Why Ghana’s banking sector needs macroeconomic stability, not a Credit Scoring System

Collateral still reigns supreme: The reality in Ghana is that collateral-based lending dominates the banking sector. 

Even for SMEs and corporate entities, creditworthiness as measured by cash flow or credit scores does not outweigh the importance of having physical assets to secure a loan. 

This preference for collateral is a direct response to the broader economic instability that has made banks more risk-averse. In such a context, a credit score is unlikely to be a decisive factor for banks when it comes to approving loans.

The informal economy conundrum

Furthermore, Ghana’s informal sector presents a unique challenge for the implementation of a credit scoring system. 

With 85 per cent of the economy operating informally, many businesses and individuals lack the financial records necessary to generate accurate credit scores. 

Most transactions in the informal sector are done in cash and many participants do not have bank accounts, let alone credit histories. This limits the ability of a credit scoring system to include a large portion of the population. 

For the informal sector to benefit from a credit scoring system, there would need to be a substantial shift toward formalising economic activities, something that cannot be achieved overnight.

Existing salary-based loans 

For personal loans, credit scoring may also have limited utility. As mentioned earlier, most personal loans in Ghana are tied to salary or payroll deductions. 

This system already provides a high level of security for banks, as repayments are deducted directly from the borrower’s salary before they even receive their income. 

In this case, a credit score adds little value because the bank’s risk is mitigated through salary deductions not the borrower’s credit history.

The real solution 

Macroeconomic stability, equity support and capital strengthening for indigenous banks

While the introduction of a credit scoring system may be well-intentioned, it sidesteps the root causes of Ghana's banking sector challenges. 

What Ghana’s financial sector truly requires is macroeconomic stability alongside capital support to revitalise indigenous banks whose balance sheets were deeply impaired by the Domestic Debt Exchange Programme (DDEP). 

The current economic crisis—characterised by high inflation, currency depreciation and rising interest rates—has made it nearly impossible for banks to lend sustainably. 

This has stifled economic growth, worsened unemployment and left a severe dent in the sector’s financial health.

The debt exchange programme further strained the banking sector by diminishing the returns on government bonds, previously a significant revenue source for banks. 

Indigenous banks, already undercapitalised relative to larger foreign-owned institutions, were hit hardest, leaving them with weakened balance sheets and limited capacity to absorb shocks or extend credit. 

In this situation, stability and targeted capital injections are critical. Without this liquidity and support, indigenous banks remain hamstrung, regardless of any additional tools for risk assessment.

A practical solution lies not in quick-fixing policies but in promoting long-term macroeconomic stability and targeted equity support to shore up the sector. 

The government should focus on policies to control inflation, stabilise the currency and implement fiscal reforms that prioritise sustainable debt levels. 

Additionally, a strategic plan to recapitalise indigenous banks would not only rebuild their balance sheets but also help restore their role in supporting SMEs and local enterprises.

Finally, fostering an environment that encourages business formalisation, especially within the informal sector, would expand the scope and impact of future credit assessment tools. 

In this way, indigenous banks can play a more significant role in economic development, offering much-needed support to local businesses and contributing to long-term financial stability.

Political gimmick or digitisation?

The timing of the credit scoring system’s launch, just days before a general election, raises questions about the motivations behind the initiative. 

While a credit scoring system can play a role in improving access to credit, its introduction at this time appears to be more of a political manoeuvre than a genuine economic reform. 

The banking sector is still grappling with the aftershocks of the debt exchange programme and the broader economy remains fragile. In such an environment, the launch of a credit scoring system is unlikely to have a meaningful impact on the availability of credit.

Rather than focusing on politically expedient projects, the government should prioritise addressing the fundamental economic challenges facing Ghana. 

This would involve making difficult but necessary reforms to restore confidence in the banking sector, promote investment and create an environment where businesses can thrive.

Conclusion

Ghana’s banking sector does not need a credit scoring system right now. What it needs is a stable macroeconomic environment, policies that promote business growth and reforms that address the structural weaknesses in the financial system. 

The introduction of a credit scoring system, particularly at this politically sensitive time, risks being seen as a distraction from the more pressing issues facing the economy. 

For Ghana’s banking sector to truly recover and support the broader economy, the focus must be on long-term stability and meaningful economic reform, not quick-fix solutions.