The central bank is opening the door for commercial lenders to expand credit by allowing guarantees from state-backed institutions to be treated as collateral, a move expected to ease lending constraints and support government’s 24-hour economy initiative.
The Bank of Ghana (BoG) said it has approved guarantees issued by the Ghana Incentive-Based Risk-Sharing System for Agricultural Lending (GIRSAL) as acceptable collateral.
The policy is designed to de-risk lending to agribusinesses and over time extend to other institutions such as the Development Bank Ghana (DBG).
“The idea was to de-risk agricultural lending and encourage financial institutions to increase their exposure to the sector through credit guarantee schemes,” said Ismail Adam, Director-Banking Supervision, speaking on behalf of Governor Dr Johnson Pandit Asiama at a banking sector roundtable in Accra.
“Going forward, the same protocol will be extended to DBG.”
Adam stated that this new framework strengthens the link between banks and the real economy.
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He noted that success for government’s 24-hour economy programme will depend in part on how banks respond to increased demand for financing, while a stronger banking sector will provide the stability required to attract investment.
GIRSAL provides up to 70% cash-backed credit risk coverage on agricultural loans with a zero-percent risk weight from the Bank of Ghana, while Development Bank Ghana’s US$70million partial credit guarantee scheme supports partner financial institutions in managing default risks across manufacturing, agriculture, services and SMEs, with emphasis on women-led and first-time borrowers.
John Awuah, Chief Executive Officer-Ghana Association of Banks, said the change could significantly alter how banks manage lending limits and credit risk.
With guarantees accepted as collateral, facilities are classified as secured, allowing lenders to advance more funds to borrowers.
“If it is unsecured, you can lend up to 10 percent of your net owned funds,” Mr. Awuah explained.
“But if it is secured because the central bank is accepting the guarantee, then you can lend up to 25 percent. Instead of giving GH¢10million I can now give GH¢2 million, which allows businesses to do much more.”
He added that this approach also reduces the impact on banks’ capital, since exposures backed by guarantees consume less regulatory capital.
“Sometimes, in other jurisdictions, guarantees are even netted off exposures on the books. That frees up capacity to lend more,” Awuah said.
Bankers see the guarantee framework as vital for financing the 24-hour economy initiative, which aims to expand production and services beyond traditional hours to boost growth and employment.
Awuah noted that while government is setting the framework, private sector leadership will determine the programme’s success.
“As bankers, we are very keen to be the oil that fuels the programme,” he said.
“But it takes two to tango. The private sector must also come on board.”
Awuah however cautioned that access to long-term, affordable funding remains a major constraint.
He said institutions such as DBG were set up to fill that gap and provide banks with the resources to offer loans with longer maturities at sustainable rates.
“The more long-term arrangements we have, the better it is for both banks and borrowers,” he said.
“This allows businesses to scale, repay comfortably and ultimately strengthens the system.”
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