Finance and Fear: The Unseen Barriers to Ghana’s Entrepreneurial Growth

A striking paradox exists in Ghana: despite our people's abundant talent and wisdom, many capable individuals shy away from pursuing innovative ventures. The primary reason for this hesitation is a pervasive fear of financial inadequacy. This fear hinders the entrepreneurial spirit and stifles economic growth as potential business leaders opt for safer, less risky paths due to a persistent belief that there is or will be a lack of financial resources. On the surface, it makes sense.

But at its core, this issue is not just about the absence of money but also about the psychological barriers and historical contexts that reinforce this fear. Financial constraints are a significant deterrent, creating an environment where brilliant ideas often remain unrealised. Understanding this phenomenon requires a multifaceted approach that considers practical, psychological, historical, and analytical perspectives.

For many weeks, my close circle and I have discussed and dissected the complex web of factors contributing to the fear of financial inadequacy among Ghanaian entrepreneurs. In essence, this is their work too, particularly Mr Baddoo. By examining this issue through common sense, psychological theories, historical context, recent findings, numerical data, and statistical analysis, we aim to comprehensively understand why many are reluctant to take the leap into entrepreneurship.

Our several hours of discussions were about more than just the problem. We also attempted to explore thoughtful suggestions and potential solutions to empower Ghanaian innovators to overcome these barriers and drive economic prosperity. This also gives some context to why Maxwell Investments Group (MIG) executes the initiatives and partnerships we currently have.

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Historical Context

Historically, Ghana's financial landscape has been challenging for small and medium-sized enterprises (SMEs). Post-independence economic policies and structural adjustment programs have often favoured large corporations and multinational companies, leaving local entrepreneurs struggling. For instance, the 1980s and 1990s saw significant financial liberalisation, but the benefits were unevenly distributed. Many local businesses could not compete with foreign entities that had better access to capital.

This historical marginalisation has left a legacy of financial scarcity that continues to affect Ghanaian entrepreneurs today. Policies from the past, such as the Economic Recovery Programme (ERP) initiated in 1983, aimed to stabilise the economy and promote growth. However, these programs often prioritised foreign investment and giant corporations, inadvertently sidelining local SMEs. This focus on larger entities created an environment where local businesses needed help to secure the necessary capital to grow and thrive.

The legacy of these policies is still evident. The financial infrastructure that supports large-scale enterprises is robust, yet the same cannot be said for smaller businesses. The limited access to capital and financial support for SMEs is a direct consequence of these historical economic strategies. Understanding this historical context is crucial for addressing the financial challenges that Ghanaian entrepreneurs face today. It provides a backdrop against which current financial inadequacies can be understood and addressed.

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Policy and Regulatory Environment

Ghana's policy and regulatory environment significantly impact access to finance for SMEs. While there have been efforts to support entrepreneurship through initiatives like the National Entrepreneurship and Innovation Plan (NEIP), more needs to be done. Simplifying the process for obtaining business licenses and reducing bureaucratic hurdles can make it easier for entrepreneurs to start and sustain their ventures. Additionally, policies that incentivise banks to lend to SMEs, such as tax breaks or guarantees, can improve access to finance.

Regulatory challenges and bureaucratic red tape often deter potential entrepreneurs. The complex and time-consuming processes of registering a business, securing permits, and complying with regulations can be overwhelming, particularly for small businesses. Streamlining these processes and providing clear, accessible information can reduce the burden on entrepreneurs and encourage more people to start businesses.

Exploratory Solution: One way to address these issues could be through digitalising government services related to business registration and compliance. Implementing online portals for these services can make the process more efficient and transparent, reducing delays and opportunities for corruption. It is also why I collaborate with GCB Bank PLC. As the biggest lender to Ghanaian small businesses, they are looking to allocate circa 40% of all GCB loans to SMEs. This makes them ready to ideate and work with me on how SME challenges can be curbed. About 2000 studentpreneurs are opening no-deposit Entrepreneurship Accounts with free Visa Cards through the' Entrepreneur In You' initiative.

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Sociocultural Factors

Cultural norms and values in Ghana significantly influence attitudes towards entrepreneurship and risk-taking. Traditionally, many Ghanaians prefer stable, secure jobs over the uncertainties of starting a business. This aversion to risk is often rooted in the fear of social stigma associated with business failure. In a society where family and community reputations hold substantial weight, the potential shame of a failed venture can be a powerful deterrent. Encouraging a cultural shift towards viewing failure as a learning opportunity rather than a disgrace could foster a more entrepreneurial spirit.

Family and community networks play a crucial role in providing both financial and moral support to entrepreneurs. In Ghana, extended families often pool resources to support one member’s business venture. This communal approach can alleviate some financial constraints. However, reliance on personal networks also has limitations, as it may not provide sufficient capital for larger-scale enterprises. Strengthening community-based savings and credit associations can provide a more structured support system for budding entrepreneurs.

Exploratory Solution: Community-based financial literacy programs can help shift cultural perceptions and equip individuals with the skills to manage and invest resources effectively. By promoting a culture of saving and investment, these programs can foster a more supportive environment for entrepreneurship. Development Bank Ghana (DBG) is offering certified financial literacy programs that could lead SMEs to collateral-free, reduced-interest loans, which is fantastic news. I learned only this week that DBG intends to have their literacy courses in Twi and Ga as well. The need for financial literacy is also why MIG organised the MIG Business Forum in April. The forum's theme was 'The Impact of Financial Literacy on Post-Retirement Financial Security'.

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Common Sense Perspective

The reluctance to start new ventures due to financial limitations is rooted in practical considerations. Financial resources are the lifeblood of any business initiative. Even the most brilliant ideas can only come to fruition with adequate funding. In Ghana, the cost of starting and sustaining a business can be prohibitive, leading many to abandon their entrepreneurial dreams. High initial capital requirements and ongoing operational expenses make it difficult for many to take the first step.

Moreover, the fear of accumulating debt, especially given the high interest rates on loans, exacerbates the problem. Many potential entrepreneurs view the financial risks as too great, fearing that a failed venture could lead to financial ruin. This common-sense perspective highlights the significant barriers that financial constraints pose to aspiring business leaders in Ghana.

Exploratory Solution: Microfinance and Microcredit institutions can play a critical role by offering small, low-interest loans to entrepreneurs. MIG is in the final stages of securing our microcredit license under Wellmax Micro-Credit. Wellmax Micro-Credit will provide the necessary capital to start small businesses, with manageable repayment terms for individuals who might not have access to traditional banking services. Common sense also pointed to us working with the National Insurance Commission on Wellmax Micro-Insure Limited. It is time for our SMEs to understand that risk mitigation measures like insurance coverage are no longer a luxury. We also made sure that Wellmax Micro-Insure would also be able to provide inclusivity insurance. Together with major insurance partners, we look forward to designing insurance products and services that promote financial inclusion and make life better for the marginalised in our communities. Combine that with MIG’s work with GCB and you see where all this is headed.

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Psychological Theory

From a psychological standpoint, the theory of "learned helplessness" provides a compelling explanation for the fear of financial inadequacy. Coined by psychologists Martin Seligman and Steven Maier, this theory suggests that when individuals repeatedly face insurmountable obstacles, they develop a sense of powerlessness and resignation.

In the context of Ghanaian entrepreneurs, the persistent lack of financial support can lead to learned helplessness. Aspiring business leaders may start to believe that no matter how hard they try, they will always be thwarted by financial barriers. This sense of powerlessness results in inaction and a reluctance to pursue innovative ventures. Understanding this psychological aspect is crucial in addressing the fear of financial inadequacy and fostering a more supportive environment for entrepreneurs.

Exploratory Solution: Mentorship programs can help counteract learned helplessness by providing aspiring entrepreneurs with role models and other forms of support. Successful business leaders who have navigated financial challenges can offer guidance, encouragement, and practical advice, helping to build confidence and resilience. We started the ‘Africa School of Entrepreneurship’, and the reception continues to humble us. Dating back to 2017, this duly-registered entity provides a nationwide, nay, continentwide platform dedicated to facilitating knowledge transfer through various initiatives such as 'Entrepreneur In You' and 'Sika Adesua'. ASOE also offer Mentorship Programs, Entrepreneurship Conferences, Business Bootcamps, Pitch Competitions, Micro-Credentials, Funding Platforms, Mastermind Groups, Incubators, and Accelerators.

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Technological Advancements

Financial technology (fintech) can bridge the financing gap for SMEs in Ghana. Innovations such as mobile money, peer-to-peer lending platforms, and blockchain technology can provide alternative financing options that are more accessible than traditional banking services. For example, mobile money services have already transformed the financial landscape in Ghana, making it easier for individuals and businesses to conduct transactions and access credit.

Digital platforms can facilitate crowdfunding and provide alternative financing options for entrepreneurs. By leveraging the internet and social media, entrepreneurs can reach a wider audience and attract small contributions from numerous investors. Platforms like Kickstarter and GoFundMe have shown the potential of crowdfunding in other markets, and similar models could be adapted to suit the Ghanaian context.

Exploratory Solution: Encouraging collaboration between fintech companies and traditional banks can create hybrid financial products that leverage the strengths of both sectors. Such partnerships can expand the reach of financial services and offer more comprehensive solutions to entrepreneurs. Also, just last month, the Securities and Exchange Commission (SEC) and the UN Capital Development Fund (UNCDF) launched comprehensive guidelines for equity or investment-based crowdfunding in Ghana. I’ll soon have a go at exploring this exciting avenue, and we tip our hats to the SEC for making this available for Ghanaian entrepreneurs safely. MIG’s USSD platform, archaic or not, has done some wonders for us in remote areas of Ghana.

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Recent Findings

Recent studies underscore the severity of the financial constraints faced by Ghanaian entrepreneurs. A report by the World Bank indicates that access to finance is one of the top three challenges for businesses in Ghana, alongside electricity and tax rates (World Bank, 2021). Furthermore, the Ghanaian financial sector remains risk-averse despite its growth, often prioritising collateral over innovative business ideas.

This risk aversion stifles creativity and discourages potential entrepreneurs from pursuing new ventures. The lack of financial support is not just a perception but a documented reality that significantly impacts the entrepreneurial landscape in Ghana.

Exploratory Solution: Developing government-backed loan guarantee programs can mitigate the risk for banks, encouraging them to lend to SMEs without requiring excessive collateral. Such programs, like the one earlier mentioned with the Development Bank Ghana, are excellent steps to providing a safety net for financial institutions while promoting entrepreneurship. Africa School of Entrepreneurship also seeks to provide platforms where brilliant ideas can be nurtured from ideation to execution by providing business toolkits, amongst others mentioned earlier. Business incubators and Accelerators would be perfect for this.

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Numerical and Statistical Analysis

According to data from the Ghana Statistical Service, only 20% of Ghanaian SMEs have access to formal credit, compared to 60% in high-income countries (Ghana Statistical Service, 2022). Moreover, a survey conducted by the International Finance Corporation (IFC) some four years ago revealed that Ghanaian SMEs face a financing gap of approximately $4.1 billion, highlighting the scale of the problem (IFC, 2020). One can only imagine what the actual data looks like now.

These numbers paint a stark picture of the financial hurdles that hinder entrepreneurial growth in the country. By analysing this data, we can quantify the extent of the financial challenges and better understand the barriers that aspiring entrepreneurs face.

Exploratory Solution: Public-private partnerships (PPPs) can help bridge the financing gap. By combining resources and expertise from both sectors, PPPs can create targeted funding programs that address the specific needs of SMEs, improving access to credit and other financial services. With the government being the largest shareholder of GCB Bank PLC, our collaborative work with them to safely lend to SMEs is how we contribute in this regard. The fine details are still being worked out, but the fact is that the largest indigenous Bank, with over 3.3 million accounts and poised to be SME-centric, is a fantastic blessing for the sector.

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Analytical Perspective

Analytically, the fear of financial inadequacy can be dissected through a cost-benefit analysis. Potential entrepreneurs weigh the costs of starting a business (initial capital, operational expenses, interest on loans) against the expected benefits (profits, market share, business growth).

In an environment where access to finance is limited, the perceived costs often outweigh the benefits, leading to risk aversion. Additionally, the lack of financial literacy exacerbates this issue. Many Ghanaians must be made aware of alternative financing options, such as venture capital, crowdfunding, and angel investors, which could mitigate their fears.

Exploratory Solution: Financial literacy programs can play a pivotal role in changing this dynamic. By educating potential entrepreneurs about various financing options and how to manage their finances effectively, these programs can reduce fear and encourage more individuals to pursue their business ideas. MIG will continue to organise and partake in programs and initiatives that improve financial literacy in the communities where we operate.

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Education and Training

Incorporating entrepreneurship education into the school curriculum is crucial for preparing future business leaders. Teaching students the basics of business management, financial literacy, and innovative thinking from a young age can cultivate an entrepreneurial mindset.

Skill development programs focused on financial literacy, business management, and innovative thinking can equip potential entrepreneurs with the tools they need to succeed. Workshops, mentorship programs, and online courses can provide valuable training and support, helping entrepreneurs navigate the complexities of starting and running a business.

Exploratory Solution: Establishing partnerships between educational institutions and industry can enhance the practical relevance of entrepreneurship education. By involving successful entrepreneurs in the design and delivery of curricula, academic programs can better prepare students for real-world challenges. I am aware of the remarkable efforts being made by Dr Elvis Cornerstone and the Institute of Economics and Finance (IEF) in this regard. Programs like Junior Achievement Ghana are also making strides in this area, but more widespread implementation is needed. We hope our ‘Sika Adesua’ initiative will soon add to this.

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Case Studies and Success Stories

Highlighting successful Ghanaian entrepreneurs who overcame financial constraints can inspire others to follow suit. Stories of individuals who started with minimal resources and built thriving businesses can serve as powerful examples of what is possible. These success stories can also provide practical insights and strategies for overcoming financial barriers.

Comparing Ghana’s entrepreneurial ecosystem with those of other developing countries can provide valuable lessons and best practices. Countries like Kenya and Nigeria have made significant strides in supporting SMEs through innovative financing models and supportive policies. Learning from their experiences can help inform strategies to improve access to finance for Ghanaian entrepreneurs.

Exploratory Solution: Creating a platform for sharing success stories and best practices can foster a community of learning and support. Such a platform can promote a culture of innovation and resilience by facilitating knowledge exchange among entrepreneurs, policymakers, and investors. The first stop of the ‘Entrepreneur In You Campus Tour’ saw the Great Hall of KNUST overflow with thousands of students and entrepreneurs from over half a dozen tertiary institutions and all across Ghana. Such fellowship normalises one’s entrepreneurial drive, breeds good business practices, and encourages people to go where solutions and knowledge reside. We hope to complete the onboarding of Deloitte as our Official Knowledge Partner soon.

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Gender and Entrepreneurship

Women entrepreneurs in Ghana face unique challenges and financial barriers. Cultural norms, limited access to education, and lack of collateral often make it harder for women to secure financing. Addressing these issues through targeted programs and policies can support women in business and unlock their entrepreneurial potential.

Programs and policies aimed at supporting women in business can increase their access to finance and resources. Initiatives like the MasterCard Foundation’s support for African women entrepreneurs provide training, mentorship, and funding to help women start and grow their businesses. Such efforts can significantly impact reducing gender disparities in entrepreneurship.

Exploratory Solution: Establishing women-focused business incubators and accelerators can provide tailored support for female entrepreneurs. These initiatives can offer resources, networking opportunities, and mentorship specifically designed to address the unique challenges women face in business. As we build our mentorship platform, Africa School of Entrepreneurship will do well to have some programs created by the remarkable women at MIG and our partners, who are given from women mentors to women mentees.

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Environmental and Social Governance (ESG)

Sustainable finance plays a crucial role in supporting innovative and environmentally friendly business ventures. Financial institutions can develop products that incentivise sustainable practices, such as green loans or impact bonds. By aligning financial goals with environmental and social objectives, businesses can contribute to broader sustainable development goals.

Impact investors like myself will always focus first on funding ventures that generate positive social and environmental outcomes. By providing capital to entrepreneurs who aim to address social issues, such as poverty, education, and healthcare, we can help create a more inclusive and sustainable economy. Encouraging more impact investment in Ghana can support socially responsible entrepreneurship.

Exploratory Solution: ESG is now widely known in Ghana, but my little research tells me it’s not as widely understood. Promoting ESG criteria in investment decisions can attract more capital to sustainable ventures. Financial institutions can collaborate with environmental and social organisations to develop frameworks that guide investments towards projects with high social and environmental impact. MIG intends to collaborate with ‘Koranteng & Koranteng Legal Advisors’ on knowledge-transfer programs like webinars and forums to enlighten all stakeholders on ESG and sustainability-related topics. I attended one of their webinars on ESG several months ago, and to date, it’s the most informative ESG webinar I’ve been on. MIG is proud to have Koranteng & Koranteng as our legal advisors. We should share such knowledge with our collective stakeholders.

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Psychological Resilience and Mindset

Encouraging entrepreneurs to develop a growth mindset can help them persevere despite financial challenges. A growth mindset, popularised by psychologist Carol Dweck, involves viewing challenges as opportunities for growth and learning. By fostering this mindset, entrepreneurs can develop resilience and a willingness to take calculated risks.

Building psychological resilience is essential for coping with setbacks in the entrepreneurial journey. Training programs that focus on developing resilience skills, such as stress management, problem-solving, and adaptability, can equip entrepreneurs to handle the ups and downs of business life. Support networks and mentorship can also provide valuable encouragement and guidance.

Exploratory Solution: Community-based resilience workshops and support groups can provide a safe space for entrepreneurs to share their experiences and learn coping strategies. By fostering a supportive community, these initiatives can enhance the mental well-being and resilience of entrepreneurs. We will be mindful to onboard professionals who can offer such support to our Mentorship Program.

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Global Economic Trends

Global economic trends and trade opportunities can influence local entrepreneurship. Access to international markets and participation in global value chains can provide new revenue streams for Ghanaian businesses. Understanding and leveraging these trends can help entrepreneurs expand their reach and grow their businesses.

Global financial crises can have ripple effects on local access to finance and entrepreneurial activities. During economic downturns, financial institutions may become more risk-averse, further limiting access to credit for SMEs. Analysing these trends can help entrepreneurs anticipate challenges and develop strategies to mitigate their impact.

Exploratory Solution: Establishing trade facilitation centres can help local businesses navigate the complexities of international markets. These centres can provide information, training, and support to entrepreneurs looking to export their products and services. Again, GCB comes up as they have developed fast, easy-to-use cross-border payment capabilities for account holders. This innovation is timely and crucial at a time when entrepreneurs need access to diverse markets to diversify income flow.

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Networking and Collaboration

A supportive entrepreneurial ecosystem is crucial for fostering innovation and growth. Incubators, accelerators, and networking events provide valuable resources and connections for entrepreneurs. Developing a robust ecosystem that includes access to mentorship, funding, and collaboration opportunities can significantly enhance the entrepreneurial landscape in Ghana.

Encouraging collaboration between entrepreneurs, investors, and institutions can pool resources and share risks. Collaborative ventures, such as joint ventures or strategic partnerships, can provide the financial and technical support needed to bring innovative ideas to fruition. Creating platforms for collaboration can facilitate these connections and drive entrepreneurial success, eliminating some of the fears Ghanaians associate with acting on their entrepreneurial drive.

Exploratory Solution: Networking events and collaborative platforms can bring together diverse stakeholders from the entrepreneurial ecosystem. By fostering interactions among entrepreneurs, investors, and industry experts, these events can create opportunities for partnerships and knowledge exchange. The 3i Summit is an excellent example of this as we saw Heads of State, policymakers, investors, and financial sector participants across Africa and beyond come together to discuss and collaborate on unlocking Africa's full potential, culminating in the $100 million deal between Development Bank Ghana and Proxtera, a Singapore-based open and neutral hub which digitally connects Business-to-Business (B2B) marketplaces, service providers and trade associations to simplify and boost trade for small and medium enterprises (SMEs).

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Insightful Considerations

To address the fear of financial inadequacy, it is crucial to foster a more inclusive financial ecosystem. Policies that encourage financial institutions to support SMEs, such as reducing collateral requirements and offering lower interest rates, could make a significant difference.

Increasing financial literacy and awareness of alternative financing options can empower potential entrepreneurs to pursue their ideas. Initiatives like government-backed grants, microfinance, and incubator programs can provide much-needed support. Multi-stakeholder initiatives involving the government, private sector, and civil society can develop comprehensive strategies to support SMEs. By leveraging the strengths of each sector, these initiatives can create a more conducive environment for entrepreneurship.

The fear of financial inadequacy is a multifaceted issue that hinders Ghana's economic growth. By examining this phenomenon through various lenses, as I just did, we can individually contribute to developing strategies that overcome these barriers. Empowering Ghanaian entrepreneurs with the necessary financial resources and knowledge will unleash their potential, driving innovation and economic prosperity. Ghanaians are a bright and hardworking people who love stability, peace and progress. Imagine a Ghana where dreams are explored and ideas are welcomed and nurtured by our people and our institutions, with challenges seen as a natural path to success and communities charged with morally supporting their businesspeople. What a Ghana we would be!

I hope you found this article insightful and enjoyable. Your feedback is highly valued and appreciated. I welcome your suggestions for topics you want me to address or provide insights on.

I wish you a highly productive and successful week ahead!

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