The Chief Executive of the Association of Ghana Industries (AGI), Seth Twum Akwaboah says the challenges local industries are facing are as a result of the lack of what he terms, ‘solid funding’.
According to Akwaboah, Ghanaian banks are not well positioned to lend long term loans and are thus unable to meet the financial demands of the big manufacturing companies in the country.
“There are today a number of seasoned business people around who are looking for solid funding to do big ticket business who are not getting it,” he said.
Speaking on JoyNews’ PM Express, Seth Twum Akwaboah surmised that the reason for this may be due to the uncertain financial environment in the country.
He said, “But the reason why banks probably may not be able to lend that long term, is not just because people are not ready; it is also because of the dynamics of the environment and the system because you need to have a very predictable environment to lend that long.
“The banks also complain that they don’t have enough loan-able funds on long-term basis because the kind of deposit that they have from their customers is short term [based]. If they’re lending long term, then you need to have that kind of funding.
“It is the reason why in some jurisdictions, they have development banks; banks that have a certain kind of capital or capitalization that enables them to lend long term so the funding source is key,” he added.
He further explained that local commercial banks run on short term funds and as such, will have a challenge in lending on a long term basis, emphasizing on the interest rates on these loans.
“If commercial banks are only having funds that are short term in nature they will have difficulty lending long term. And long term lending also doesn’t have to take the kind of interest rate that we are talking about.
“If you’re lending long term and you’re charging 30% then they’ll collapse along the line. So there are so many things that go into medium to long term lending,” he said.
The CEO of AGI said clearly the challenge isn’t necessarily with the businesses, rather it is as a result of the lack of feasible financial models that will support long term lending in the country.
He concluded that “the challenge we have is not because we don’t have companies that are prepared to take such facilities or are not prepared in terms of documentation and business models and all that. It is rather because we don’t have the kind of financial models [and] engineering that support such arrangements”.