Dr. Kwakye (left) with an IEA fellow
Dr. John K. Kwakye, a Senior Economist at the Institute of Economic Affairs (IEA), says the cost of credit is a major obstacle to doing business in Ghana. He noted that the cost of credit has been persistently high, adding that ‘it is considered to be a major impediment to investment and economic growth.’
Dr. Kwakye made this known while making a presentation on a study conducted by IEA on financial intermediation and the cost of credit in Ghana.
He attributed the current cost of credit on the high competitive government borrowing and structural inefficiencies in the banking industry that lead to high operational costs.
‘High lending risk and associated loan defaults is also a contributing factor to the cost of credit.’
Dr. Kwakye stressed the need to curb government borrowing by entrenching fiscal discipline.
‘There is a need to improve efficiency in the financial sector through improved management practices, engagement of qualified and welltrained staff and more modernization,’ he added.
He said financial intermediation in Ghana is very low as compared to other countries in the sub-region.
Dr Kwakye noted that deepening of high financial intermediation and financial increases the scope and pace of turning financial resources into real resources.
‘There is not enough empirical evidence on this evolution. Meanwhile, it is known that the cost of credit has been persistently high,’ Dr. Kwakye said.
Financial Service Low
The senior economist revealed that access to financial services in Ghana was low.
This, he said, hampers the contribution of the financial sector to the growth of the country’s economy.
Dr. Kwakye said appropriate incentives should be introduced to encourage banks to relocate to the rural areas.
He urged the banks to actively promote savings and expand lending services by extending their reach and introducing innovative products.’
Dr. said, ‘There is a need for vigilance and robust financial regulation. In particular, it is necessary to ensure that banks do not engage in collusive practices in dealings with customers.’
He said the regulator must ensure that banks pay fair rates to depositors and avoid charging unjustifiable prohibitive rates for their services.
BY Cephas Larbi
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