How did the many lines of business under UT Holdings develop?
UT started as a unique financial services company and a finance house for lending to SMEs and the informal sector. Banks typically avoid serving this sector because it is risky and difficult to quantify due to a lack of data. Unfortunately, 78% of the economy falls into the informal sector, where companies need startup capital and funds to grow and expand. As we began to understand the SME market and its needs, we realized that we needed the support of other structures and institutions. We developed UT Logistics because we could not lend to importers safely unless the goods were first cleared, warehoused, and collateralized. The collateralization process requires a quick evaluation of properties, and we therefore expanded our capabilities further and established UT Properties. We later acquired UT Life to capitalize on synergies with our lending activity. UT Private Securities may ostensibly seem out of place with the rest of our business lines, but it integrates well with our group by supplying personnel and monitoring equipment for our clients, as one of our main concerns is ensuring clients' safety and respect. We had previously outsourced security services for our buildings and car parks, but this presented many difficulties so we decided to develop our own private security resources that fit better with our values.
How receptive has the market been to UT Holding's expansion of financial services in Nigeria and South Africa?
We have experienced a learning curve so far. We have had to review South Africa and start very small. The important lesson that we learned was that it is necessary to work with local partners for this kind of venture. In both Nigeria and South Africa we intend to establish relationships with local partners. Nigeria is interesting because when we entered that market we were being told that our operation would fail within its first year; that was over four years ago.
How would you evaluate access to capital for SMEs in Ghana?
We have been trailblazers in developing a capital market for SMEs in Ghana. We started with lending, but now provide a wide range of services to such an extent that the central bank even finds it difficult to replicate our model in some cases. Successfully providing capital support for SMEs is a matter of ensuring that any credit from the financial sector will be mutually beneficial to the client. We are keen to ensure that our loans are actually going to improve the life of the people receiving them.
The first half of 2015 was difficult for UT Bank. How have you managed to turn things around?
Ghana has had all sorts of economic hardships that culminated in the recent IMF bailout. Our problems of access to electricity, unstable currency, devaluation, high inflation, and high tariffs on utilities have all had a harsh impact on SMEs. Companies in the manufacturing sector recorded losses almost across the board because of the consequent reductions in their working capital. The currency depreciation damaged business in the services and trading sectors, which rely on imported goods. The government was not paying companies in the oil sector and recoveries were not being paid for offshore locations. The government was simply not paying its contractors and this affected us directly, unlike other banks that were not financing SMEs. We wanted to look at the problem from within because we cannot control the external economic environment. The issue became how to restructure our internal processes and systems to ensure that UT bank can survive these downturns. We changed our management structure and examined the whole market to refocus on the sectors we wanted to be involved in. We identified, in this reassessment, our shortcomings, retrained our staff, and introduced a system to evaluate our risk management function and changed the credit appraisal process. We aggressively mobilized deposits in order to reduced the impact of the excessive rise in interest rates. We built on our existing retail loans to expand our portfolio of cheaper deposits. We recorded losses of approximately $7.4 million and $690,000 in 1Q2015 and 2Q2015, respectively, totaling 1H2015 losses at just over $8 million. We drastically reduced our losses and were back on the right track by 3Q2015 with a quarterly profit of over $950,000. We have the right plan in place and so we have high confidence in the team we have put together.
You have spoken openly in the press about the need for government to strengthen institutions and restore accountability. How can the private sector support that?
The private sector is largely dependent on resolving these issues in order to flourish. There are a lot of businesses wanting to come to Africa, but only with solid fundamental conditions in place will they see Ghana as a safe economic environment in which to invest. It is in businesses' interest that the government fix the national institutions and economic systems. Moving toward optimum governance is currently held back by a lack of demographic data, which in turn complicates understanding of where individuals live, what they earn, and therefore what would be the most appropriate tax structure. That is a major deficiency that makes our current budget deficit no surprise. The business community has to actively engage government to address our current problems for the general good. We are reliant on our systems functioning better and improving infrastructure in order to create the conditions for economic prosperity.
In your opinion what can be done to support entrepreneurs with capital in Ghana?
Starting a business in Ghana certainly requires some capital. We created a unique trust with around $20,000 in financing. Most young entrepreneurs have visions of big offices with state-of-the-art technology, but that is not always necessary to get a business idea off the ground. UT Bank supports NGOs like Enablis, for which I have the honor of serving as Chairman and which trains entrepreneurs via peer mentoring. We also organize business launch events and competitions for business plans through which UT Bank has supported several new entrepreneurs via loans or by facilitating collateral.