General

A successful process of raising funds for your business is the first step towards achieving success. Your business may not be able to materialize productive investment opportunities without access to easy and timely finance. Whether it’s a start-up or an expansion, financing is a crucial step towards business success. Generally, financing is raised to fuel working capital and asset purchases. Working capital is the amount required to manage your day-to-day business operations. This is the amount that needs to remain stuck in the business. It may be in the form of inventory, receivables, and prepaid assets. On the other hand, asset purchase is about the acquisition of the property, plant, and equipment to support the expansion and strategic capability of the business.  It is relatively difficult for small businesses and individuals to raise finance in Africa. This article will focus on why the difficulty to get financing from formal financing institutions like banks, insurance companies, leasing companies etc. Africa’s generally low-income economy plays a major part in this. It’s important to note that the goal of financing companies and banks is to make money. Their business model is based on collecting interest, premiums, fees, and principal repayment. So, higher amounts of interest and premiums can be collected when the targeted country has a higher income level. Unfortunately, African countries have some of the lowest income levels. As per a recent report from the World Bank, more than half of sub-Saharan countries have a poverty rate of more than 35% (world bank). And a more alarming situation is that there has been a 3% rise in poverty in recent years mostly due to the Coronavirus pandemic (UN). Furthermore, it is projected that 6% of the entire world’s population in 2030 will still be living in extreme poverty if current trends continue (UNSTATS). So it becomes difficult for the banks and other financing companies to collect timely repayment for the interest and principal. Another picture to analyze is that banks approve a loan for the business based on financial feasibility and financial sustainability. It is difficult to prove financial feasibility/sustainability due to lower buying power in African countries. So, there are few instances when financing is approved for the Africans.  Financial feasibility is focused on the economic viability of the project. It helps understand the related cost, expenses, and revenue specific to the project. If expected revenue is higher than the total cost, the project is financially viable. However, it’s important to note that feasibility involves operational aspects like managerial competence, operational capacity, and other aspects. Financial sustainability means the business can sell the products/services at a price that covers expenses and leads to profitability. In other words, if the business is not able to generate sufficient return for the stakeholders, it will not be able to survive in the long term. Most businesses do not know how to present their proposals in this manner to analysts in the formal financial markets i.e. clearly articulating the financial feasibility and sustainability of their projects in a format that can be easily be assessed. The Business Plan/Proposal is your story of why you need the capital and that should clearly spell out how the investor stands to benefit and how their funds will be safeguarded with clear structures on how every single aspect is going to be handled. Identify all the risks in your business and how to mitigate them and you will have the attention and interest of the investor/lender. In Africa, many households complain that they do not get financing while many banks complain they are not able to find creditworthy customers. Hence, one prime reason for limited banking activity seems to be the lower-income economy of an African region. The irony is that greater financing efforts by the formal financial institutions to these same low-income households will help to foster the economic development of the country, of the continent. For instance, financing made available by the banks can be used to efficiently run business operations leading to enhanced production, exports, revenue, and increase of a country’s GDP. So banks have massive potential to enhance economic activity. However, their interest is at stake here in such situations as they may not be able to collect their funds. To chip in on insurance companies, they also depend on the premium collected from policyholders. Hence, they also consider businesses’ ability to pay a premium on a timely basis. (VOXEU) Further, businesses operating in a low-income generating economy may not be able to cover the financing cost, as their revenue may not be sufficient to cover the operational expenses. And in the instance where they have a good case, articulating this to the formal financial sector can be a barrier to accessing financing. An interesting side of the business model of the bank should be looked at. Understand that banks raise cash through deposits, amongst other ways. The cash is deposited in the banks via current accounts and savings accounts. On the current account, the bank does not need to pay interest. However, banks need to pay interest on the savings accounts. Generally, that cash is disbursed as a loan at a higher interest cost than the interest payable on the savings accounts collectively. The difference between interest payable on the savings accounts and interest receivable on loans is income for the bank. That said, banks are usually reluctant to disburse loans into a low-income economy because of fear of bad debts. So, they prefer to invest deposits in the Government and other stable cash-generating securities with a low risk of default. Alternatively, the bank can also invest in foreign securities. It helps them in managing risk on the investments portfolio and balancing their income/expenses with higher confidence. This creates a low negative impact on banks’ profitability even if they are not able to locate enough creditworthy borrowers. Hence, the banks can extend utilising this simple business model and enjoy profitability. Shortage of information from and about borrowers poses another great problem, as earlier stated; but let me dive in further. Sometimes, the business idea is strong,

National sovereignty, peace, financial prosperity, and territory management have been the building blocks for independence. Although the world has entered a much more civilized and democratic era, human nature to win and rule has never changed. In the recorded human history of 3400 years, there has been peace for only 268 years, less than 10% of the duration of recorded human history. (NY Times). Let that sink in. However, let us understand independence in terms of historical perspective, dynamics brought by freedom, our duties in this regard, and what makes us independent in a connected global village, where diplomatic pressure and bilateral cooperation is the first step towards successful foreign operations.  Historical Perspective Ghana has been a nation of warriors that survived and fought through many difficult times in history. The region is full of forests and minerals resources, which attracted Europeans to invade and control. (BBC) From the Portuguese to the British, several nations had tried to control Ghana.   However, after the Second World War, and with growing local dissent and agitation, foreign control was relaxed, and the nation fought to get independence from the British under the leadership of Osagyefo Dr. Kwame Nkrumah. Then finally, on the 6th of March, 1957, independence was declared. The independence drive was backed by organized movements, protests, sacrifices, and hard times. One of such movements was named Big-Six. They formed the leadership of the first-ever political party; the United Gold Coast Convention (UGCC), which represented the feelings and emotions of the nation and constructed political philosophy. (Africa) A robust mindset backed this movement to achieve independence and people were ready to sacrifice their lives. This was due to our ancestor’s belief that freedom always comes with a price, a price they were willing to pay. The manifesto of the Big-Six was based on a self-regulated people Government, and they laid the strong foundation for a campaign to achieve freedom for the nation. Today, it’s our duty to understand independence dynamics and act in line with national interest leading to durable REAL independence. But, we first need to understand the current independence dynamic accordingly. (Six big) INDEPENDENCE DYNAMICS FOR THE NATION Let’s discuss independence dynamics in terms of basic pillars that help a nation flourish and understand where we stand today. Are we heading in the right direction, or is there something to improve the situation?  Economic Dynamics No power on earth can be sustained without economic independence. The acquisition of economic power is dependent on the geographic atmosphere and the working attitude of the people. After independence, there have been management and country governance problems leading to adverse economic conditions. However, in the mid of 1990, governance reforms were introduced that led the economy on the right path. In fact, in 2019, IMF and World Bank predicted the highest growth rate of 8.8% for the economy after the country placed sixth in the previous year, with a growth rate of 5.6%. (DW) Last year, rating agencies predicted that the economy would grow by 4.8% in 2021, in line with the IMF projections for the same period. (Business insider Africa) This economic growth is driven by growth in different sectors, including oil, agriculture, manufacturing, and the service industry. The main problem with our GDP is that investment is dependent on foreign companies. The higher performance of an oil sector even comes through the direct investment of foreign companies.  Ideally, we must think about whether that makes us dependent on foreign companies for our revenue/GDP. There is the massive potential for conflict of interest, which might lead to compromise on our national interest.  The Justice System The justice system is designed to control law and order in the country. It aims to protect innocents and convict criminals. Without a fair and free justice system, it is difficult to control justice and ensure prosperity in the country. No nation in the world can survive without an effective and robust justice system. In recent times, the need to introduce and implement a strong justice system has increased more than ever. It’s because of increasing digitalization, cybercrime, computer security, and increasing digitalization connected with financial transactions. The coming future is for technology advancement and automation. There is a need to focus on the legal aspects of moving into the digital era. The legal system of Ghana is based on Common law, English doctrine of equity, and customary laws. The law-making system is based on the constitution and the acts of parliament. (Globalex) As the world is changing quickly, there is a need to pro-actively review applicable laws and ensure modification/changes are in line with the digital era/cyber security. The Education System Ghana’s education system was first introduced as missionary schools by the colonial government and this was expanded and has evolved over the years to the current system.  The biggest benefit of a strong education system is the enhanced ability of individuals to make decisions. It helps in poverty elimination, increased human life expectancy, and long-term prosperity.  The education system develops human capital and leads to long-term prosperity in terms of operational life and financial aspects. Further, the science behind educational importance is that it helps to shape humans of the society. In return, these humans help enhance society. We cannot achieve a truly independent state unless we promote educational activities. Ghana is committed to increasing quality education for the people across the country and there have been reforms in our educational policy. The main priorities of the educational reforms have included quality output and efficiency in the educational system. (side martinbro) The Social Mechanics Social mechanics is a broader term that includes family values, size, structure, buying habits, education level, income, community, safety, and many other factors. Social mechanics can be better understood with the concept that some social acts may be acceptable in one society and not in another.  The qualities and attributes of society directly impact the mental and physical health of its members. The qualities that make a social circle a great place to live are freedom, liberty, fairness, democratic

2020 Honda CR-V. Black Edition. Full Option. Tear-rubber, as they call it. I wasn’t even driving that fast on the motorway. Well, it is the motorway after all but I was driving at about 50mph. Not sure how or why it happened; all I heard was a big bang and my rear mirror was smashed to pieces. The boot and bumper were damaged and in one blink, the value of the car probably got cut in half. This was about a year ago. And no I hadn’t got around to comprehensive insurance. It’s one of those things I assigned to one of my staff and ended up costing me the proverbial arm and a leg. With the proper insurance cover, I would have spent far far less getting Bambi back into shape. Yes, I named the car Bambi. That’s how much I loved it. LIFE is uncertain. The business environment is just as uncertain; anything can be expected at any stage. So, it’s your choice to remain exposed to the many risks that exist or provide yourself with some cover via insurance. Insurance is designed to provide cover for anything that can go wrong. However, you have to pay a certain premium to get coverage. The idea of insurance is based on the probability of happening. If the risk of incidence is higher, you are expected to pay a higher premium and vice versa. For instance, if you are getting insurance coverage on your car, the premium to be paid is different if the car is of higher value and different if the car is valued lower. In some cases, the premium to be paid is different if the car is parked inside your home and different if the car is parked outside your home. The concept is simple, the probability of an incident with your car parked outside is more than with your car parked inside your home. Hence, there is a difference in premium. Overall, if you are covered in the insurance, you write off (purchase) policy, pay a premium, and get a promise to be compensated if anything goes wrong within the covered area. What’s covered in the insurance? Insurance companies cover a range of risks, including your life to loss of the asset. Generally, risk coverage includes health, life, disability, chronic illness, hospitalization, medical care, property damage, loss on business assets, long-term care, child plans, auto insurance, and anything covered in the insurance policy. Basically, it gives you peace of mind in terms of survival and continuity, of you yourself and your business. Although insurance is a cost, it saves you from a greater loss like in my case with Bambi. Hence, insurance comes with various advantages. Advantages of insurance coverage Advantages of insurance include but are not limited to the following. Disadvantages of insurance coverage Disadvantages of insurance include the following. How do insurance companies make money? An insurance policy provides cover for the potential of the loss in exchange for the premium. The company collects premium (revenue) from multiple clients. It means they have massive credit (incoming) of the revenue against the promise to pay the claim (compensation) if anything goes wrong in the covered insurance area.  However, not all policies receive a claim. In fact, 90% of the life insurance policies cost nothing to the companies against the premium received as these policies get lapse (Scott, 2012). When you fail to pay your insurance premiums on time or after the grace period, the benefits to the policyholder gets terminated, or in technical terms, gets “lapsed”. Furthermore, the premium is collected by the insurance companies from time to time. So, they invest the same in equity and debt instruments to earn a return on the investment. That’s an additional source of income for insurance companies.  Overall, there are three types of cash inflows for insurance companies. These cash flows include the income for policy write-off, the periodic premium for the cover, and the return generated on the investment. The insurance claims and administrative expenses are paid from the revenue, and the remaining amount is just profit for the insurance companies.  Statistics show that 2020 was a blessing for insurance companies selling auto insurance. Their profit during the year amounted to $30 billion globally (Consumerfed, 2021). This was due to pandemic related measures taken by Governments that led to a significant drop in traffic and claims for motor accidents.  Somehow, there was a surprising increase in the profit of health insurance companies during the pandemic as well. Health insurance companies made almost twice as much profit in 2020 than the year before. Shocking, right? It was due to a sharp decline in elective care during the pandemic that led to a sharp decline in health care expenditure (Caroline F. Plott, Allen B. Kachalia, & Joshua M. Sharfstein, 2020). Simply put, imagine you paid healthcare premiums but due to the immense pressure on healthcare systems from the pandemic, you did not have access to healthcare including hospitals, emergency services and medical physicians. This means the insurance companies got fewer claims and therefore made massive profits. Is insurance all about big businesses and wealthy individuals? It is a myth that insurance is all about big businesses and wealthy individuals. That is just not true; in fact, microinsurance is all about low risk, low premiums, and low amounts of claims (KAGAN, 2021). So, it’s about coverage of risk for low-income people. The risk may fall in the areas of injury, illness, death, and damage to low-valued assets.  The basic working mechanism for microinsurance is the same as main insurance. However, the difference lies in areas of the risk volume. So, the microinsurance companies target low-income households and businesses with a low footing of assets. Hence, it’s a promissory tool of protection for the people with a lower source of income. However, people’s lower subscription of the voluntary cover has been shedding doubts on the viability of microinsurance being an effective tool to manage the risk. (Dror, 2014) The main aspects of the doubts root