How to get lending license in Ghana

With a population of over 34 million people, there is a high demand for financial services, including access to credit.  Before you get a lending license in Ghana, know this: Ghana has some of the highest lending interest rates in Africa, with rates around 29% as of May 2024. This is way more than countries like Kenya (13%) and South Africa (8.25%).

The Bank of Ghana aggressively raised the rates in response to the level of inflation and economic pressures, making borrowing a luxury for individuals and businesses.

While large corporations make up just 4% of the business population, they receive 60% of total credit. Meanwhile, MSMEs make up 92% of all businesses and contribute approximately 70% to the GDP. Yet, they face substantial barriers to accessing credit, receiving only about 2% of total available credit.

Monkey dey work, baboon dey chop.

A large portion of the population turns to informal lenders, such as family and friends or unregulated money lenders, due to difficulties in accessing formal credit.

So, there is definitely high demand for credit in Ghana, but before you put on your cape to save them, you need a lending license first.

We’ll share all the requirements you need to get a lending license in Ghana and resume your superman duties.

An overview of Ghana’s lending legal framework

Ghana’s lending legal framework is primarily governed by the Borrowers and Lenders Act, 2020 (Act 1052), which came into effect on December 29, 2020. This legislation is a major update to the rules that were first set by the Borrowers and Lenders Act, 2008 (Act 773).

Here’s an overview of the key components of Ghana’s lending legal framework:

The Act defines a lender as any person who enters into a credit agreement with a borrower. This means anyone who provides a credit facility, credit transaction, or a guarantee to a borrower under an agreement is a lender. This broad definition includes commercial banks, community banks, microfinance institutions, savings and loans companies, and individual lenders.

The Act regulates borrowing, lending, and transactions involving the creation of security interests. For example, it stipulates that interest rates must be calculated on an annual basis, preventing lenders from imposing monthly interest rates that could mislead borrowers about the true cost of borrowing.

Lenders must clearly share all fees and charges with borrowers in a disclosure statement before any loan agreement is made so that borrowers have all the information they need upfront before deciding to take the loan.

The Bank of Ghana is responsible for licensing lenders and making sure everyone complies with the Act. So, any one who intends to engage in lending activities must apply with the bank.

The licenses are categorized in 4 tiers. Microfinance and money lending companies fall under tier 2 nand 3, while individual money lenders and enterprises fall under tier 4. BoG requires that all operating in tier 4 must belong to an association, for example the Ghana Cooperative Susu Collectors Association (GSCU).

1. Application letter

Write to the Bank of Ghana (BoG) specifying that you’re applying for a money lending license. Address it to the Head of the Other Financial Institutions Supervision Department (OFISD).

2. Documents required

• Certificate of Incorporation: A certified copy from the Registrar General’s Department.
• Company’s regulations: Documents outlining how the business will be run.
• Business plan: Detailed breakdown of the services and operations, including full details about the activities you plan to carry out and where your business will be located and the areas you plan to serve.
• Shareholder and director details: Full names, addresses, and corporate affiliations of shareholders and directors. This must also include the percentage of shareholding each one holds.
• Personality Note Forms (PNF): Required for at least five directors, two of whom must be independent. Shareholders and key management must also complete this form.
• Tax clearance certificates: From the Ghana Revenue Authority (GRA) for shareholders, directors, and key management.
• CVs: Curriculum vitae for directors, shareholders, and key management personnel to show their qualifications.
• Financial projections: Business financial statements, cash flow projections, and balance sheets for the first five years of operation.
• Justification: Why you want to set up the lending business, and the objectives of your institution.
• Organizational structure: A detailed breakdown of top management roles and responsibilities.
• Source of funds: Documentary proof of the capital you’re raising and where it is coming from.
• Police clearance: Clearance certificates for all directors, shareholders, and key management personnel.
• Proof of premises: Lease or title deeds for business premises.
• Operational manuals: Documents detailing your company’s operational policies and systems.
• Compliance proof: Any necessary approvals from other regulatory bodies (like the Environmental Protection Agency, SSNIT, etc.).

3. Application fees

You would have to pay a non-refundable processing fee of GH¢500, a licensing fee of GH¢1,000, and an annual renewal fee of GH¢500 (which is due by January 31st each year).

4. Minimum share capital

The minimum paid-up capital for a money lending company is GH¢2,000,000 ($127,469.72) as required by the Bank of Ghana. This capital must be verifiable by the Bank of Ghana.

It was increased from GH¢100,000 ($6,373.49) to strengthen the sector’s financial stability. As such, some companies had to merge to meet the capital threshold.

5. Stages of licensing

a. Approval in Principle (AIP)

The Bank of Ghana will issue an “Approval in Principle” (AIP) for a period of 6 months if they find your application satisfactory.

This is NOT a final license but a conditional approval. You must meet all specified conditions during this period.

b. Final license

After meeting all pre-licensing conditions under the AIP, BoG will issue the final license to operate. The conditions include:

• Business premises must meet requirements (good lighting, ventilation, appropriate size, etc.).
• Proof of operational systems, management structure, and adequate staff.
• First-year pre-operating financial statement submitted to BoG.
• Operational manuals and systems in place, including IT systems.

More considerations when getting a money lending license in Ghana

1. BoG will inspect your business premises to ensure they meet required standards.

2. Interviews will be conducted with the company’s principal officers to assess their competence. Interviews can be conducted via Zoom if requested.

3. Initially, the license only applies to the region where your company’s registered office is located. If you wish to expand to other regions, you’ll need additional approval from BoG.

4. The entire process usually takes about 7 to 8 months from application submission to receiving the final license.

5. But know that delays may occur due to verification of documents, background checks, and reliance on other agencies for clearance. Changes in regulations during the application process could also prolong approval.

6. If you’re applying as a sole proprietor or enterprise, the process is slightly different:

• You must register with the Micro Credit Association of Ghana.
• Submit bank statements showing at least GH¢50,000 in capital.
• Obtain a police clearance for the sole proprietor.
• For sole proprietors, the lending license is only available to Ghanaian nationals.

7. Foreigners can only apply for a money lending license through a company, not as a sole proprietor. Any foreign investment must be registered with the Ghana Investment Promotion Centre (GIPC).

Besides a license, you need these to succeed as a lender in Ghana

1. Loan management system

In Ghana, several companies provide lenders with loan management software to help streamline their operations, manage loan portfolios, and enhance customer service. Here are some notable providers of this technology in this space:

Digital Credit Management, launched in 2017, offers a comprehensive digital lending platform for lenders who serve the unbanked population with micro and nano loans. Their platform is designed to manage the entire loan process. Other features include USSD gateway, SMS, mobile app, CRM web & portfolio management, and API integrations.

Jisort is a cloud-based banking and loan management software platform that helps financial institutions automate their services. It offers features such as SACCO system for client management, transaction tracking, SMS communication for loan reminders, and financial reporting. Jisort also supports mobile money integration, making it easier for lenders to accept payments.

Lendsqr, launched in 2018, offers a more comprehensive loan management system for managing any loan product size to any demographic. Lenders have access to high level API integrations to CRM tools, payment gateways etc., multiple channels including customizable web app and mobile app, SMS, BNPL etc. Lendsqr also has advanced features like Oraculi for thorough risk assessment, and automated payment processing with direct debit. See how Lendsqr’s advanced features compare with other platforms.

2. ID verification tools

Non performing loans stood at 24.1% in June 2024. This is often because of poor risk assessment and economic factors affecting people’s ability to repay. To protect your business, you need fool proof verification and risk assessment tools. For example, using the credit bureaus to access customers’ credit reports, private blacklists such as Lendsqr’s Karma which has the largest database on bad borrowers. Here are more ways to conduct proper risk assessment.

Featured read: Alternatives to credit bureaus

3. Customer support infrastructure

How you provide support to your customers is very important and can be a potent way to stand out and attract them especially in a highly competitive lending market as Ghana, with over 700 licensed firms. Learn how to differentiate your lending business through customer experience.

4. Debt collection mechanism

Collection is the hardest part of being a lender. To get ahead of frustrating situations where you’re chasing borrowers for your money, you need to get ahead of it with solid debt collection mechanisms. For example, Lendsqr supports various repayment channels including debit cards, direct debit system, virtual accounts, payment links, USSD, and transfers. You simply need to learn how to collect smarter, not harder.

5. Regulatory compliance system

The lending sector in Ghana is heavily regulated by the Bank of Ghana under the Non-Bank Financial Institutions Act, 2008 (Act 774) and the Borrowers and Lenders Act, 2020 (Act 1052). Making sure you’re on the right side of the law is not a choice, as your lending business depends on submitting detailed documents and meeting specific operational standards.

Help Ghana close her lending gap

Getting a lending license in Ghana demands careful planning, from getting capital to building a strong operational foundation. But, beyond the paperwork and approvals, the real challenge lies in how you approach lending in a market where access to credit remains a pressing issue for many.

As you prepare to enter this space, consider the significance of responsible lending and the potential impact of your services on individuals and businesses alike. The tools you choose, whether for risk assessment, debt collection, or customer service, aren’t just operational necessities; they shape the experiences of the people you serve. In a country where formal credit is often out of reach for many, your role as a lender can either reinforce old barriers or help break them down.