Accra: Behind the narrative of a largely informal economy that contributes to 80 per cent of Ghana's workforce are realities of self-motivated, industrious Ghanaians who brave the odds to keep body and soul together. The concept of Ghanaians creating their own jobs through entrepreneurship has been well marketed and embraced over the last decade by many, including young graduates and vocational trainees who have set out to beat an economic path for themselves, numbing the desire to work for others.
According to Ghana News Agency, a surge in entrepreneurial activities is well captured in the data from the Ghana Statistical Service (GSS), which indicates that the number of business establishments in the country has tripled over the last decade, from approximately 0.6 million in 2014 to 1.9 million in 2024. The Business Establishment Report of the 2024 Integrated Business Establishment Survey (IBES) shows that 96.4 per cent of business establishments in the country are privately owned, and 90 per cent are micro-sized, with 92.3 per cent operating informally. This composition highlights challenges of typical developing economies and suggests a dynamic but fragile business environment, where many establishments are faced with challenges relating to sustainability, access to capital, and formalisation.
Sustainability and access to capital have been a challenge for many Micro, Small and Medium-scale Enterprises (MSMEs), which are stifled despite the perceived opportunities to grow and create more job opportunities. Madam Rashida Murtala, founder of Rash Africa Wear, a registered African wear retail outlet, shared her struggles in accessing funds to expand her business. She highlighted the challenges of securing a loan, citing the stringent conditions and high interest rates imposed by banks.
Prevailing data suggest that lending institutions, both banks and specialised deposit-taking institutions, are more comfortable lending to large enterprises and individuals than MSMEs. The 2024 fourth quarter collateral registry brief issued by the Bank of Ghana showed that SMEs only had 18.5 per cent of the total share of secured loans within the period under review. Large enterprises, meanwhile, constituted the largest recipient of secured loans, with a share of 48.5 per cent, followed by individual borrowers with a share of 28.0 per cent.
The Annualised Percentage Rate (APR) for March 2025 indicated that it was likely to cost SMEs about 20.13 per cent to 46.94 per cent to assess a one-year loan facility. A trend analysis of APR over the years also showed that banks are less likely to offer long-term loan facilities to SMEs as compared to households and corporate entities. Despite several banks curating banking products for SMEs with designated desks to handle their requests, the financing gap remains significant.
To bridge this gap, the government, through its agencies such as the Ghana Enterprises Agency (GEA) and the GHExim Bank, has collaborated with partners like the Mastercard Foundation and the World Bank to provide grants and credit facilities to MSMEs. However, beneficiaries like Madam Murtala point out that the support usually does not meet the demand of MSMEs. Similarly, Mrs Knaa De-Graft, a caterer turned fashion entrepreneur, expressed her reluctance to engage with the stringent loan conditions, opting instead for personal financing and traditional saving schemes.
Mr Frederick Abdul Aziz Sogbe, founder of Zayn Organic Cosmetics Industry, shared his experience of securing a credit facility under the Netherlands-funded Orange Corners programme. He emphasized the need for sustainable funding options that do not strain young businesses.
John Gatsi, a professor of finance, highlighted the challenges of high interest rates for MSMEs, suggesting non-interest banking as a potential alternative. Dr Shuaib Ali, Director General of the Islamic Finance Research Institute of Ghana (IFRIG), explained the benefits of non-interest banking models like Musharakah and Mudarabah for MSMEs.
There have been suggestions that the government should require lending institutions to designate a percentage of their loans to MSMEs. Until that happens, the introduction of an interest-free banking system in Ghana remains crucial for MSMEs operating in a largely informal ecosystem.
