Taking a Loan in Ghana

A bank loan is usually granted in the form of a contract between the bank and the borrower. A borrower must know the purpose for the loan. It may be agriculture, a mortgage (building), or business. The bank would like to know that your use of the loan money will yield results. Having a purpose also determines which bank you will approach e.g. HFC Bank if you want to acquire a house (mortgage), ADB if you want to engage in agriculture, etc.

There are also “Non-Bank Financial Institutions” like NDK Financial Services and Pro-Credit which can give substantial loans without the traditional bureaucracy of banks.

A lender would (after looking at the purpose of the borrower) typically investigate the creditworthiness of the borrower. Creditworthiness measures the likelihood (from all the circumstances) of the borrower repaying the loan when interest and the principal fall due.

A lender may also include a “Security” section in the contract. The security is the arrangement which allows the lender to take over specified property of a defaulting borrower, and possibly selling such property to recover the amount owed it (the lender) by the borrower.

The range of types of security is quite wide, but it includes:

Mortgage (where the borrower puts up their house as security for the loan)
Hypothecation of Stock (where the borrower takes a loan to trade and puts up the trading stock as security)
Cash Collateral (where the borrower keeps an account with the lender, and is required to keep a minimum amount in it at every point in time)
Guarantee (where another person puts up their property or gives a promise to pay money as security for the loan)
Receivables (where the borrower’s debtors in business are required to pay the debts into a specified account kept by the borrower with the lending bank).

A borrower must take their time to study the contract given them by the bank (and seek independent legal and/or financial advice) before signing the contract. There are other considerations which must be looked at such as administrative fees payable by the borrower, interest, events of default, default interest, provisions for early repayment, etc.