120% collateral requirement shuts businesses out of credit — AGI

The Chairman of the Economic Affairs Committee of the Association of Ghana Industries (AGI), Eric Defor, has raised concerns about the difficulty businesses continue to face in securing bank loans, despite improved liquidity in the financial sector and a decline in interest rates. He said the high collateral requirements imposed by banks remained a major obstacle to businesses seeking credit to expand their operations, with some lenders demanding security worth about 120 per cent of the amount being borrowed.

Mr Defor said the government needed to pay attention to the constraints confronting businesses as it prepares to present the 2027 Budget to Parliament. Speaking on the PM Express programme on Joy News on Wednesday, November 11, he acknowledged some of the government’s economic interventions, particularly changes to the Value Added Tax (VAT) structure, which he said had helped reduce production costs.

He also commended the Bank of Ghana for keeping key economic indicators under control, although he noted that the improvements had come through a range of interventions. However, he said access to finance remained a concern for industry, questioning whether the funds available in the banking sector were reaching businesses that needed them to support production.

“ The banks are awash with money now,” he said, adding that the repayment of obligations under the Domestic Debt Exchange Programme (DDEP) had helped improve the banks’ financial position. But he cautioned that the availability of funds did not necessarily mean businesses could obtain loans on affordable terms. “Access is not very easy. I know that they have money because the government has been able to keep the repayment of the DDEP debts going.

So the banks have money, but accessing the funds is not that easy, even though the interest rates have come down,” he said. High collateral demands Mr Defor said the conditions attached to bank lending continued to frustrate businesses, particularly the requirement for substantial collateral before loans could be approved. He cited instances where borrowers were required to provide security valued at nearly 120 per cent of the loan amount, describing the condition as a significant barrier to accessing finance.

“Collateralisation is also another problem which is still in the market. If my memory serves me right, they are now asking for almost about 120 per cent of the amount you want to borrow,” he said. He acknowledged that banks remained cautious because of the risks associated with the financial crisis Ghana had experienced, but said the lending conditions were making it difficult for businesses to benefit from the improved economic environment.

He also called for greater clarity on the sectors receiving credit from banks, expressing concern that some institutions could be directing available funds into government securities rather than lending to businesses. He said reliable data would be needed to establish where the money was going, particularly given the Bank of Ghana’s liquidity management operations, which also affect the amount of funds available to commercial banks.

Calls for targeted support Mr Defor’s comments come as businesses look to the 2027 Budget for measures that can improve access to finance and support investment in production. While lower interest rates and reduced production costs could provide some relief, he suggested that the benefits would remain limited if businesses continued to face stringent lending conditions.

For industry, the challenge is not simply whether banks have money to lend, but whether companies can meet the conditions required to obtain it. The Budget presentation by Finance Minister Dr Cassiel Ato Forson on Thursday, November 12, is expected to provide an indication of the government’s plans for sustaining economic stability while improving the financing environment for businesses.