IMPORTANCE OF FINANCIAL LITERACY EDUCATION IN GHANA

I recently met a University mate of mine in a very popular restaurant in Accra. As usual the question that comes to mind after meeting a long time school mate is “so what are you doing or where are you”?

I was very impressed when this friend told me that he was managing his own business that is to say he is self employed. He indicated   that right after school like a typical graduate   he  was offered employment  by a firm after a writing   series of application letters. During this period of employment, he felt that although he was employed by the firm as a technical person on the job, his technical submission on issues regarding the business was not respected by the people who employed or hired him. He felt useless in this business and therefore left to establish his own business. 

After he told me of what he has been up to, I also told him I work for a financial institution and this answer sparked up some interesting conversation relating to the relationship between  the self employed  business in Ghana and the banks.  Like any other entrepreneur he started   lamenting about how difficult it was to access loans from the bank to finance their operations or contracts that had been already secured. He concluded that, the banks were not very helpful and not very innovative in their dealings with small and medium businesses in Ghana. He confirmed this by telling me of what his bank is requesting from him before they can grant him a loan to finance a contract that he has currently secured. As usual the  bank is  asking for tangible security (landed property ) or cash equivalent before they can start talking about loan of any kind. I am sure that most owners of small and medium business can identify with the frustrations of this man and are hopeful that one day their frustrations will be over.

 The state of relationship between the bank and SME owners for me is due to the misunderstanding between both parties. What I mean to say is that the banks are yet to fully appreciate the psychology of SMEs and their owners. In the same vain SME owners seem not to understand the psychology of the banks and its officers .Unfortunately it  seems this perceive misunderstanding is increasing on a day to day basis and this is as a result of certain revelation from my discussions and other observations made.

 For instance in my conversation with my business owner mate I advised him to not to limit his search for loans to the main banks or traditional banks but he should talk to other non –bank financial institutions . The main focus on this article is hinged on the responds I receive after asking him to consider accessing loans from some of the non-bank financial institutions around. It was surprising to me when the entrepreneur told me that it was a common knowledge that if you use loans from some of the non-bank financial institutions around, your business will collapse. According to him the information around town is that the loans from these institutions were “spiritually adulterated” and has the power to destroy your business if you use money from that source.

This answer surprised me for many reasons. The main reason why I was surprised was the level of education of this mate and the fact that he had come to believe in statement like this. This statement is an indication that there is strong need for  financial literacy education  for majority of small and medium enterprise owners. This should be  looked at again especially by the  financial sector players  to ensure that the men and women managing the small enterprises are better place  to effectively manage  the loans or debt they contract to help the growth of their businesses and also to ensure prompt and consistent repayment of loans to their bankers.

The fallout from this little discussion points to the fact that there is more work to be done in the area of building the financial literacy capacities of owners of SMEs in Ghana. It is obvious that the problem associated to taking on loan from alternative financial houses mainly is with the interest rate charged on the loans. Most of these alternative financial houses are more proactive and have good appetite for risk associated to financing SMEs than most traditional banks. From a non-scientific point it can be concluded that it is easier to access loans from the “alternative financial institutions” than from the traditional banks. This is supported by the many comments made many entrepreneurs regarding the fact that banks were not meeting their financial needs   and that the loan requirements put in place equally make it difficult for SME owners to provide this requirement in order to access loans.

The thought that some “bank money” can collapse your business is a strong indication that most entrepreneurs are yet to appreciate the importance of a thorough analysis of the loans they take and its implication on their business. For most business men and women the mere desire for a loan consumes them so much that they fail to scrutinize the interest element on the loan to ascertain if their enterprise can comfortably finance the repayment of the loan and its associated interest.

I am tempted to believe that the reason why there is this thinking that a loan from some institutions can collapse a business is mainly due to the cost of the loan and the inability of most   enterprises to generate enough income to cover the principal and interest.  Another reason may be due to poor loan management by some clients who after taking a loan from a bank may not apply it for the intended reason for which it was borrowed. In the event  where some  borrowers are able to pay off their loans, it  may happen that they  may have serviced the loan repayment by partially using a portion of their  initial capital. If that happens it becomes difficult for the entrepreneur to refinance the purchase of stock or materials to the same level that they started with and at this point the perception that some money can collapse your business become real to them.

The bank and SME relationship can be mutually beneficial if an understanding is reached between owners of SMEs and the bank’s. The fact is, owners of SMEs think the bank does not quickly respond to their needs and even if they do they mostly do not grant them all the loans they need. Others believe that the bank ask for too many things that goes to prevent them from qualifying for the loans. The need for landed properties  as collaterals in a country like Ghana where majority of land owners don’t have land title registrations or sometimes the request for cash collaterals for a clients who needs cash makes it  difficult for most SMEs to meet the requirement for loans.  The logic of this kind of arrangement is only understood by the banks and not the clients. Some SME operators also perceived that some bank officials have some negative attitude towards SMEs and therefore shy away unnecessarily from dealing with SMEs.

The banks on the other hand also have some genuine issues regarding the financing of SMEs. This is largely based on the manner in which most SMEs are managed. To the banks the lack of proper business records, lack of collateral to secure the facilities, improper banking culture, low level of literacy among SME operators, poor governance, lack of secession planes, etc all together make the granting of loans to SMEs a high risk business.

Understanding of the various stakeholders involved in improving access to SMEs is very paramount. The blame game cannot be left at the door steps of the banks by the SMEs operators and similarly the banks cannot leave the SMEs to their fate. This is mainly because as stated by developmental experts, SMEs holds a very important part in the growth of all economies. This, therefore, calls for positive collaborations by governments, trade associations, and district assemblies, financial institutions to contribute to ensuring that the problems and challenges identified are adequately addressed for the benefit of the entire economy.

When the capacity of the SME operators are developed, they will be in the position to better negotiate the terms and conditions of the loans they take so that they are able to comfortably use them to expand their business enterprise and in addition pay off their loans and the related interest and still be able to sustain their business activities.

Additionally banks should also build the capacity of its officers to fully understand and adopt some entrepreneur skills to further help them to understand the operations of SMEs to enable them better provide the needed services to this sector.

Due to the high cost associated to providing training services to the SME operators, government and donors can assist by either financing capacity training activities like the annual financial literacy week which started some years ago. Additionally Banks and other institutions can also diversify their corporate social responsibilities (CSR) portfolio and commit some fund to develop and train their SME clients.

I hope after reading this feature it has been clear that there is no truth about the assertion that   money from a financial institution can collapse a business  due to “juju or spiritual” reason but what can collapse the business may be the lack of adequate knowledge on how to negotiate for  loans as well as how to manage your loan and a business.