Rethinking SME financing: Towards a sustainable model for SME transformation

By Gideon Asare SACKITEY

“Oh, Madam, we are so sorry to disappoint you. If you were importing sugar, rice, and some trading items, we could have organized a quick facility for you,” Ruby’s Personal Banker said, three months after being encouraged by this same bank to apply for their “Unsecured SME Loan.”

Small and Medium Enterprises (SMEs) are the backbone of Ghana’s economy, contributing significantly to employment, GDP, and innovation. They are scattered across every nook and cranny of our neighbourhoods,  scraping through and filling a major void yet to be fully recognized.

According to the Ghana Statistical Service (GSS), SMEs make up 92% of all registered businesses, contribute about 70% of Ghana’s GDP, and account for approximately 85% of employment opportunities. Despite their vast contribution, access to reliable and suitable financing and financing models remains a persistent bottleneck.

One would have thought that the establishment of SME Desks at almost all banks would have led to a more comprehensive support system. That is the inclusion of people who understand the needs and development pattern for the growth and development of SME’s. Sadly, they have turned out to be often superficial, reactive, and fail to address the exact practical needs, especially those in their formative stages.

The perception many banks have is that every SME needs a loan. This may be true to a great extent. However, a careful examination reveals that SMEs need much more training in mentorship, financial literacy, business coaching and structuring, auditing, and marketing knowledge – before financing can make any real impact.

This article examines the current SME financing landscape, critiques the limitations of bank-led SME support, and proposes forward-looking, self-sustaining financing models – including the bold idea of establishing an SME-owned financial institution as a more viable pathway to growth, productivity, and long-term sustainability that could eventually transform SMEs, yes at least some, into multinational firms.

The Credit Shock

Ghana’s SME sector, which comprises over 2 million businesses according to the Ministry of Trade and Industry, is a vital economic engine. Yet access to affordable, timely, and flexible financing continues to stifle their growth. This has been the case year after year, even though millions of dollars is counted in their name.

According to the Bank of Ghana’s SME Credit Market Survey (2023), only 9% of total commercial bank credit goes to SMEs, despite their dominant share of business activity. Do not forget that traditional banks remain riskaverse.To show they are doing something banks often demand landed collateral, audited financials, and lengthy credit histories – requirements that effectively exclude the majority of SMEs, who obviously do not have them.

Imagine the fact that loan-processing times average 6–10 weeks, and interest rates on commercial loans hover between 25–30%, among the highest in Africa. Consequently, SMEs are kicked down, into a vicious cycle of “no access to finance, no growth; no growth, no bankable status”.

What Do SMEs Need?

I insist that rather than immediate loans, many SMEs would rather need the following:

• Financial literacy
• Bookkeeping, auditing, and credit management support.
• Communications/Digital marketing guidance.
• Business formalization and registration support, plus
• Tax and Regulatory compliance procedures.

These foundational services help SMEs mature into sustainable, creditworthy, investment-ready entities. Traditional banks rarely provide such support or are too busy to spend time with SME’s while nurturing them into viable excellent entities.

“All the banks want is for us (SME’s) to come and save our money with them. They just want you to come and open an account with them. How you find or make the money is none of their concern,” a well-known SME in Kumasi, intimated in an interview. Confirming the huge non-performing loans by SME in their books. For instance, last year, overall banking industry non-performing loans was 24.2% up from 18.7% in 2023.

Of this, the private sector, including SME’s accounted for around 95.6% of all non-performing loans by value, edging slightly above the 95.5% in 2023. Agric, forestry and fishing, notable SME sectors, owed as much as 56.4%. Comparative figures for previous years aren’t any better.

A 2022 study by the International Finance Corporation (IFC) found that only 30% of Ghanaian SMEs have formal business plans, and less than 20% keep consistent financial records – factors that hinder access to finance.

Towards Alternative Financing Models

Foreign Grants and Development Funds are proving to be the only real source of alternative financing sources for most SME’s.  The over US$673 million injected into Ghana’s SME ecosystem comes, since 2021 comes from foreign missions and development partners. They include the African Development Bank, the IFC/World Bank, the UK FCDO/DFID, the RISA Fund, the Mastercard Foundation, and the EU, notably Germany, Denmark, and Italy. These funds covered entrepreneurship, climate adaptation, pandemic recovery, digital transformation, and market access.

In the agro-processing, cosmetics, handicrafts, and non-traditional export sectors alone, WACOMP, UNIDO, and the Ghana Cosmetics Cluster Platform report cumulative investments of between US$20–22 million over the past five years. However, most of this support is channeled through intermediaries such as GEA, MASLOC, and commercial banks, whose bureaucratic bottlenecks limit SME access. One of the banks put SME’s, Savings, and Loans Companies in the same box for accessing funds.

A second option for SME financing points at ‘Equity Partnerships and Angel Investors,’ as they are called.

Ghanaians living abroad, local angel investors, and development-oriented equity funds can provide non-debt capital. The Ghana Angel Investor Network (GAIN), established in 2015, has so far supported over 60 early-stage startups, but needs scaling and decentralization to reach real sector SMEs.

Experts list digital crowdfunding platforms as areas that are least sourced by SME’s in Ghana. “These democratize access to capital and reduce dependence on traditional banks,” a source from ABSA, Ghana, stressed. They include FundRaising Africa, SliceBiz, Kickstarter, and GoFundMe.

The Case for an SME-Owned Bank

The idea of an SME-owned bank, a cooperative, entrepreneur-governed financial institution has long been discussed but never realized. The fear of collapse and capital inadequacy often stifles bold action. However, some bold minds recently have risen against this fear, stressing that banking models like the Grameen Bank in Bangladesh, the Savings and Credit Cooperatives in East Africa, and the Farmers’ Credit Unions of Latin America demonstrate the viability and transformative power of SME-led financial institutions.

The proposed Women’s Bank by the government is a good starting point. But a broader, gender-neutral SME bank, tailored to the nuances of informal and semi-formal business realities, is overdue. A bank that not only knows the voice and dire needs of SME’s, one that will take them from zero to heroes and heroines and new captains of industry that will take Ghana onto the next level of technology and products as sophisticated as ever, and resilient enough to pass everywhere in the world.

Characteristics of the Ghanaian SME Bank

• Low-interest rates, under 15%
• Mutual guarantee schemes (e.g., peer guarantees in lieu of collateral)
• Profit-sharing loans for collective reinvestment
• Sector-specific lending: agro-processing, tech, services
• Use of mobile money and digital records for credit scoring
• Integration with Business Development Services
• Governance by entrepreneur-led boards
• Initial equity raised by member SMEs
• Strategic partnerships with state bodies and donors

Conclusion

Relying on traditional banks to change their conservative approach has proven ineffective. Ghanaian SMEs must take their financial destinies into their own hands. This means embracing alternative financing models, forming cooperatives and investment circles, building crowdfunding campaigns and equity partnerships and founding an SME-owned bank.

A new, entrepreneur-led financial paradigm can liberate SMEs from the stagnation imposed by our risk-averse institutions. The time has come to finance our future on our own terms.

Gideon is a SME Policy Analyst & Strategic Communications Consultant

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