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The financing void micro finance institutions are supposed to fill in the economy remains significantly unaddressed as micro and small to medium enterprises (MSMEs) reel under the prohibitive interest rates charged by these institutions.

Some micro finance institutions charge about five percent on loans per month, translating into an annual interest rate of 60 percent, which is double, the interest rate charged by commercial banks per annum.

Founder and Chief Executive Officer of the Chief Executives Network Ghana Limited, Ernest De-Graft Egyir, has expressed concern about the situation and wants regulatory intervention on the issue.

“I think the essence of micro finance was to fund micro enterprises but rather they are charging five percent per month. I know these are market forces, but I think that the financial regulatory agencies must bite.”

The CEO was sharing his views on the state of SME financing in an interview with the Goldstreet Business ahead of the maiden edition of the SME CEO Summit and Exhibition to be held in Accra next month on the theme: Scaling Up SMEs for Inclusive Growth: the CEO and Government as Drivers.

The micro finance sector has been in a vortex over the last few years with some of the institutions bolting with deposits taken from individuals and businesses after luring them with mouth-watering interest rates.

The Central Bank has had to intervene to salvage the apparent chaos within the sector with a number of measures including the issuance of operating rules and guidelines for microfinance institutions pursuant to the provisions of the Non-bank Financial Institutions Act, 2008 (Act 774) and the Banking Act, 2004 (Act 673) as amended by Act 738.

Egyir observed that the commercial banks, which serve as alternate financing option for the MSME sector also continue to maintain high interest rates notwithstanding the positive outlook of inflation performance, as well as other indicators.

He said the banks do not understand the MSME sector resulting in difficulties in appreciating and approving credit requests for them and suggested the establishment of “financing panels” with varied backgrounds to engage beyond the request for business plans to risk analysis and viability of applications.

On the promotion of the concept of equity financing to SMEs, Egyir noted, “equity is the way to go but the mind-set of the Ghanaian businessman is not allowing that to happen.”

He said the average Ghanaian business person would want to own 100 per cent of virtually nothing as against 10 per cent of value and called for a shift in that mind-set.