Productive sector lending should be encouraged, not forced — Economic Analyst

Economic Analyst Emmanuel Boateng has called for carefully designed policies to increase credit to Ghana’s productive sectors, warning that compelling banks to lend through rigid quotas could undermine financial sector stability.

His comments come amid growing debate over whether financial institutions should be required to allocate a portion of their loan portfolios to strategic sectors such as agriculture, manufacturing and small and medium-sized enterprises (SMEs), which are widely regarded as critical to job creation, industrialisation and economic transformation.

Speaking on the Business Breakfast on Zed FM with host Nii Trebi Hammond, Mr. Boateng said the discussion warrants serious national attention, noting that several countries have adopted policy frameworks aimed at directing credit to sectors considered vital to economic development.

“This is a policy debate that deserves serious attention,” he said.

According to Mr. Boateng, the rationale behind such policies is that market forces do not always produce the outcomes required to achieve national development objectives.

He explained that while banks are naturally driven by profitability and prudent risk management, governments also have a responsibility to ensure that critical sectors of the economy receive the financing needed to expand production and create employment.

“Banks naturally prioritise profitability and risk management, but national development goals sometimes require a different approach,” he stated.

Mr. Boateng identified agriculture and manufacturing as two sectors that deserve particular attention because of their strategic importance to Ghana’s economy.

He noted that strengthening financing for these industries could stimulate industrial growth, create employment opportunities, reduce import dependence and improve the country’s productive capacity.

“For Ghana, sectors like manufacturing and agriculture are strategically important because they influence employment, industrialisation and import substitution,” he said, adding that supporting these sectors could generate “broader economic benefits beyond the individual borrower.”

Despite acknowledging the need to channel more credit into productive sectors, the economist cautioned against introducing policies that compel banks to lend without adequate credit assessments.

He warned that such an approach could weaken loan quality, increase non-performing loans and ultimately threaten the stability of the financial system.

“If banks are forced to lend without proper risk assessment, it could lead to poor-quality loans, increased non-performing loans and instability in the financial sector,” he cautioned.

Instead of imposing mandatory lending quotas, Mr. Boateng advocated a market-friendly approach that encourages banks to finance productive sectors through targeted policy support.

He proposed a mix of incentives, government-backed guarantees, credit risk-sharing arrangements and stronger collaboration between government, financial institutions and industry players to improve access to finance while preserving sound banking practices.

“The solution may not necessarily be strict lending quotas, but rather a combination of incentives, guarantees, credit risk-sharing mechanisms and stronger collaboration between government, banks and industry,” he said.

Mr. Boateng stressed that policy interventions should focus on making lending to productive sectors commercially attractive rather than compulsory.

“The goal should be to make productive sector lending attractive, not simply compulsory,” he concluded.