Ghana Card not enough to encourage lending, fix slow legal system – Ken Thompson
While the Ghana Card will build the confidence of financial institutions to lend to businesses and individuals without much fear, the laboriously slow legal process could derail the expected gains the national ID card could bring in terms of exponential credit growth. , managing director of Dalex Finance, Kenneth Kwamina Thompson, said.
In an interview with B&FT on a range of issues in the financial sector, he praised the government for aggressively pushing the use of the Ghana Card as the only form of identification in all spheres of the economy, especially for financial transactions.
His only major concern is the country’s fast-paced legal process, which can take up to seven years for a judgment to be rendered by the commercial courts.
“The Ghana Card is an absolutely brilliant idea as it is the surest way to promote credit and payment in this country; and for an economy to grow, it needs credit. Everyone needs credit for health, school, among other things.
“The government cannot create all the jobs, so the private sector is vital; but then, the private sector needs credit to develop. The Ghana Card will therefore bring us to a point where you will know who you are lending to because we have combined this identity into one document across all platforms. We know the people we have lent money to and we know how to collect that money. As a result, we are no longer afraid to lend.
“But we need a new legislative instrument or a new law to help us take the risk of lending more. Right now, our judicial system is too slow. You have a case in court and it takes up to seven years; and then when you get judgment, there is even more frustration in the realization of your judgment.
“To make matters worse, the judges are sympathetic to the borrowers – forgetting that it is their money that is given to the borrowers. You go to court and there is a circumstance where the judge will say that when the case comes to court , we should stop charging interest on money, while depositors’ interest has not been stopped,” he said.
A report by the International Finance Corporation (IFC) entitled “Ghana Secured Lending & Credit Evaluation” shows that legal proceedings for the enforcement of the guarantee take on average two to three years – with provisional requests made by the borrower and third parties contributing significantly to delays in hearing cases.
In addition, the procedure before the commercial courts includes a pre-trial settlement process which contributes to lengthening the time required to close the case. The report further notes that the rules of the commercial courts do not authorize a request for summary proceedings or an admission judgment, even when the borrower does not contest a default to be made before the conclusion of the pre-judgment settlement.
For Mr. Thompson and many others in the banking and financial sector, these delays contribute to the reluctance of banks and specialized depository institutions to lend to households, individuals and businesses – since Bank of Ghana rules and guidelines are very clear on when and how to make allocations for loans once they are granted.
“The power must be given to the bailiffs to make inquiries, which would then make it possible to speed up the legal cases; and that would really pave the way for what this country needs. If credit booms, then the private sector can borrow, create jobs and export more, and the Ghana Card is at the heart of it all,” Mr. Thompson added.
Data from the Bank of Ghana (BoG), contained in its January Macroeconomic and Financial Data Summary, shows that the value of outstanding private sector credit (PSC) stood at GH¢48.4 billion. , representing annual growth of 11.1%.
However, adjusted for inflation at 2018 prices, real annual growth in outstanding credit to the private sector contracted at a rate of -1.3%, according to the BoG.