Secure property right as a determinant of SME’s access to formal credit in Ghana: dynamics between Micro-finance Institutions and Universal Banks

Abstract

Does registered land title help to improve tenure security and enhance one's chances of securing a loan from formal financial institutions? This question continues to sharply divide opinions among academics, policy makers and international development partners. The long running debate on the subject of 'Property in the Commons', which serves as the ideological origin of what has become known as 'Washington Consensus' in contemporary times claims that there is positive correlation between the possession of registered land title and access to credit. However, this has often received considerable rebuttals. Even if the 'Washington Consensus' is accepted, the argument is still laced with some fundamental difficulty because it inherently assumes and treats financial institutions as a homogenous class of business. Yet financial institutions exhibit greater diversity in their operations and decision making process. This paper attempts to contribute towards developing improved understanding between the 'secure land title and access to credit relationship' by disaggregating financial institutions into Micro Finance and UniversalBanks and examining what role secure land title play in granting credit from the perspectives of these two categories of financial institutions. To achieve this, field level investigations were conducted amongst officials of both Microfinance Institutions (MFIs) and Universal Banks in Ghana using structured questionnaires. A total of 200 questionnaires -100 each to MFI and Universal Banks were administered of which a response rate of 51 and 57 was respectively achieved. The data was analysed using various non-parametric statistics. The study amongst other things established that universal banks and MFIs differ in their opinions on how important secure titles are in the lending process and the nature of the influence they can exert on the final lending decision. It was established that both categories of lenders do regard secure titles as important but whether or not it will influence their decision to accept a given landed property as collateral varies across lender types.

Innovative mechanisms to improve access to funding for the black-owned small and medium enterprises in South Africa

“…Other previous research works had similar conclusions about the policy and regulatory framework in South Africa (Domeher et al 2016;Mistra 2020;TIPS 2017). According to TIPS (2017), the South African labor laws are not favourable to the SME sector, and labour laws and the tax system are burdensome.…”

Rethinking Development Economics: Problems and Prospects of Georgist Political Economy

“…In Ghana, for example, the time it takes to register landed property was reduced from 36 months to 2.5 months between (Obeng-Odoom 2016a). However, establishing strong bases for land markets has neither led to prosperity through ease of land transactions and access to bank loans nor provided security of tenure in the country (Hammond 2008;Domeher, Abdulai, and Yeboah 2016).…”

Landed property as collateral to access credit for housing development in Ghana: The case of Northern Region of Ghana

“…[ 34 ], land tenure security emerges from the concurrent presence of three factors, namely: “legal security, de facto security and perceived tenure security .” These three elements together are seen as critical for a reasonable meaning of one's right or interest in the land. Domeher et al ([ 35 ]:163), explains that security of land tenure includes two types of validation or approval – “ state validation by legal recognition and social acceptance at the local level ”. To Domeher et al these two types of validation should be available to fortify tenure security.…”

“…In this sense [ 36 ], demonstrates how a government could strategically enforce policy to promote the regulatory, legislative, and financial conditions necessary to ensure legal security, de facto security, and perceived tenure security bundled in concert as formidable financial capital to penetrate land and property markets. This is anchored on the fact that any unjustifiable attempt to curtail one's security of tenure can trigger enforcement action from the state or other designated authority [ 35 , 37 ].…”

“…A review of the literature suggests that the relationship between real estate and the financial sector has been explored in a number of countries in the Global South [ 35 , 37 , [45] , [46] , [47] , [48] , [49] ]. Indeed, in Ghana, a number of these studies explored various aspects of the challenge [ 21 , 25 , 45 ], including constraints on real estate finance, the development of the mortgage market, and the importance of secure titles in the lending process.…”