Ghana eagerly awaits its new domestic DFI.

In July, Ghana is expected to launch a new development finance institution – the Development Bank of Ghana (DBG)[1]. This will be the 24th licensed bank in the country and the first substantial new entrant since the conclusion of a banking sector sanitisation that is said to have cost over GHS 21 billion (USD 3.6 billion). However, information regarding the bank is scarce and the timeframe for its launch seems ambitious.

Significance – New Regulatory Framework

The Bank of Ghana, the regulator, released a specific directive on licensing requirements for Development Finance Institutions in the country in March. The requirements are broadly similar to those for retail banks including minimum capital paid up capital of GHS 400 million (USD 68.7 million) to GHS 1.2 billion (USD 206 million) depending on the exact nature of the activities that will be undertaken[2] - for regular banks, this is just GHS 400 million. Details of DBG’s license have not been publicly announced as yet.

In fact, given its impending launch, surprisingly little is known about DBG. A request for expressions of interest in September 2020 said that DBG “will focus on manufacturing, agriculture, and high-growth services, working with existing financial institutions – banks, specialized deposit-taking institutions, and non-bank financial institutions (jointly participating financial institutions [PFIs]). The DBG will provide lines of credit to PFIs. It is also expected to offer partial credit guarantees (PCGs) to PFIs to mitigate their risk of lending to certain borrowers and market segments (SMEs, women, and first-time borrowers).”  Other statements have said that DBG will seek to serve around 10,000 SMES, including some 2,000 led by women[3]. Funding announcements of EUR 170 million from the European Investment Bank in May 2021[4] and USD 250 million from the International Development Association (part of the World Bank Group) in October 2020[5]. The 2021 budget shows that GHS 500 million was allocated in 2020 as seed funding for DBG but that only GHS 280 million (USD 48.1 million) was disbursed. A further GHS 306 million (USD 53.6 million) is allocated for 2021[6] meaning that it should easily meet any minimum capital requirement.

What has not been outlined is the ownership or shareholding structure of DBG. It is clear that there will be significant government involvement but nothing more specific. One initial plan had been to merge the existing National Investment Bank (NIB) and Agricultural Development Bank (ADB) into a national development bank (government holds a 97% and 32.3% stake in each respectively) though it was abandoned in 2018 to allow both to continue to operate following a cash injection from government. People are looking to ADB as a state-owned industry focused bank to determine how DBG may perform. Whilst it is the largest lender to agricultural institutions in the country (with 85% market share according to their website), it is rumoured that agricultural activities make up only around a third of their total portfolio. There is also discontent amongst smallholder farmers that the bank offers few real products that cater to their needs.

Outlook – Tight timelines but overall confidence

The timelines given by government seem ambitious. No announcement has been made of who the senior leaders of the bank will be, when the operating license will be granted or even where it will be headquartered and what its shareholding structure will be. Until those details are made public, concerns will make their way through the rumour mill and adverse media. For example, a manager in another bank in which the state has significant participation echoed suspicions that private participation from people close to government and that this may be part of the reason for the delay in such announcements. It should be noted that government has been struggling with reports of the finance minister and his deputy directly benefitting from the government’s borrowing scheme in recent weeks[7]. To address all of this within six weeks seems heroic.

Despite the confusion surrounding the exact structure and ownership of DBG, the initiative behind it is something that would fill a notable market gap. The involvement of external partners such as the EIB and the World Bank is also something that is likely to instil a degree of confidence in both patrons and potential future investors. There is also enthusiasm about the potential tie-in with other institutions along the financial value chain, a novel strategy for Ghana, that may see smaller businesses benefit from the affordable capital they require. In that context, the main concern amongst those in both the financial sector and in industry appears to be that DBG adheres to its mandate.

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[1] Also referred to as the National Development Bank.

[2] Bank of Ghana (2021). Directive on license and capital requirements for development finance institutions pursuant to the development finance institutions Act, 2020.

[3] World Bank (2020, October 29). World Bank Supports the Establishment of the Development Bank Ghana to Boost Access to Finance and Job Creation.

[4] European Investment Bank (2021, May 19). Ghana: President Akufo Addo welcomes EUR 170 million EIB support for new National Development Bank of Ghana.

[5] (World Bank, 2020).

[6] Government of Ghana (2021). The Budget Statement and Economic Policy.

[7] See: Burden and Ease: Spotlight on Ghana in June & July

*Image credit: Songhai

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