The World Bank has approved a funding package for a new development bank in Ghana, as part of the Ghana development finance project, aimed at boosting access to long-term finance in the country.

The International Development Association (IDA), a member of the World Bank Group, which offers grants and low-interest loans to developing nations, will provide US$250mn in credit to the Ghanaian government to help launch the project.

Once established, the World Bank says that the Development Bank of Ghana (DBG) will work to increase support for “key sectors” such as agribusiness and manufacturing.

According to the World Bank’s country director for Ghana, Pierre Laporte, the DBG will offer support through long-term wholesale financing, credit guarantees and other services.

The DBG will also aim to attract private sector financing for credit-constrained Ghanaian micro, small and medium enterprises (MSMEs) through multiple interventions.

“These interventions will include the establishment of a partial credit guarantee facility and a digital financing platform to leverage private sector financing by making it more efficient and less risky for private financiers to lend to MSMEs,” says Carlos Vicente, senior financial sector economist at the World Bank.

The World Bank adds that the Ghana development finance project will provide financial services to around 10,000 businesses, including 2,000 women-led MSMEs, while also strengthening the oversight of development finance institutions and the adoption of environmental and social standards by financial institutions.


Ghana’s long-term finance problem

Long-term finance is hard to come by for firms of all sizes in Ghana, especially SMEs, the World Bank notes in a project appraisal document for the DBG, released in early October.

“In 2018, only 33% of the volume of banks’ loans and advances had a maturity of more than three years, of which loans with maturities of more than five years was only 15%,” the bank states.

It adds that the problem is felt acutely in agriculture and manufacturing, which “receive a much smaller share of credit from the financial sector compared to their share in GDP and employment”.

“For instance, in December 2019, the share of bank loans for agriculture (including forest and fishing) was just 5%, much smaller than the sector’s contribution to Ghana’s GDP (19%) in 2019,” the bank says.

The World Bank notes that such scarcity of long-term financing in part reflects the fact that the availability of long-term funding for financial institutions in Ghana is also strained.

But the document says that there are other factors influencing banks’ decision to limit loan maturities in Ghana, namely economic uncertainties such as inflation and interest rate volatility.

Countries across Africa have felt the economic effects of Covid-19, and Ghana has been no exception, suffering from a plunge in external demand, as well as lower inflows from tourism and foreign direct investment.

According to the World Bank, Ghana’s GDP growth is expected to slow from 6.5% in 2019 to 1.2% in 2020.

Last week, the IDA moved to bolster funding for the country’s health care system, injecting US$130mn into Ghana’s Emergency Preparedness and Response Project.

According to Laporte, the funding will increase the availability of intensive care unit beds in the country, and help Ghana adopt new Covid-19 medications.