A GNA feature by Issah Mohammed
Accra, June 28, GNA – Behind the narrative of a largely informal economy that contributes to 80 per cent of Ghana’s workforce are realities of self-motivated, industrious Ghanaians who brave the odds to keep body and soul together.
The concept of Ghanaians creating their own jobs through entrepreneurship has been well marketed and embraced over the last decade by many, including young graduates and vocational trainees who have set out to beat an economic path for themselves, numbing the desire to work for others.
A surge in entrepreneurial activities is well captured in the data from the Ghana Statistical Service (GSS), which indicates that the number of business establishments in the country has tripled over the last decade, from approximately 0.6 million in 2014 to 1.9 million in 2024.
According to the Business Establishment Report of the 2024 Integrated Business Establishment Survey (IBES), 96.4 per cent of business establishments in the country are privately owned, and 90 per cent are micro-sized, with 92.3 per cent operating informally.
This composition highlights challenges of typical developing economies and suggests a dynamic but fragile business environment, where many establishments are faced with challenges relating to sustainability, access to capital, and formalisation.
Sustainability and access to capital have been a challenge for many Micro, Small and Medium-scale Enterprises (MSMEs), which are stifled despite the perceived opportunities to grow and create more job opportunities.
Madam Rashida Murtala is the founder of Rash Africa Wear, a registered African wear retail outlet that has been operating at the Accra Arts Centre for almost a decade.
She tells the Ghana News Agency that after years of marketing across the continent through exhibitions, building clientele and having a large group of suppliers, she has outgrown her current space, hence the decision to establish another outlet.
Months after finding a suitable location at Madina, a suburb of Accra, she said access to additional funds to top up to enable her to secure at least one year’s rent advance at a rate of GH₵3,000 per month for the shop space has been elusive.
“I was saving at this bank as a business account holder, and they were telling me that before they will give me a loan, I must put money in there every day. What is that? If I don’t have the money, how can I be putting it in (bank account) and be taking it every day?” She queried.
“I used to travel to some of the African countries for exhibitions, and when I came, maybe I had GH₵50,000, and I would go and put it there. They don’t tell me I have deposited huge money there, but when I come for a loan, you tell me I am not a regular there.”
Prevailing data suggest that lending institutions, both banks and specialised deposit-taking institutions, are more comfortable lending to large enterprises and individuals than MSMEs.
This was highlighted in the 2024 fourth quarter collateral registry brief issued by the Bank of Ghana, which showed that SMEs only had 18.5 per cent of the total share of secured loans (GH₵ 8.2 billion) within the period under review.
Large enterprises, meanwhile, constituted the largest recipient of secured loans, with a share of 48.5 per cent, followed by individual borrowers with a share of 28.0 per cent.
The share of loans secured by micro businesses decreased to 1.8 per cent in the fourth quarter of 2024 from 3.3 per cent recorded in the same period of 2023.
Madam Murtala observed that aside from the cumbersome conditions set out for businesses to meet, a major deterrent in accessing finance from lending institutions is the high interest rate and hidden charges, which, in most cases, lack transparency and are very complex to compute.
“The interest on it alone does not encourage us to go for a loan. We are afraid,” she added.
The Annualised Percentage Rate (APR) for March 2025 indicated that it was likely to cost SMEs about 20.13 per cent to 46.94 per cent to assess a one-year loan facility, which experts describe as very high.
The APR is a Bank of Ghana monthly report which reflects the true cost of a loan that economic agents are confronted with when they go through an approval process to secure a loan facility.
A trend analysis of APR over the years also showed that banks are less likely to offer long-term loan facilities to SMEs as compared to households and corporate entities, an indication of the lack of interest of banks in the long-term growth of the sector.
For instance, in the APR for March 2025, it showed that out of the 23 banks, 48 per cent offered loan facilities with 5-year tenors to SMEs, 86 per cent of banks offered loan facilities with 5-year tenors to households, and 60 per cent offered loan facilities with 5-year tenors to corporate entities.
The shortfall in meeting the demands of MSMEs comes at a time when several banks have curated banking products for SMEs with designated desks to handle the requests and demands of SMEs.
To bridge the financing gap, the government, through its agencies such as the Ghana Enterprises Agency (GEA) and the GHExim Bank, has over some time collaborated with partners such as the Mastercard Foundation and the World Bank to provide grants and credit facilities to MSMEs.
These interventions were executed through programmes such as the Coronavirus Alleviation Programme Business Support Scheme (CAPBuSS), the Ghana Jobs and Skills Project and the SME Growth and Opportunity programme.
Madam Murtala, a beneficiary of the CAPBuss, observes that the support usually does not meet the demand of MSMEs. “You are giving me GH₵4,000 and GH₵5,000. What am I going to use it for? You make a budget of GH₵10,000 or GH₵20,000, and they say they will give you GH₵5,000. Meanwhile, you are to pay interest on it too,” she said.
Mrs Knaa De-Graft, a long-time caterer who also ventured into fashion barely a year ago, says though she has a desire to expand her business, she is not ready for the stringent requirements associated with securing loans and paying interest.
Rather, she relied on personal financing and a rotational saving scheme popularly known as Susu to recapitalise her business. “I don’t like that kind of loan stuff. That is just how we were raised.”
Mrs De-Graft, who was hoping for feedback after a year of applying for a government grant with the GEA, observed that the requirements for accessing government interventions lacked transparency and appeared to be based on personal or family connections know locally as “who you know”.
“The requirements for the grant are too much. Bring this, bring that, and if you don’t have it, that means you don’t qualify. From my experience, it is basically who you know. If an insider gives you the hint, they will help you facilitate it,” she said.
Mr Frederick Abdul Aziz Sogbe, founder of Zayn Organic Cosmetics Industry, an agribusiness that produces organic skin care products from tomatoes, was fortunate to secure a credit facility from the bank for his business, the only support in four years of operation.
He was a beneficiary of the Netherlands-funded Orange Corners programme, under which the Fidelity Bank provided a 30 per cent grant and a 70 per cent credit facility at a 5 per cent interest rate after a 6-month acceleration training programme.
He said the intervention has helped him scale up his business operations.
With regards to other supports for SMEs from banks, he said, “A few have approached me, but the rate they are offering as a young business is not sustainable. We look at a funding that will not strain us because we are in the manufacturing business,” he said.
Sharing his experience on government-backed funding interventions, he noted, “I have applied for a lot of GEA funding programmes; we go for training, and we never see the funds. The same documents I applied for the orange programme with were the same I used for GEA.”
He observed that the high interest rate on a credit facility tends to affect the pricing of finished goods and services, which inadvertently contributes to inflation.
Ironically, an increase in interest rates through the Monetary Policy Rate (MPR) has been one of the tools the central bank uses to control inflation.
Mr Sogbe suggests that beyond collecting interest on credit facilities, lending institutions, especially banks, should be seen to take more interest in the management of businesses as partners due to the heterogeneous needs of businesses.
In an interview, John Gatsi, a professor of finance and dean of the University of Cape Coast Business School, says lending institutions considered MSMEs as high-risk ventures, hence the high interest rate to cushion their risks.
He highlighted the need for non-interest banking and finance as an alternative for the conventional banking system, adding that, “Under non-interest banking, non-performing loans don’t come into this equation. What comes into this equation is a loss.”
Prof. Gatsi, recently appointed as an advisor on non-interest banking and finance at the central bank, noted that while section 18(r) of Act 930, the Banks and Specialised Deposit-Taking Institutions Act of 2016, permits banks to offer non-interest banking services, there is currently no legislation governing the licensing process or governance structure for non-interest banks.
“The law is as if it allows Islamic banking, but the governance structures are not put in place, and the regulations are not put in place; therefore, it becomes very difficult for anybody to apply for Islamic banking licences,” he said.
An organisation that has led the advocacy for non-interest banking and finance in the country over the years has been the Islamic Finance Research Institute of Ghana (IFRIG).
It has organised many stakeholders’ engagements, seminars, workshops and conferences to educate stakeholder groups such as religious bodies, regulators and financial institutions on the benefits of non-interest banking and finance.
In an interview, Dr Shuaib Ali, Director General of IFRIG, explained that non-interest banking is hinged on risk sharing and building partnerships between lenders and MSMEs where profit and losses are shared based on agreed terms.
He said modules such as Musharakah – a joint venture partnership between an entrepreneur and a financier, thus the bank – and Mudarabah, also known as a trust-based partnership, are ideal for MSMEs in the country.
“In this structure, the non-interest banks share the risk and reward with the business. Entrepreneurs are not burdened with fixed interest payments.
“Islamic banks deal with the real economy, so they don’t invest in speculative activity,” he added.
There have been suggestions that the government should require lending institutions to designate a percentage of the loans they give out to MSMEs.
Until that happens, the fulfilment of a manifesto promise of introducing an interest-free banking system in Ghana remains crucial for MSMEs like Rash Africa Wear and Zayn Organic Cosmetics, who operate in a largely informal ecosystem that contributes to less than 30 per cent of economic output, as highlighted by the GSS.
GNA
27 June 2025
Edited by Samuel Osei-Frempong
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