In an environment characterised by high interest rates, he said for SMEs to access the required capital to help them grow, the government, in collaboration with the financial institutions, must develop a separate interest rate regime for the sector that contributes about 60% of the country’s GDP. 

Dr Ayiku, who is a Lecturer at the University of Professional Studies Accra (UPSA), gave this proposal during the second edition of the Graphic Business Twitter Dialogue Series which was held under the theme “SME finance in these challenging times”. 

Small and Medium-sized Enterprises (SMEs) play a significant role in the development of economies and Ghana is not an exception.

In Ghana, about 90 per cent of registered businesses fall under the SME category, accounting for about 80 per cent of employment in the country. 

Despite the enormous contribution towards the development of the economy, SMEs still face several challenges, key amongst them being access to finance.

While successive governments have, in the past, introduced numerous policies and programmes aimed at curbing this challenge, SMEs are still faced with limited access to finance. 

The World Bank’s Business Pulse Surveys highlighted that the COVID-19 pandemic has further complicated these challenges, leading to firm closures and widespread job losses. 

The current economic challenges in the country and the Domestic Debt Exchange Programme which hit very hard at the liquidity of financial institutions have also further exacerbated the situation, with SMEs now struggling more than ever to raise affordable capital to grow their businesses. 

It is against this backdrop that the second edition of the Graphic Business Twitter Dialogue Series focused on how SMEs can still attract financing in these challenging times.

Dr Ayiku noted that even in circumstances where these SMEs get access to finance, the cost at which it comes to them practically makes it impossible for them to run sustainably. 

He said policies related to the cost of credit for SMEs vary from one country to another but based on his experience in engaging with SMEs and working in different countries, there must be policies that are deliberately designed to promote access to affordable credit for SMEs.

“We need to introduce interest rate caps, and as far as you are registered as an SME and pay your taxes, you can enjoy this policy. We should make it a point that no bank will give you a loan higher than the interest rate cap,” he stated. 

He said the government must also establish its own loan programmes where any registered SME can approach them and enjoy subsidised interest rates. 

Dr Ayiku also urged the government to establish credit guarantee schemes that will guarantee loans for SMEs, noting that another area the government could also look at is public/private partnerships where it would collaborate with some of the financial institutions to introduce loan products specifically for SMEs. 

He noted that while such programmes and policies already existed, a lack of awareness has made it impossible for SMEs to access them.

“Most times, when they come for business coaching and you ask them to approach such institutions, they are not even aware of it. So, we need to educate them more on the innovative programmes and products available to them,” he said. 

Highlighting some of the reasons why SMEs face financing challenges, Dr Ayiku said his experience with SMEs over the last 15 years shows that financial institutions perceive them as high-risk ventures. 

It is difficult for them to get access to finance because the banks, financial institutions and venture capitalists perceive SMEs as having a high risk of default and collapse.

“There are also collateral constraints. So a lot of SMEs are not able to provide the necessary collateral required to access finance,” he noted. He said his experience working with a bank also points to the fact that most of the time when a bank gives financial support to SMEs, they default on payments. 

He mentioned that sometimes, the money is even diverted to other things different from what they requested the money for. 

Alternative funding sources

Dr Ayiku urged SMEs to consider other sources of funding that do not only come with the funds but with coaching and training as well. 

He said research indicates that sometimes, SMEs do not even need the money but machinery. 

“So the money that will be given to them can rather be invested in machinery and other things that can be monitored,” he stated.

He said SMEs could also access finance from angel investors, who are affluent individuals who provide capital to SMEs in exchange for equity. 

“There are a lot of them in Ghana who do not only provide financial support but mentorship and industry expertise,” he said. For SMEs to benefit from such opportunities, he said they need to have a business plan that covers not just the present but the future as well. 

“They also need to prepare a compelling case, because when you go to an angel investor, you pitch, highlighting the uniqueness of your business model and the problem you are trying to solve,” he noted. 

Pension funds 

Commenting on how pension funds could also be channelled to support SMEs, he said the pension fund managers were not doing this because of fear.

He said the pension funds could, however, do this by investing through venture capital firms and private equity firms that already have the expertise in providing financing for SMEs.

“These firms already have the skills to support SMEs. So the pension funds can invest in them,” he said