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Opinions of Tuesday, 29 September 2015

Columnist: Daniel Asamoah

Ghanaian Banks and collaterals

It has always been the aim of commercial banks to contribute to the growth of an economy through the process of being an intermediary between the surplus unit and the deficit unit.

The surplus unit, that is those with excess of money and are not readily in use deposits such money at the banks as their savings. Whiles the deficit unit, who are readily in need of cash (Capital) to either start up or grow their business, rather go to the banks for such cash deposited by the surplus unit.

Although banks have other major roles they play in an economy, being an intermediary between the surplus and deficit unit for growth has always been taken seriously.

The CEO of the GAM-ANK Group and Africa Investment Group, Dr Sam Ankrah, made the request at the Ghana Banking Awards that, "the time has come for Banks to move from collaterals before they extend credits".

He was of the view that it's such collaterals that are hindering the SME's to grow in the country because the SME's are not able to meet up with heavy demands of collaterals such as cars, lands, houses etc. before a credit can be extended.

But from my view and what is very much apparent in Ghana, is the fact that collaterals is the last resort to which banks can rely on since all the other measures to gain trust and reliability from customers to payback their loans are not reliable or even available in the country.

Reliable factors and informations such as a credit history bureau on citizens, proper national identification (ID) and the most important an accurate address system are not a luxury for our commercial banks. Without such available informations, it's absolutely impossible to do away with collaterals before extending credit facility.

A centralized data system in Ghana with all the above listed factors and information made available in real time when needed by financial institutions will go along way to make a case for Banks to grant loan facility without too much reliance on collaterals. Interest rates on loans can even be affected positively in the interest of both Bank and clients since the risk factor of reliable information will be reduced, therefore making the cost of the loan cheaper for clients.

SME's in the Western world do not face such a problem of collaterals before loan is granted because reliable informations are always available and credible.

The onus therefore, lies on the Ghanaian government to provide the necessary reliable and credible information for Commercial Banks.

Government and stakeholders must always be in the known that Commercial Banks are not NGO's and they take exposures to risk very seriously.

By Daniel Asamoah