Policymakers and researchers are pushing for expanded risk-sharing and credit-guarantee schemes to unlock financing for Ghana’s micro, small and medium-sized enterprises.
This follows a nationwide study found that more than half of MSMEs remain shut out of formal credit despite their central role in the economy.
The study, jointly conducted by Development Bank Ghana, the University of Ghana Business School and the Bank of Ghana, shows that only about 35 percent of MSMEs currently have access to bank financing. High interest rates, steep collateral requirements and short loan tenors continue to limit borrowing, even as the sector accounts for more than 70 percent of gross domestic product and the bulk of employment.
Professor Vera Fiador, head of UGBS’s finance department, at the DBG–UGBS Development Finance Dialogue Series under the theme “From Research Insights to Actionable Policies”, said the financing gap is being reinforced by weaknesses on both sides of the credit market. While SMEs complain about limited access to credit, banks face persistent challenges with poor record-keeping, unreliable data and the diversion of loan funds.
“SMEs also have to meet financial institutions halfway,” Prof. Fiador said, pointing to governance gaps and weak transparency that undermine lenders’ confidence.
She said capacity building in financial literacy, risk management and ethical conduct is becoming essential if credit flows are to improve. Some loan facilities, she added, may need to be tied directly to structured financial management training.
Chief Economist of Development Bank Ghana, Professor Eric Osei-Assibey, said the credit squeeze reflects the cumulative impact of macroeconomic shocks over the past few years, from the financial sector cleanup and the Covid-19 pandemic to domestic debt restructuring and tight monetary conditions. Together, these have compressed liquidity and elevated risk perception across the banking system.
“Credit to the MSME sector has shrunk significantly,” Prof. Osei-Assibey said, describing access to finance as the “lifeblood” of small businesses. He said the study confirmed strong links between financing and growth outcomes, noting that MSMEs with access to credit typically expand employment by about 12 percent and grow sales by roughly 18 percent. World Bank evidence also shows productivity gains of up to 86 percent when firms are financed.
Despite these benefits, most firms still struggle to borrow. The research found that interest rates remain the top concern for MSMEs, followed closely by collateral demands and the lack of medium- to long-term financing. Even when loans are approved, tenors are often less than one year, limiting their usefulness for expansion.
On the supply side, banks reported that weak formalisation, poor accounting systems and low management capacity among many MSMEs continue to raise default risks. Instances of borrowers using funds for purposes different from what was agreed also persist, reinforcing concerns about moral hazard and adverse selection.
“When lenders cannot distinguish good borrowers from bad ones, they often choose not to lend at all,” Prof. Osei-Assibey said, adding that this has deepened financing constraints across the sector. Banks’ caution is further shaped by high non-performing loans, currently hovering around 23 percent, which limits appetite for unsecured MSME exposure.
To address this, the study recommends scaling up risk-sharing arrangements, including partial credit guarantees that would allow lenders to share losses with public or development finance institutions. Such mechanisms, researchers argue, could reduce banks’ downside risk and improve credit pricing for smaller firms.
“There is a need to de-risk the ecosystem,” Prof. Osei-Assibey said. “Guarantees and risk-sharing can make banks more comfortable to lend because they are not carrying the full burden if defaults occur.”
The study also points to low adoption of financial technology as another constraint. Only about 35 percent of banks and MSMEs are currently using any form of innovation in credit processes.
Prof. Osei-Assibey said most lending decisions remain backward-looking, relying on historical data rather than predictive models. Expanding the use of data analytics and artificial intelligence could help reduce information gaps and improve borrower screening.
Beyond credit instruments, researchers stressed the importance of consistent macroeconomic policy. Prof. Osei-Assibey said Ghana’s recent disinflation, with inflation easing to around 6.3 percent, could create room for lower policy and lending rates if the trend is sustained. However, he warned that policy slippage on the fiscal side could undermine the gains and delay relief for borrowers.
Prof. Fiador stated that restoring trust between banks and SMEs is just as critical as lowering rates. Without stronger financial discipline and ethical standards among borrowers, she cautioned, even well-designed risk-sharing schemes may fall short.
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