Government's efforts at supporting Small and Medium Scale Enterprises (SMEs) with loans could be a total failure if it continues to rely on private banks to push its agenda, an economist has noted.

Sydney Casely-Hayford is therefore advising government to stick with its own banks who are more sympathetic with its stated development objectives.

He was speaking on Multi TV's PM Express Wednesday discussing a new government initiative to help SMEs with a 50 million Ghana cedi fund.

The Minister of Finance and Economic Planning, Mr. Seth Terkper announced the new initiative to support SMEs during the reading of the 2014 Budget Statement in Parliament last Tuesday.

Government has noted SMEs have the potential to create much needed jobs in an economy where unemployment is becoming a national security issue according to experts.

It therefore intends to support SMEs by using funds from the Export Development and Investment Fund (EDIF) as well as established domestic institutions including the Exim Guarantee, the Venture Capital Trust, Rural Banks and Micro Finance institutions.

Although Sydney hails the initiative, he is questioning the strategy government intends to use to fulfill its objectives.

Citing a failed strategy to boost agricultural exporting companies through EDIF as an example, he said as laudable as EDIF's aim was, it has not worked because government has been relying on private banks.

According to the financial consultant, EDIF provides loans to applicant companies at 12%. To access help from EDIF, an applicant company will have to come along with thier bank which will become the disbursing agent for the loan once EDIF approves the project.

But private banks have their own ideas, Sydney says, noting that with a commercial interest of 30%, they are unlikely to support a business to access a similar but cheaper EDIF loan facility.

This means EDIF money sits there unused and local agric companies starve of funds or sign up for expensive loans, Sydney explains.

'People are not patronizing the [EDIF] loans", Sydney pointed out.

In short, EDIF procedure for loan disbursement has not worked.

Now if this is how government intends to do with its new SME Fund then it is going to fail too, the economist suggested.

The vocal economist is therefore advising government to use nationally owned banks like Agricultural Development Bank, Ghana Commercial Bank and National Investment Bank as the channel for disbursing cheaper loans.

This he predicts,will "force the private banks to drop the commercial rates" as the difference between borrowing from a nationally-owned bank as against private banks will become obvious to SMEs.