Ghana’s Small and Medium Enterprises (SMEs) have driven the country’s economy, creating jobs and wealth. However, despite these achievements, many SMEs struggle with high loan interest rates, with some facing rates as steep as 44.24%.
In addition to major initiatives like the 8.2 billion SME-Go programme, the US$200 million Ghana Jobs and Skills Project, and the US$200 million Ghana Economic Transformation Project with the World Bank, the government has also implemented various measures to support SMEs further.
These efforts include strengthening key institutions such as the Ghana Enterprises Agency, Ghana Commodity Exchange, MASLOC, the National Entrepreneurship and Innovation Programmes, and the Venture Capital Trust Fund, according to Dr Mohammed Amin Adam, the finance minister. The goal is to ensure that SMEs receive timely and comprehensive support, helping them navigate both local and international opportunities.
Despite these significant efforts and interventions, high interest rates remain a major hurdle for SMEs, limiting their ability to grow and fully leverage the available opportunities. This continues to be a pressing concern affecting the sector’s overall potential and sustainability.
The Bank of Ghana’s 2024 Annualized Percentage Rates (APR) report highlighted this stark reality that many SMEs in Ghana face when trying to access financing.
Interest rates on loans ranged from 29.58% to 44.24%, emphasizing the significant differences in the cost of borrowing across financial institutions. For instance, Stanbic Bank’s APR stood at 44.24%, the highest, placing a heavy burden on SMEs seeking to finance their operations, while GCB Bank offers a comparatively lower rate of 29.58%, providing a more affordable option.
High interest rates directly impact the ability of businesses to grow and remain sustainable, especially in an economy where SMEs contribute 70% of GDP. Businesses opting for loans at the higher end of the APR spectrum, such as Stanbic Bank, will face higher borrowing costs, reducing their profitability and stifling growth. In contrast, those securing loans at more competitive rates from banks like GCB, Access Bank (30.74%), or UMB (31.18%) can manage their debt more effectively.
However, even at the lowest rate of 29.58%, these interest rates remain a significant cost of doing business in Ghana. For SMEs, access to affordable financing is crucial, as they need funds to expand operations, invest in new technologies, and strengthen their competitiveness in both local and global markets. Financial support enables SMEs to create jobs, enhance productivity, and drive economic growth.
But with such high interest rates, even at the lower end, many businesses struggle to take full advantage of growth opportunities. The burden of repaying expensive loans eats into profits and limits their ability to reinvest in their operations.
Speaking at the 2nd Quarterly Economic Roundtable (QER) held at the University of Ghana, under the theme “Driving Economic Growth Through Small and Medium Enterprises (SMEs)”, Finance Minister Dr. Amin highlighted that while recent economic growth has been impressive, it is not guaranteed to continue. He pointed out that several key issues need to be addressed, as failing to do so could undermine progress.
One of the key challenges, as highlighted, is the high interest rates on loans offered by banks, which continue to be a major barrier for SMEs seeking financing.
To mitigate these risks, he emphasized the importance of reassessing existing policies and strengthening partnerships with critical stakeholders, particularly within the SME sector, to ensure sustainable growth.
“However, we know that future stellar growth is not guaranteed. To manifest our growth prospects, we need to mitigate key risks. Managing these risks require us to reconsider policies and reinforce strong partnerships with stakeholders, especially with the SME sector.” he stated
