Collateral Free Lending A Gateway To Enterprise Growth

Evidence continues to mount that micro, small, and medium enterprises (MSMEs) represent the lifeblood of Ghana's economy. This view has been re-echoed not only by international organizations such as the World Bank and International Trade Centre but backed by studies conducted by local research institutions such as the University of Ghana’s Institute of Statistical, Social and Economic Research.

These businesses play a vital role in driving economic growth, creating employment opportunities, and contributing to poverty reduction. In advancing this mandate, MSMEs would require adequate funding from financial institutions in the country.

The ability of MSMEs to access finance with relative ease and without the requirement for collateral, therefore, has become a pivotal issue and decisive factor of inclusion and participation in the MSMEs space, especially for women and youth.

Now more than ever, dealing with the obstacles that hinder these businesses from accessing financial support must be of utmost concern – a central action point for all who genuinely value and seek to advance the principles of equitable and inclusive growth. 

And yet, access to finance remains a major test for many MSMEs. Many businesses lack the ability to raise the needed security required by banks in order to successfully access credit. According to the World Bank, low access to finance among Ghanaian MSMEs is worsened by the high cost of financing as the high rates of borrowing make it impossible for MSMEs to sustain profitability over the long term.

By the end of first quarter in 2023, the Interest Rate Indicator of Bank of Ghana showed an average lending rate of 35.87% among commercial banks. In addition to this, recent World Bank reports have established that MSMEs face very high collateral requirements in the form of cash and cash equivalents including landed property which they mostly do not have or own.

In response to these obstacles outlined above, the Absa Young Africa Works project, with the support of Mastercard Foundation has taken a bold step in addressing the collateral requirement by scaling collateral-free lending. The project aims to transform access to finance for MSMEs and drive the growth of women and youth-owned businesses across the country.


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