Small and Medium-scale Enterprises (SMEs) can now access collateral-free loans from Barclays Bank Ghana—a member of the ABSA Group.

The unsecured loan product by the African bank, among other things, scraps requirements such as offering a collateral and providing historical financial information before an SME can be granted a loan facility from the bank.

SMEs are seen by most analysts as the productive drivers of economic growth and development worldwide, and particularly in Africa.

In Ghana, they contribute about 70 percent to Ghana’s Gross Domestic Product (GDP) and account for 92 percent of businesses in the country.

However, difficulty in accessing funds – brought on by poor record-keeping, lack of collateral, and the reluctance of universal banks to design products for this all-important sector – has served to constrain their growth.

Speaking at an event held in Accra and themed ‘Best Practice Workshop’ organised by Invest In Africa, Head of SME Banking-Barclays Bank, Audrey Abakah, said the decision to provide such a facility was arrived at due to the inability of SMEs to meet strict access to loan criteria or procedures.

She added that it also part of the bank’s quest to assist promising SMEs to grow and expand so as to contribute in economic development.

“We know most of the banks ask for some years of audited financials and most of the SMES do not keep proper financials, which makes it difficult to provide such information to banks. So, it is on the back of this that we decided not to go strictly by our procedures and processes – because if we do, we can’t help these SMEs. So, we had to scrap that requirement, and for the collateral, and give them funding. We have an unsecured credit facility wherein it is not only collateral we don’t ask for; we also do not ask for financials. The interest rate for the unsecured loans is a flat 30 percent per annum,” she said.

She added: “If you don’t have any collateral, we have designed a facility with which we can give SMEs between GH¢20,000 and GH¢500,000. We basically study your account conduct; and if your account has been run very well, your credit turnovers are well run, your averages are well run, then we take a decision as to how much we will give you”.

She further stated that the bank has advanced this unsecured loan facility to about 500 SMEs since its introduction some three years ago.

Ms. Abakah however urged SMEs to put in place the necessary structures which will boost their capacity and qualify them to access huge funding and other facilities offered by the bank, and other financial institutions which require collateral.

“One of the challenges we have realised with SMEs is diversion of funds. They come to the bank to borrow money for purpose A, and you give them the funds – but they end up using the funds for purpose B. Once that happens, it eventually makes it difficult to pay back.

“Again, most SMEs do not send their cash received on daily basis to the bank, and banks assess an SME based on what our systems have captured. So, we are advising SMEs that if they make turnovers, they should deposit the money at a bank, because it helps us to actually have a view of monthly and annual turnover upon which we take decisions when it comes to funding your business,” she said.