Lending to Micro Finance Institutions

The SPEED Funding Facility (SFF) is an effective and much needed instrument for enhancing the financial capacities of micro and small enterprises by providing the underfinanced Micro Finance sector with medium term finance. SFF is a wholesale refinancing fund which has capital funding of GH¢II.million available for lending in 2009. The Facility does not disburse loans directly to small enterprises rather it provides liquidity to a target group of rural banks throughout Ghana who then disburse at their own risk to micro and small enterprises. By the end of 2009 SFF had revolving credit facilities in place with 41 individual rural banks throughout the 10 regions of Ghana.

Refinancing Micro Finance Institutions

The Government of Ghana, German Technical Cooperation (GTZ) and DANIDA established the SPEED Funding Facility (SFF) in 2004 as a wholesale refinancing fund mainly to support small and medium sized enterprises (SME) lending facilitated through on lending to the commercial banks and larger financial institutions. Since late 2006, SFF has shifted its main focus to smaller financial institutions otherwise unable to access wholesale finance. This was a result of the greater financial stability in the Ghanaian banking sector coupled with greater access to finance in the urban areas. Accordingly SFF now supports sustainable organized micro finance and SME lending by regulated Ghanaian financial institutions, typically rural banks without any prior access to commercial funding. SFF does not deal directly with enterprises rather it partners micro finance institutions.

In July 2007 SFF acquired the legal state of a company limited by guarantee. This means it operates under commercial rules and is fully subject to Ghanaian law. Its founding members capital contributions along with fund income increased the assets of SFF to GH¢11million at the end of 2009. The rural bank sector has over 130 banks with over 600 branches across the 10 regions of Ghana. Although the rural banks represent in total asset terms less then 10 percent of total Ghanaian regulated financial bodies, as a sector they offer SFF the opportunity to directly facilitate a material improvement in the availability of funding for enterprises in the very regional areas of Ghana. SFF lending also compliments the rural banks commitment to providing financial inclusion for their very large shareholder, depositor and borrower customer bases thereby building the financial sustainability of the institutions.

Market oriented approach

To protect the real value and sustainability of SFF, the interest rate charged is the Bank of Ghana Prime Rate plus a margin of a maximum 2%. The SFF operational policy aims at achieving national outreach with at least 50 percent of the funds committed to the Northern and more remote rural areas. This marks an exception to an otherwise market approach by the fund. The disbursement level of SFF to participating banks is typically more than 90% of fund capital reflecting the demand for funding.

Extending outreach

By 2009 SFF had its main product, a revolving loan facility, in place with 22 rural banks located in all regions of Ghana. Through 2008 and 2009, SFF extended its activities to the Brong Ahafo Region, Western Region, Volta Region, Northern Region, Upper West Region and Upper East Region.

The SFF Loan Portfolio also has 8 Term loans to Larger Banks and 13 developmental Loans with Technical Assistant to Smaller Banks.
Rural Banks will typically have up to six agencies with additional deposit mobilization centers within their catchment area. They are often the only financial institution operating in a town or a district.

SFF lending provides refinancing and other support for rural banks to improve the profitability and sustainability of their operations and increase their ability to offer micro finance and other financial services such as remittances services and savings products, to rural populations otherwise excluded from financial services.