Stop Treating Companies as High-Risk Debtors: GNCCI CEO’s Call to Action for Banks

The Chief Executive Officer of the Ghana National Chamber of Commerce and Industry (GNCCI), Mark Badu-Aboagye, has issued a direct challenge to the nation’s banking sector: cease categorizing the entire private business community as inherently high-risk. His argument, rooted in observed market practices, calls for a fundamental shift from generalized risk aversion to a nuanced, project-based assessment of creditworthiness. This stance highlights a critical bottleneck in Ghana’s economic development—the misalignment between banks’ risk perception and the actual potential of viable Small and Medium-sized Enterprises (SMEs) and startups. This article provides a comprehensive, SEO-optimized analysis of the CEO’s demands, exploring the background of SME financing challenges, the flawed logic of blanket risk assessment, and practical pathways for both financial institutions and entrepreneurs to foster a more dynamic and supportive financial ecosystem.

Introduction: The Core of the Credit Conundrum

In a candid interview, Mr. Badu-Aboagye pinpointed a systemic issue stifling entrepreneurial growth in Ghana: banks’ tendency to view the business sector through a lens of suspicion. His statement, “The banking community should not look at the business community as a more risky institution,” encapsulates a plea for fairness and analytical rigor in lending. The implication is clear—current practices are not merely cautious but are actively counterproductive, denying capital to projects with strong fundamentals simply because they belong to a sector broadly labeled “high-risk.” This introduction frames the discussion not as a critique of prudent banking, but as a call for intelligent, evidence-based credit allocation that can unlock Ghana’s full commercial potential. For entrepreneurs searching for “business loans in Ghana” or “SME financing,” this represents a clarion call for systemic change, while for banks, it is a strategic imperative to revisit their risk models to capture profitable, underserved market segments.

Key Points: GNCCI CEO’s Principal Arguments

The CEO’s commentary distills into several critical, interconnected points that form the backbone of his advocacy:

• Project Over Perception: Credit decisions must be driven by the specific merits, cash flow projections, and profitability of an individual project, not by broad, negative assumptions about the private sector’s risk profile.
• The Startup Financing Gap: Banks exhibit particular hesitancy toward funding startups, perceiving them as inherently risky. This creates a “valley of death” where promising young companies cannot secure the early-stage capital needed to scale and prove their models.
• The “Post-Growth” Lending Paradox: A concerning trend was identified where banks prefer to finance businesses only after they have already grown and stabilized without institutional financing. This logic is flawed, as the very companies banks eventually seek were likely those most in need of early support to survive and scale.
• The Role of Alternative Finance: The CEO highlighted models in other economies where startups access capital from NGOs, angel investors, and venture capitalists before becoming “bankable.” Ghana’s ecosystem lacks sufficient depth in these alternative funding layers.
• Interest Rate Monitoring: Businesses, especially those not in urgent need, are adopting a wait-and-see approach on borrowing, anticipating potential interest rate reductions. This underscores the sensitivity of the market to monetary policy and cost of capital.

Background: Ghana’s SME Financing Landscape

The Economic Weight of SMEs

To understand the urgency, one must contextualize the role of SMEs. In Ghana, as in most developing economies, SMEs are the backbone of the private sector. They contribute significantly to GDP (estimated at over 70% in many Sub-Saharan African analyses), employment, and poverty reduction. The Ghana Statistical Service and various World Bank reports consistently highlight that fostering SME growth is a direct route to inclusive economic development and job creation. Therefore, constraints on SME financing are not just business issues; they are national economic imperatives.

Persistent Access-to-Credit Challenges

Despite their importance, SMEs face chronic underfunding. Surveys by the GNCCI, Bank of Ghana, and international bodies like the International Finance Corporation (IFC) repeatedly cite “access to finance” as a top-5 constraint for businesses. The primary formal source of debt capital for these firms is the commercial banking sector. Yet, a significant credit gap persists. This gap is often attributed to: information asymmetry (banks cannot accurately assess SME risk), high transaction costs for small loans, inadequate collateral (SMEs often lack titled property), and, as highlighted by the GNCCI CEO, a fundamental risk perception bias.

The Banking Sector’s Post-2017 Recalibration

The current cautious stance must also be viewed against the backdrop of Ghana’s banking sector cleanup and recapitalization exercise that concluded around 2019. This regulatory drive, aimed at strengthening the sector, resulted in a more consolidated, risk-averse banking industry with higher capital adequacy ratios. While this improved overall sector stability, it arguably intensified selectivity in lending, with portfolios shifting toward government securities and large corporates perceived as safer, at the perceived expense of the SME segment. This context helps explain, but does not fully justify, the heightened risk aversion toward private enterprise.

Analysis: Deconstructing the “High-Risk” Label

The Flawed Logic of Blanket Risk Assessment

Labeling an entire sector—the “private company” or “SME” category—as high-risk is a analytical failure. Risk is idiosyncratic, not categorical. A well-managed, export-oriented agro-processing firm with long-term contracts and robust cash flows carries a fundamentally different risk profile than a sole proprietorship trading in volatile commodities. Banks employ sophisticated credit scoring models for large corporations; the argument is that similar rigor, tailored for smaller enterprises, is lacking. The CEO’s push for evaluating the “strength of projects” advocates for a move toward project finance principles for SMEs, where the viability of the underlying business model, management team, and market opportunity is the primary underwriting criterion, rather than the borrower’s existing balance sheet size or industry tag.

The Startup Conundrum: A Chicken-and-Egg Problem

The startup dilemma is particularly acute. Startups, by definition, lack historical financial statements and tangible assets. Traditional banking, built on historical cash flow analysis and collateral liquidation values, is structurally ill-equipped to service them. The GNCCI CEO correctly identifies the paradox: “Who should give the money to the startup to go before you come?” This points to a missing layer in Ghana’s financial intermediation chain. In mature ecosystems, this gap is filled by:

• Angel Investors & Seed Funds: Provide earliest capital based on team and idea.
• Venture Capital (VC): Funds high-growth potential startups for scaling.
• Development Finance Institutions (DFIs): Often provide risk-sharing facilities or credit lines specifically for SMEs and startups.
• Credit Guarantee Schemes: Government or quasi-government schemes that partially guarantee SME loans to reduce bank risk.

Ghana’s development of these alternative channels has been slow and fragmented, leaving startups with nowhere to turn but informal lenders or, increasingly, fintech platforms offering smaller, shorter-term products.

Consequences for Economic Growth and Entrepreneurship

The implications of this credit misallocation are severe:

• Stunted Innovation: Tech and innovative business models, which are often asset-light, are disproportionately starved of capital.
• Informal Sector Persistence: Businesses remain informal and small to avoid the perceived burden and high probability of rejection from formal banking, limiting their productivity and tax contribution.
• Job Creation Loss: SMEs are the primary net job creators. Their constrained growth directly translates to lower formal employment.
• Reduced Bank Market Share: By ignoring a vast segment of the economy, banks miss out on a potentially large, long-term customer base as these SMEs grow into large corporates.

Practical Advice: A Roadmap for Banks and Businesses

For Banks and Financial Institutions

• Adopt Specialized SME/Startup Units: Create dedicated teams with different KPIs (e.g., number of viable projects funded, portfolio growth) than traditional corporate banking. These teams should understand sector-specific dynamics.
• Develop Cash-Flow Based Lending Models: Prioritize analysis of projected cash flows from the specific project over historical financials. Use reasonable, conservative assumptions for revenue growth and expense management.
• Utilize and Expand Credit Guarantees: Actively participate in and advocate for robust national credit guarantee schemes. The Bank of Ghana’s Ghana Credit Guarantee Scheme (GCGS) is a step in this direction; banks need to understand and leverage it effectively.
• Offer Non-Traditional Collateral Structures: Accept movable assets (inventory, receivables, machinery) via a well-functioning collateral registry. Explore hypothecation and lease financing models.
• Build Relationships, Not Just Transactions: Engage with business associations like GNCCI to understand sectoral challenges and identify pre-qualified, promising entrepreneurs early.

For Entrepreneurs and Business Owners

• Think Like a Bank: Prepare a professional business plan with detailed, realistic financial projections (3-5 years), break-even analysis, and clear use-of-funds statements. Your project’s ability to generate revenue for loan repayment is your primary argument.
• Document Everything: Maintain clean, separate business bank accounts and proper records (sales invoices, purchase orders, contracts). This builds a financial track record, even for a startup.
• Start Small and Build History: If denied a large loan, seek smaller, manageable facilities (e.g., for inventory or equipment) to establish a positive repayment history. This creates a track record for future larger requests.
• Explore the Full Financing Spectrum: Do not limit yourself to traditional bank loans. Research and pitch to: angel investor networks, venture capital firms, impact investors, trade credit from suppliers, and reputable fintech lenders for working capital.
• Leverage Business Associations: Join and actively participate in chambers like GNCCI. They provide networking, advocacy, and sometimes access to specialized financing programs or matchmaking events with investors.

FAQ: Addressing Common Concerns

Q1: Are banks completely wrong to be cautious with SMEs?

A: No. Prudence is a cornerstone of banking. The issue is not caution itself, but the application of caution. Blanket rejection based on sector size is not prudent; it is lazy risk management. True prudence involves diligent, project-specific due diligence.

Q2: What specific collateral can a startup without property offer?

A: Possibilities include: a charge over business assets (equipment, inventory), a personal guarantee from directors, assignment of future contracts/receivables, or, most effectively, utilization of a government-backed credit guarantee scheme that covers a percentage of the loan.

Q3: If interest rates are expected to fall, should all businesses wait to borrow?

A: Not necessarily. The decision depends on the business’s urgency and the opportunity cost of delay. If not borrowing means missing a critical expansion opportunity, losing a key contract, or stalling product development, the cost of waiting may outweigh future interest savings. Businesses must weigh the strategic imperative against the financial cost.

Q4: Are there successful models of project-based SME lending in Africa?

A: Yes. Institutions like the Central Bank of Nigeria’s Target Credit Scheme or various DFI-backed lines of credit in East Africa (e.g., from the African Development Bank) often mandate project-appraisal focused lending. Some commercial banks in South Africa and Kenya have developed sophisticated scoring models for micro, small, and medium enterprises that rely more on cash flow and alternative data.

Q5: What legal or regulatory changes could encourage banks?

A: While not a legal advice, supportive regulations include: strengthening the collateral registry for movable assets, providing tax incentives for SME lending, mandating or strongly encouraging banks to allocate a certain percentage of their loan books to SMEs (similar to the US Community Reinvestment Act concept), and fully capitalizing and promoting the national credit guarantee scheme.

Conclusion: Toward a Partnership Model

Mark Badu-Aboagye’s message transcends a simple complaint; it is a strategic proposal for rebalancing Ghana’s financial ecosystem. The goal is to move from a dynamic where banks see businesses as risky debtors to one where they see them as partners in value-creating projects. This requires courage from banks to develop new underwriting muscles and patience from entrepreneurs to build verifiable business cases. The alternative—a perpetuated cycle of undercapitalization, informality, and stunted growth—costs the entire economy. The path forward lies in collaborative innovation: banks refining