Ghana Financial Sector: XDSData Credit Referencing System

Interview with George K. Ahiafor, CEO of XDSData Ghana

What is your assessment of the financial sector in Ghana and what are the challenges that Ghana is facing?

The financial sector in Ghana in my view is underdeveloped. At the moment here in Ghana, if you want funding from any of the financial institutions for medium sized and even small sized transactions it is very likely that they won’t have the capacity for the funding. We have the oil business now which requires big money, but not one single bank will be able to fund it without syndicating, which shows that financial capacity does not exist. The financial sector is wanting because they lack products. If you go overseas you can find all sorts of products, however here the money market sector is not developed, nor is the capital market sector. This means that there are few ways that you can raise funds. Everything is just petty transactions as there is only a small amount of money in the financial system and so much money outside of the financial system with people keeping their money under their beds and not in the banks.

The banking sector is not strong or innovative enough to come up with products that would help bring all of this money into the banking sector or to incentivise people to put their money into the banking sector and help people to develop their businesses and therefore help the economy to develop. If you go to any of these financial institutions now, they are all mirroring each other; they are all mediocre institutions that are not going to catapult this country into the future. It is something that we really need to think about.

What can XDSData do to help ease this process?

Well, I use to manage derivatives. When I got here I realised there was no access to credit, because every time you asked for some sort of facility they said that ‘they don’t know you.’ How can they know someone? We don’t have the infrastructure for them to know our people. When they say they don’t know you, what they mean is that they haven’t given you credit before and so don’t know how you will behave when they give their money to you. The amount of default on loan was so large, that now the banks are tentative and suspicious.

So I got to thinking, how come in the developed world they have credit referencing and we do not have it here. When it comes to credit behaviour, your past behaviour is predictive of your future behaviour. If you have taken out a facility before and have paid it back well, it is predictive that you will continue to behave that way. So if you have some information, a profile or what we call ‘behaviour collateral,’ then immediately you will have increased access to credit.

What we started to do was to collate the credit information, so if you have taken out a facility before, we will take that information which is on the database and we will track your performance in terms of how timely you service your loan or facility. If you pay on time that will be recorded, if you miss the payment that too will be recorded. This thus becomes your credit payment behaviour, or your behaviour collateral that you can use instead of a landed property, a car or a house, because not everybody has those things. Once that happens, the excuse of ‘we don’t know you’ goes out of the window. We keep demographic information on you so that when you walk through the door, at least the financial institution will have your verified address and ID that you are using. Unfortunately in Ghana we don’t have a unique ID but we capture every ID that you are likely to use so as to be able to at least identify you.

Now, if you take out credit and don’t use if for what you said you would, you might not be able to repay the loan and as a result would not have access to another loan or credit again. When someone goes for credit they provide the information to us and we monitor the repayment and make that information available to all the financial institutions and so if you squander the money and for that matter you are not able to service your loan, then there will be no more credit for you. In this way we are changing people’s behaviour. Now they know that there are punitive measures in place that they need to be aware of. They can now get credit and use the money to build their business and be able to have the ability to pay back the credit and continue to have good credit. That is the only way that you can develop the SMEs that we always talk about as being the engine of growth for the economy.

Credit is for everything, when people talk about credit they think about just taking somebody’s money. We used to define credit as the capacity to repay external debt in time. If SMEs have access to credit you know that they will use that money to develop and if they expand they will be in the position to employ all the new graduates that are coming onto the market every day. If someone has access to credit you know they will not be as corrupt. If they have access to credit they won’t need to be taking money from someone who will be putting pressure on them. People who have access to credit will be able to concentrate on being more productive in their jobs. They will be able to concentrate on their job if they have access to credit to purchase a house, a car, etc. and to pay it back gradually at an affordable rate. They will be more at peace with themselves and productivity will go up. Credit is the life blood of any economy.

You noted there are only 2 million people in Ghana using the banking services, but these products should sell themselves, so why is it so difficult? What are the challenges?

2 million sounds good! The number is actually 2 million accounts, may a little more but some individuals have 2 or more accounts so you can see that there is not a lot of the population involved in the banking sector. We need to bring the population into the banking sector. There is something here called Susu, and Susu is where a group of people get together, to contribute money together, and take turns to collect to put towards whatever they want to do. That is what the banking sector is. If someone puts money into the banking sector they must have a turn to also tap into that money to do what they want to do to make a difference in their lives. The banks have not had the capacity, the initiative or the creativity to attract money into their banks. We have seen a lot of these lotteries to encourage people to put money into the banks, but that is not enough. There has to be something in it for the people. If you are going to take my money and give it to someone for 50% I need to get something for that. This needs to be communicated to the people to bring them into the banking sector; they need to know that their bank is safe. We need to have deposit insurance and all those things so that people know that their money is safe and is in the bank fairly and that if they qualify for credit then they can have the money. This will solve the problems that we are experiencing. We need to make more effort to bring money into the formal sector so that more money can become available to lend out to develop the economy.

You are the leader in this market, your company is growing well and you are starting to replicate that abroad, because in fact this ‘Ghanaian issue’ is not unique to Ghana, we find it in many countries all over Africa and in other places in the world. You have now started in South Africa and Nigeria, can you tell me a bit about your development plans and your expectations and models abroad?

Well, the office in South Africa was registered before us so they came into partnership with us as technical partners. We did start up in Nigeria and our plan is to permeate the whole of Africa. What we set out to do is to have a population base of at least 1 billion. It is a big plan and is not that easy, it is a paradigm shift. We didn’t think it would take this long, I mean in Ghana we started in 2003.

If you are not stable here and you start to spread your tentacles too wide, the chances are everything could start to collapse. So our plan is to go to all of these countries, and it will be easy for us to annex Sierra Leone, Gambia and Liberia immediately. In Ghana we can hub the operations here and we can set up Liberia and Sierra Leone in 3 months. Gambia will be a bit more challenging due to the lack of infrastructure, so we plan to annex the English speaking countries first and we have put the francophone countries on the back burner; however, we may have to change that strategy. Our main objective is to go to all of the countries in Africa. We also want to partner with local people who know the situation and the terrain in each country.

What kind of partners are you looking for? You mentioned Sierra Leone for example, what is your typical partner for such ventures?

Well for example in Nigeria we have a financial services company as a partner that was also going in the direction of credit rating. We look for partners in the financial sector who are thinking along the same lines as us and have some understanding of what this whole initiative is all about.

What is your competitive advantage? If you look at the environment, what is the competition and what makes you stand out?

Well, in Ghana for example, we didn’t start up from a drive to make money. I think that the development of the financial sector and the economy as a whole played a major part in our focus. Other than that, there is no investor that would have waited from 2003 until 2010 to start doing business. I think patriotism played a large part in it and also pride, we didn’t want to start this and fail. I know of others who have tried and failed. We wanted to make sure that we would succeed despite the infrastructural challenges and also despite opposition even from the financial sector. We continue to face the same problems and challenges as before but we are making tremendous advancements. We are constantly improving and getting new financial institutions on board all the time. The appreciation of the service is growing constantly and enquiry volumes are increasing so it is getting to that point now where we can look towards setting up somewhere else.

Would you be able to give us some names of financial institutions that are partners with you?

We are partners with all banks through usage. If there are 28 banks, we work with 28 banks. We have all the non-banking financial institutions on board with us as well. So far we have brought on board about 30 rural banks. The macro finance companies and the money lenders are also coming on board. Now cooperation and penetration are easier at this point. We have started talking to the government sector who we believe needs to play a larger role in terms of public awareness. There needs to be a huge public awareness campaign because this business is not only for institutions but it is great for the average Ghanaian. it is not only for SMEs but for individuals. Credit is not something to be afraid of. Life itself is credit you know. If one is given 70 years to live, one mustn’t wait until 70 years old to cash it in. You know what I mean? People are afraid of credit, but if they want to do something today, if they can take credit to do it and pay it back gradually, isn’t that better than waiting to try to see if they can get there eventually? We need public awareness to make sure the people understand that if they need to pay their children’s school fees for example and their credit rating is good, they can get credit to pay those fees to invest in their child’s education, which they can pay back gradually. Instead of this, at the moment, children are not going to school because they don’t have the money to pay the fees. As an individual, if I wanted to buy a house I should be able to buy it on credit and start living in it using the same money that I would be paying in rent otherwise, because in that way I would be building capital, assets and equity. Credit allows people to live and to build themselves up as human beings.

What is your message to international investors and people interested in Ghana? How do you see the future of Ghana and also the future of your company?

Like I said before, credit is the life blood of any economy. The hesitation in the past by potential investors was due to the infrastructure not being in place, and one aspect of that infrastructure was credit and credit referencing. If you travel from wherever your home country is to come and invest your money in a foreign country you need to have some information to make an assessment of the risk of your investment. Now Ghana seems to be attracting attention, we have oil and many other resources and the political climate is not too bad so investors are looking to us. They have most likely exhausted most other developing economies and I would say that Ghana and Africa are the next frontiers. Now we need to get our act together in terms of giving investors a reason to come here. We have to give them certain guarantees on their investments and part of that is where we come in. We take it to the next level where we are able to give financial due diligence and company capacities that investors can look at when considering whether or not their investment appetite exists. If anyone is looking at Ghana and not thinking about investing in Ghana, I feel sorry for them because this is a virgin territory, you name it we need it. When you come here, most of the time contrary to what you may have previously thought, you won’t find as much risk as you expected. In our area, we want to straighten out the financial sector, and all the other sectors are making adjustments too. I think Ghana is moving in the right direction. I believe that if you invest now you will benefit more than someone who comes in later.