Development Bank Ghana, which officially starts operations on Tuesday with about $800 million in the capital, plans to grow lending fivefold over the next five years to help end a shortage of funding for small and medium-sized enterprises.
It will lend money to financial institutions, which should in turn give loans to business owners at an affordable interest rate, Kwamina Duker, its chief executive officer, said in an interview from Accra, the capital.
“Long-term lending is extremely rare” for smaller businesses in Ghana and this has stymied the development of sectors ranging from agribusiness to manufacturing and information and communications technology, he said. “We are trying to fill the gap.”
Small and medium-sized companies across much of Africa have been stymied by a lack of available credit. That’s inhibited economic growth and employment creation. Many small businesses lack the creditworthiness or track record to secure normal bank loans.
We need to be able to lend to the banks at rates that make it possible for them to lend to the SMEs at rates that allow them to grow,” Duker said.
The development bank’s initial capital has come from the government, the World Bank, the European Investment Bank, Germany’s KFW Group and the African Development Bank.
“We definitely have to grow the amount that we have,” he said. The current amounts available “are just take-off funds and there’s a big program by our development partners to grow the amounts that we have.”
While Duker expects to initially replenish and grow the institution’s funds from development finance institutions, it plans to tap commercial lenders at a later stage. Currently, it has the ability to offer $600 million to $700 million of credit.
“We need to set a track record, have the right controls in place, the right guardrails,” he said. “In three to five years we should see a window to be able to turn to the market to raise funds.”
Initial disbursements will go to CalBank Plc, Consolidated Bank Ghana Ltd., Fidelity Bank Ghana Ltd. and Ghana Commercial Bank Ltd. In the coming months, the lender plans to conclude arrangements with other financial institutions including micro-lenders as well as provide credit guarantees.
“We’ve had huge interest from the banks,” according to the CEO. “Looking at the size of the investment deficit we can’t do this alone. We want to act very much as a catalyst,” he said, adding that it will take time to meet the lending needs of the sector.
Duker was formerly managing director of Dwennimen Group and managing director for the Asia Pacific region for Oanda Corp.
“The task is enormous, I see it as national service,” Duker said of his new job. “This is an opportunity to help.”