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MBG Ghana LOC
Summary of Proposed Investment
This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only.
Merchant Bnk GHA
Commercial Banking - Microfinance and Small Business
Date SPI disclosed
August 28, 2007
Projected board date
October 1, 2007
This is a joint project involving IDA, IFC and the Government of Ghana (GoG), consisting of a Line of Credit (LOC) of up to $7.5 million for Merchant Bank, Ghana (MBG) to be used to support lending to Small and Medium Enterprises (SME).
The LOC made available to MBG will be coupled with performance-based grants as an incentive to encourage MBG to achieve set targets.
In addition to the guarantee, the project envisages two technical assistance (TA) components:
- TA to Merchant Bank, with the objective of transferring the necessary skills and procedures to better service the SME sector and thus enhance the banks’ capacity to underwrite new SME loans on a profitable and sustainable basis; and
- TA to SMEs, which aims to help bridge the gap between the SMEs and the banks by providing some basic financial and management training to the SMEs.
Project sponsor and major shareholders of project company
- Merchant Bank Ghana Ltd (MBG)
Merchant Bank (Ghana) Limited (MBG) began operations in March 1972 and was the first merchant bank in Ghana. It is currently the 5th largest bank in Ghana in terms of total assets, with a market share of deposits around 7.0%. The Bank has played a significant role in the development of the country’s merchant banking industry - achievements include:
- establishment of one of the first hire purchase and leasing companies (Merban Leasing),
- promotion and formation of the first discount house in Ghana – Consolidated Discount House,
- sponsorship and provision of registrar services to about 50% of the companies on the GSE,
- arrangement of the first housing finance institution in the country (now HFC Bank).
In 2003, MBG became a universal bank and re-aligned its operations in three business lines: Retail, Corporate and Investment. In 2005, MBG created an SME unit as part of a strategic re-orientation of the bank and is one of the fastest growing banks in the country driven by its deposit growth and focus on the SME sector.
The Major Shareholders of MBG are Social Security National Investment Trust (SSNIT), the dominant social insurance scheme in Ghana and State Insurance Company (SIC), the leading insurance company in Ghana. SSNIT holds 68.75% and SIC 18.75% of MBG’s shares.
Total project cost and amount and nature of IFC's investment
The proposed project will be implemented in Ghana under the IDA-IFC program for Sub-Saharan Africa and aims to encourage selected commercial banks to lend to SMEs. The LOC will lead to new lending of $7.5 million.
Location of project and description of site
The project site is located in Accra at the following address: Merban house, #44, Kwame Nkrumah Avenue, Accra, Ghana. The project company is headquartered in Accra and has nine branches, spread out as follows:
- three branches in Greater Accra Region,
- three branches in Western Region,
- one branch in Brong Ahafo Region, and
- two branches in Ashanti Region.
The investment will be made across all the branches.
Anticipated development impact of the project
This project is part of a much larger IDA project, the Private Investment Promotion Project (PIPP), a multi-sector project that seeks to stimulate private investments and to build capacity.
- Development Impact:
Consistent with the objective of supporting sustainable private sector development, the LOC contributes to high development impact in two key, high-priority areas:
- Development of the financial sector in Sub-Saharan Africa:
Improving the capacity of banks can lead to increased efficiency and stability in the financial markets. A sound financial sector contributes to the development of the local economy and attracts foreign investment.
- Development of the SME sector:
The SME sector makes up a large share of Ghana’s economic output and makes several vital contributions, including the creation of jobs and increasing economic activity. Increased access to finance and capacity building for this sector, facilitated by the Program, can lead to higher levels of entrepreneurial activity, private sector development and improvement in economic output.
Furthermore, the project would support the GOG’s objective of accelerating poverty reduction by furthering sustainable, equitable economic growth and will:
- increase SME access to medium term finance;
- promote the competitiveness of selected industries, including enhancing linkages and know-how transfer between large businesses and SMEs and working within high potential value chains to alleviate critical bottlenecks identified through careful supply chain analysis;
- promote a conducive business environment for domestic and foreign investment.
IFC's expected development contribution
IFC plays two important roles:
- as an advisor to the GoG on the program design including setting criteria for selecting banks and TA; and
- as an investor intending to provide financial support to the banks.
To avoid potential conflicts of interest from these two roles, IFC assigned two separate teams to work on this initiative. The IDA/IFC Advisory Team worked with IDA and the GoG in designing the program and is continuing to support its implementation. A separate IFC Investment Team provided technical input and, appraised the banks.
IFC has and will continue to bring knowledge of global best practice in structuring commercial facilities and will also play a very important role in administering the LOC.
Environmental and social issues - Category FI
This project has been classified as a Category FI project according to IFC’s Environmental and Social Review Procedure.
IFC will analyze the FI portfolio, for types of transactions, size, tenor and industry sectors and determine the Applicable Performance Requirements, if any, that would include a combination of:
- The IFC FI Exclusion List(s); and
- The applicable National Social and Environmental Laws and regulations.
IFC will also review the capacity of the FI to manage social and environmental risks and to establish and maintain a Social & Environmental Management System (SEMS). If required, IFC will suggest Supplemental Actions to address any gaps in the SEMS.
Based on the review, the project will be required to:
- Develop an, or upgrade, if necessary, any existing Social & Environmental Management System (SEMS), prior to disbursement to the satisfaction of IFC;
- Identify responsible, qualified persons to manage and implement the SEMS;
- Commit to implement the SEMS, to ensure that its investments/activities are in compliance with the Applicable Performance Requirements;
- Submit a periodic report to IFC as per a format to be provided by IFC.
For inquiries about the project, contact:
Justice Boahen, Senior Manager
Merban house, #44, Kwame Nkrumah Avenue
Telephone: (233) 21- 666330
For inquiries and comments about IFC, contact:
General IFC Inquiries
IFC Corporate Relations
2121 Pennsylvania Avenue, NW
Washington DC 20433
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