‘SMEs must prove viable to attract funding’

Business

June 29, 2017

Source: Obed Atta-Yeboah l thebftonline.com l Ghana

President and Chief Risk Officer of Emerging Markets Invest Group, Dr. Komi S. Klu, has urged small and medium-scale businesses to position themselves as “bankable” entities in order to attract capital from financial institutions.

Speaking to the media last week in Accra at the launch of the SMEGA Awards, Dr. Klu said the inability of many SMEs to attract funding and investments from financial institutions and other individuals is partly blamed on their poor corporate governance structures which makes investing in them seem risky.

“The challenge that SMEs have is that they are not bankable, meaning, they are not financially attractive for anybody to invest in them. To correct that, they need to develop corporate governance so that they can be very well structured.

They need to be well managed. They need to have their book keeping in order and they need to be in compliance with the law and regulations; and they need to be up to date with their taxes. So there are checklist that offer the SMEs that will make them well-managed,” he said.

It is estimated that SMEs contribute to over 40 percent of Ghana’s GDP. However most of them are unable to attract capital from financial institutions to inject into their businesses for expansion.

Interest rates on bank loans in the country are in the region of 30-35 percent, whereas, microfinance and savings and loans institutions have pegged their interest rates around 60 percent and beyond, making it virtually impossible for SMEs to fall on them for financial assistance.

A report commissioned by the Friedrich Ebert Stiftung (FES) has shown that banks and other financial institutions in the country contribute a measly 7.9percent to start-up capital in the informal sector, with majority of funds (52.5%) coming from own savings of people in the sector.

The FES report further shows that 13.6 percent of loans were rejected as a result of incomplete; and loan applications by another 6.8 percent were rejected due to complete but unconvincing documents, and 4.4 percent as a result of business activity not deemed viable.

This, Dr. Klu, opines SMEs must have a growth strategy in place to convince investors of their business viability.

“First of all, they need to be open-minded, not necessarily thinking that only the local banks can fund them. You will be surprised to know that there are a lot of companies and investors that are looking at Ghana as a possible investment destination

But SMEs need to have a growth strategy. If you want me to come and put in GH?100 in your business, I need to know what the GH?100 is going to do. So you need to show me a growth strategy and an indication of potential of return on investment before I can put money in it.

The challenge that Ghanaian businesses have is not a lack of resources but rather a challenge of a lack of organisation. It needs to be well-structured so that they can make themselves attractive to foreign direct investments,” he said.

One of the major challenges facing SMEs here in Ghana is their access to funding. But what can they do to make themselves attractive to outside funding? First of all, they need to be open-minded, not necessarily thinking that only the local banks can fund them. You will be surprised to know that there are a lot of companies and investors that are looking at Ghana as a possible investment destination

But the challenge that SMEs have is that they are not bankable, meaning, they are not financially attractive for anybody to invest in them. To correct that, they need to develop corporate governance so that they can be very well structured. They need to be well managed. They need to have their book keeping in order and they need to be in compliance with the law and regulations; and they need to be up to date with their taxes. So there are checklist that offer the SMEs that will make them well-managed.

And finally, they need to have a growth strategy. If you want me to come and put in GH?100 in your business, I need to know what the GH?100 is going to do. So you need to show me a growth strategy and an indication of potential of return on investment before I can put money in it.

The challenge that Ghanaian businesses have is not a lack of resources but rather a challenge of a lack of organisation. It needs to be well-structured so that they can make themselves attractive to foreign direct investments.

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Go to Source: BFTonline

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