THE DEPUTY Minister of Finance, Professor George Yaw Gyan Baffuor has lamented the inadequate access to funds and high cost of capital in Ghana as bane of the development of the private sector especially among Small and Medium scale Enterprises (SMEs). Addressing the audience at the renaming of Standard Trust Bank, Ghana, as United Bank of Africa (UBA) Ghana Limited, the Deputy Minister stressed that the growth rate expected to push Ghana into middle-income status and $1,000 per capita income would be hampered if it is very difficult to access capital for development and expansion. He said the cost of capital, which is currently around 20%, is still too high although banks have recently responded positively to the reduction of the prime rate of the Bank of Ghana from 14.5% to 12.5%. According to him, the high cost of capital was due to the high overhead costs of banks but with banks merging, the overhead costs would come down considerably. A study conducted by Professor Cletus K. Dordunoo of the ClayDord Consult of the ClayDord Enterprises Ltd, last year revealed that the spread between the lending and deposits rates was too wide to promote financial intermediation between savers and borrowers. The study also disclosed that the lending rate was too high to induce investment and was at the core of low private sector investment in Ghana. “On the other hand, the deposit (or borrowing) rate is too low for savings mobilization and is the main reason for low savings in Ghana,” Prof. Cletus K. Dordunoo said. Of all the major factors responsible for the wide spread, the research found out from careful analysis and interviews that the collusive behaviour of the deposit money banks (DMBs) was a new major cause. The primary effects of the large spread, among others, were the low private sector savings and investment rates. On the solutions to the problems of inadequate access and high cost of capital, the Deputy Minister said government would still continue to pursue policies to increase access to credit especially for SMEs and reduce cost of capital. He earlier praised his government for stabilizing the economy by reducing inflation, prime rate, interest rate and the appreciation of the cedi. He said foreign reserves of the country could now cover over four months of import supported by good governance. He recollected the cutting down of the reserve requirement as a way to get more credit to businesses. “Government has reduced its borrowing from the financial market leading to the crowding in of the private sector,” he reiterated. However, some major banks in the country have responded positively to the reduction in the prime rate of the Bank of Ghana (BoG) during the last quarter of 2006 by reducing the their base rates. Chronicle