Banks play a pivotal role in the success of every economy but in economies such as Ghana’s, it is particularly banks that understand and prioritize Micro, Small, and Medium-scale Enterprises (MSMEs) that will be the champions of all time.
Through their tactful patience and tailored approaches to SME financing, such banks become the vitalities of national development, helping to build the next generation of Ghana’s iconic companies that can propel sustainable growth, create and retain jobs as well as raise indigenous entrepreneurs. Such is the story of the latest entrant to the banking sector, the Consolidated Bank Ghana Limited (CBG), which is busily carving a niche in that regard.
Established in 2018, CBG is confident of actualizing dreams that its peers have only dreamt about.
It has made SMEs its central focus through tailored solutions that meet their individual peculiarities.
The bank has ringfenced more than GHS120 million in funding to the SME sector this year, reduced transaction costs that mostly raise the price of credit to these businesses and allowed the smaller enterprises to borrow without collateral. Through these unique services, the bank is addressing the core of the SME challenges – access to and cost of credit – which have long held down the fortunes of these ventures. In the end, it hopes to unleash their potential and set them up for growth.
Top on the Bank’s agenda is also digitization of the operations of small businesses. In spite of its widespread acceptance in the country, MSMEs are late in adopting digital solutions, largely due to misconceptions around costs, availability and general know-how. This lag has resulted in most small businesses losing out on the fruits that Information, Communication Technology (ICT) and its full deployment brings to firms. But CBG is changing this narrative as well. The Bank hopes to close the digital divide through the aggressive introduction of its SME clients to cost-saving digital services that open new doors and strengthen their existing operations. Under the Digitize SMEs agenda, the bank aims to sign on more than 50 per cent of its clients to its digital platforms — a strategy that would also help to formalize that sector of the economy.
Ultimately, the bank aims to be the best SME bank by 2023 through a handholding approach that ensures that it starts and grows with these start-ups — a clear departure from the current practice where financial institutions like to bank MSMEs only after they have become fully-fledged.
The bank’s resolve to stand with SMEs is nationalistic as it is commercial. It would help to build the next generation of Ghana’s indigenous businesses, create employment, increase the export base and reduce imports. This is what is required to make Ghana an active participant and a beneficiary of the Africa Continental Free Trade Area (AfCFTA). By that resolve, CBG is at the forefront of preparing businesses to stand on their feet, compete with their counterparts from other countries and fully benefit from the single market agenda of AfCFTA, which Ghana happens to host.
CBG’s resolve also fits well with the government’s industrialisation programme, which is at the heart of the Ghana Beyond Aid agenda. It also comes at a time when the country, just like the rest of the world, is recovering from the unprecedented battering of the economy by the COVID-19 pandemic. The crisis has marginalized businesses through disruptions to and in some cases collapses in supply chains, reduction in patronage and the halting of production in some sectors. These hurt SMEs more, causing dozens to fold up while those that survived have been bruised heavily.
In times like these, banks as financial intermediators are expected to handhold businesses out of the COVID-19-inspired challenges, provide the firms with the needed finances to reboot and help entrepreneurs to start new enterprises, in a holistic manner necessary to breathe fresh life into the economy.
Ghana’s case is even peculiar. Research by reputable institutions, including the World Bank, the Africa Development Bank (AfDB) and the Association of Ghana Industries (AGI) have consistently flagged access to and cost of credit to be among the top five challenges holding down the progress of the MSME sector.
Although widespread, at the heart of those twin challenges is the lack of appreciation of the peculiarities of SMEs and their modes of operations.
Traditionally, banks have failed to segment MSMEs properly and though banks tend to have MSME departments, most are just in names and continuously lumped them and applied their wholesale procedures and requirements on loan applications and disbursements to them. Repayment terms are equally the same although these firms are in the formative years of their existence. This compels many MSMEs to find solace with Non-Bank Financial Institutions (NBFIs), where the risks and cost of credit are comparatively higher.
Young but Old
With CBG’s resolve to prioritize and redefine SME banking, these loopholes could be significantly addressed. The first is that funding constraints could begin to disappear from the list of challenges bedevilling the sector.
Beyond the commitment and its wholly indigenous nature, the bank’s history makes it the best bet to lead the revolution of MSME banking in the country. The portfolio it purchased and assumed from the banks that were resolved consisted largely of SME customers. This made MSMEs the first customers of the bank shortly after it was issued a license in August 2018. CBG also stood by the largely MSME customers that were caught up in the financial sector clean-up exercise.
With a large branch network across 13 regions, the bank became the go-to lender for the payment of validated claims to affected customers, a role it executed smoothly. These hands-on activities and one-on-one relationships with the base of the economy helped to give it the experience required to be able to fully appreciate MSMEs and what has been missing in that market.
It also holds skills sharpening clinics to refresh the expertise of the business owners, link them to markets and equip them with tools that will help them to adapt to changing trends.
These commitments from a State-owned bank should brighten the hopes of MSME owners and managers and cause them to start asking how they can profit from the bank’s ambitious programmes.
As we push for a revival after a historic ravaging of the economy, it is not repetitive policies and programmes that would get us out of the woods. It is the daring yet time-tested initiatives that can get us there. The beckoning of the African single market, with 1.3 billion people and a combined Gross Domestic Product (GDP) of $3.4 billion should inspire us more to support SMEs to flourish.
CBG has taken the lead in that regard and is the go-to bank with a commitment to support SMEs recover, rebuild and be a catalyst for new ventures.