate Monitoring Dilemma

Badu-Aboagye’s observation about businesses delaying borrowing due to anticipated rate cuts reveals a secondary market dynamic. While prudent for some, this wait-and-see approach can lead to underinvestment in the real economy. If a critical mass of firms postpones capital expenditure, it dampens overall economic activity. This behavior underscores a lack of confidence in the current financing environment and highlights the need for more stable, predictable, and affordable long-term funding options to anchor business planning.

Practical Advice: Pathways for Startups, Banks, and Policymakers

Moving from critique to solution requires coordinated action. Here is actionable advice for each stakeholder group:

For Ghanaian Startups and SMEs:

• Build a Bankable Narrative: Move beyond a simple business plan. Develop a robust, data-driven pitch that clearly articulates the problem, solution, market size, competitive advantage, management competence, and detailed financial projections (including break-even analysis and loan repayment scenarios).
• Formalize Operations and Records: Invest in proper bookkeeping, statutory registrations (with the Registrar General’s Department and Ghana Revenue Authority), and transparent banking. Clean, auditable financial records are the first step in building a credit history.
• Explore the Fintech Landscape:
• Utilize digital lenders and mobile money platforms for smaller, short-term working capital needs. While rates may be higher, the speed and accessibility can be a lifeline.
• Engage with business incubators, accelerators, and hubs (e.g., MEST, iSpace) that often provide seed funding, mentorship, and investor networks.
• Consider non-bank financial institutions like leasing companies for asset financing, which may have different risk appetites.
• Form or Join Cooperatives: Pooling resources and guarantees within an industry association or cooperative can improve collective bargaining power and access to group lending schemes.

For Ghanaian Banks and Financial Institutions:

• Develop Dedicated SME/Startup Units: Create specialized teams trained in evaluating business models, intellectual property, and market potential, not just collateral. These units should have different risk mandates and performance metrics.
• Adopt Technology-Enabled Credit Scoring: Leverage alternative data—utility payments, mobile money transaction histories (with consent), supply chain records, and social media business activity—to build credit profiles for thin-file or no-file entrepreneurs. Partnerships with credit bureaus and fintechs are essential.
• Create Staged Financing Products: Design loan products with smaller initial disbursements and tranches tied to predefined milestones (e.g., product launch, first 100 customers, revenue targets). This reduces initial risk exposure while supporting growth.
• Forge Strategic Partnerships: Banks can partner with development finance institutions (DFIs), impact investors, or government guarantee schemes to share risk on early-stage loans. They can also partner with incubators to source vetted, high-potential startups.
• Shift from Purely Transactional to Relationship Banking: Offer value-added services like financial management training, market linkage support, and mentorship. A deeper relationship provides better insights for risk assessment and builds loyalty.

For Policymakers and Regulators (Bank of Ghana, Ministry of Finance, etc.):

• Enhance and Promote Credit Guarantee Schemes: Make existing schemes more accessible, efficient, and widely advertised. Consider co-guarantee arrangements with private sector actors to increase leverage and sustainability.
• Strengthen the Credit Reporting System: Ensure comprehensive, real-time data sharing among banks, microfinance institutions, and licensed lenders to build a holistic credit information infrastructure that allows for better risk pricing.
• Provide Regulatory Incentives: Introduce lower capital adequacy requirements or risk-weighting for loans to certified startups or SMEs in priority sectors (e.g., tech, agritech, manufacturing). This directly improves the risk-return calculus for banks.
• Support the Development of a Venture Capital Ecosystem: Offer tax incentives for angel investors and VC funds, and reduce barriers to entry for fund managers focused on early-stage Ghanaian companies.
• Facilitate Dialogue Platforms: Institutionalize regular, structured forums like the one between GNCCI and banks to align perspectives, share data on SME performance, and co-create solutions.

FAQ: Addressing Common Questions on Startup Financing in Ghana

Why are startups considered so risky by traditional banks?

Startups are deemed risky due to their lack of operating history, unpredictable cash flows, high failure rates in the first few years, and typically insufficient tangible assets to serve as collateral. Banks are designed to lend against proven assets and stable income, making the speculative nature of a startup inherently misaligned with conventional lending criteria.

What alternative financing options exist for startups in Ghana besides banks?

Alternatives include: 1) Personal savings and “love money” from family/friends. 2) Angel investors and venture capital firms (though limited, players like EchoVC, 4DX Ventures, and DreamOval are active). 3) Business plan competitions and grants from organizations like the World Bank, USAID, or corporate CSR programs. 4) Digital lenders and mobile money platforms (e.g., Branch, Fido, Aella) for smaller amounts. 5) Leasing and hire-purchase companies for specific assets. 6) Cooperative and group lending models.

How can a startup become more attractive to a bank for a loan?