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Ghana Launches Another Development Bank

Three months ago, Ghana established Development Bank Ghana, its fourth development bank, to provide long-term, competitively priced loans to SMEs that have long been financially underserved. As usual, praise followed its launch, with many touting it as a “step in the right direction.” But it’s not easy to shake away the feeling that Ghana doesn’t need a new development bank, not even for SMEs. At first glance, it’s easy to make a case for this new development bank. The main argument in its favour is that a new bank will help small businesses that have been unable to access credit due to the high-interest rates on short-term loans. Data from Ghana’s central bank shows that commercial banks in Ghana give loans at an average of 22.5%. That data was even from May, a while before Ghana increased its benchmark interest rate because of high inflation. That means business loans would have become even more expensive. So it sounds plausible to create a bank that can provide cheaper credit for small businesses. However, creating a new bank—no matter how niche its focus is—does not guarantee it will have the power or financial capacity to address the problems in question. This trend of creating new development banks is not new in Africa. National development banks were part of the policy apparatus in the state-led growth models of the 1960s and 1970s. But by the 1990s, many of them had failed, while a few were privatised, mainly because of corruption and cronyism. The ones that survived, as well as the majority of newly established national development banks, are small and undercapitalised.

SOURCE: VENTURES AFRICA