Access to Finance

Introduction

The Access to Finance component of the MSME Project was designed to equip participating banks with requisite capacity and resources that would enable them extended increase their lending to MSMEs. There are five sub-components under the Access to Finance components;

Partial Credit Guarantee

The Partial Credit Guarantee (PCG) offers participating banks some cushion on the losses they may occur in dealing with MSMEs. When MSME clients default on their loans, the outstanding loan amount is born jointly by the Government of Ghana, the World Bank, and the participating bank. The essence of this arrangement is to motivate the participating banks to improve lending to MSMEs.

One bank (Ecobank) has already signed on to this facility, and has disbursed over US$3.1 million to MSMEs over the past nine months. A second bank (CAL Bank) is completing required procedures to sign on.

Technical Assistance to Banks

This component is meant to improve the (M)SME Departments of participating banks to enable them better understand the SME sector and improve lending to MSMEs. It includes building the capacity of staff within the (M)SME divisions, and also re-structuring of the divisions in order to be more responsive to the needs of MSMEs.

One bank (Ecobank) has almost completed the year-long technical assistance program, and other banks are at various stages of required entry procedures.

Line of Credit

The Line of Credit (LOC) component was designed to offer participating banks access to long-term funds to enable them offer MSMEs longer-term loans to improve their businesses and make them more competitive. The International Finance Corporation (IFC) will make available, some long-term loans to participating banks, and these banks will then lend (from the long-term loans) to the MSMEs.

Currently, no bank is benefiting from this facility. The IFC is assessing selected banks for inclusion in this component.

Performance-Based Grants

The International Development Association (IDA) of the World Bank will put aside some bonus to be given to participating commercial banks that meet pre-determined performance criteria at the end of each year. This grant will go to banks participating in the Line of Credit (LOC) component.

The performance-based grant is not yet operational, because no bank is participating in the LOC at the moment.

Additional Financial Instruments

Under this component, this MSME Project is seeking to create more sources of finance for MSMEs. Currently the Project is seeking to mobilize funds from Ghanaians in the Diaspora and invest these funds in the MSME sector. This will be known as the Ghana Diaspora Equity Fund.

The MSME Project is currently researching on the legal and regulatory framework necessary for setting up the GDEF. When this is done, interested private sector fund managers will be invited to implement the fund.