The President believes that private sector led growth is the surest way for Ghana to sustain economic growth. Hence, the President’s maiden budget focused on tax cuts to create space for businesses to thrive. The President has also created the Ministry of Business Development to promote this goal and has tasked his economic team with the herculean task of restoring macroeconomic fundamentals to attract private investment in the economy.
Nonetheless, anyone who has registered a vehicle, a business, or even tried to obtain a driver’s license can attest to the bureaucratic and statutory maze that one must navigate to obtain these basic services. Frankly, many businesses have either collapsed or failed to take off due to excessive corruption and regulatory demands. So, while tax cuts may encourage business development, extensive regulation and corruption will impede the ease of doing business and discourage innovation.
According to the World Bank, Ghana is ranked 108th in the world and 8th in Sub-Saharan Africa when it comes to the ease of doing business in the country. The ease of doing business index measures the ease with which businesses can comply with government regulations such as obtaining a business license, connecting electricity or obtaining a building permit, etc. A higher ranking indicates simpler regulations for businesses and stronger protection for property rights. Ghana’s low ranking means we have extensive and rigid regulations, which in turn constrain business activities. Therefore, for businesses to play the central role in economic development envisaged by the President, the government must take serious steps to simplify and align the regulatory and legislative environment to accommodate modern business practices and to enhance business development in the country.
Business laws and regulations are made to protect consumers and uphold the integrity of commerce. However, as time passes and technology changes, business practices and needs change, making some laws and regulations obsolete. When laws and regulations no longer add value to government operations and business needs, they become an impediment to economic growth. Thus, in many countries, legislative reviews remain a necessary and ongoing public policy priority. Ghana, under President Akufo-Addo, must start the processes of reviewing business laws with a view towards modernizing them. Laws such as the 1950 Chattel Ordinance Act should no longer be operational in Ghana.
The government can start the process of modernizing business laws by overhauling or repealing the Borrowers and Lenders Act, 2008. This Act is riddled with outdated principles, it appears too elitist and is skewed to favour the big banks to the detriment of small businesses and economic development. The government must therefore replace the Act with a modernized and rationalized secured credit law by harmonizing all pre-existing devices to ensure a uniform system of security registration and priorities in the country.
The Borrowers and Lenders Act was signed into law in 2008 to regulate the secured credit regime in the country. Through a number of provisions — such as a collateral registry and credit bureau, protection of borrower’s credit rights and remedies of lenders on default — the Borrowers and Lenders Act aims at regulating the relationship between lenders and borrowers. Secured credit is a loan that the borrower guarantees with collateral such as a home, car, boat or a bicycle. The lender (typically a bank) can seize and sell the collateral to recover its losses if the borrower defaults or fails to pay the loan.
The Act has many benefits, including the collateral registry system which makes it easier for the banks to verify encumbrances on collateral before approving loans. This helps to speed up the loan disbursement process. Further, the people who have benefitted from the law since its inception include small business owners and start-ups using their personal properties as collateral to secure loans from financial institutions to either finance or expand their businesses. Many of these people may have been unemployed or had low-paying jobs and would not have qualified for credit from the banks without being able to use their personal property as collateral.
However, despite many of its benefits, critics argue that the Borrowers and Lenders Act is rudimentary and lacks basic provisions commonly found in modern secured credit legislation. For example, it lacks priority rules to address competing claims among secured creditors. Ordinarily, priority among secured creditors will be determined by the chronological order in which the security interests are perfected. However, there are exceptions to every rule. So, what happens where there are multiple charges registered against a single piece of collateral? To resolve potential conflicts, all modern secured credit legislative systems have comprehensive priority rules that address competing claims and third party rights.
What changes are required if the current legislation is inadequate? The government must amend the collateral registry provision and replace it with a Personal Property Security Act (PPSA), for example, like what exists in Canada. The PPSA applies to any form of interest that either in form or substance can be considered a security interest. According to Lexi-online, a security interest is a property interest created by agreement or by operation of law over assets to secure permanence of an obligation. The obligation is usually the payment of a debt. The security interest may be in personal property or in real property. Types of proprietary security interests include: mortgages; liens; pledges and charges, etc. They can be either possessory or non-possessory interests.
As a rule, written contracts between creditors and debtors govern their rights and obligations, so registration of a security interest in a personal property may not be necessary. However, enforcement of the creditor’s rights is governed by the PPSA and the common law. Thus, creditors typically register their interest in the Personal Property Registry (PPR) to preserve their interest and protect the priority of their claims against third parties—people who acquire security interests in the same property.
Why should Ghana adopt the PPSA system? The fundamental difference between the Borrowers and Lenders Act and the proposed PPSA is that whereas the collateral registry is located within Bank of Ghana operations, under the PPSA system, the Personal Property Registry (PPR) is open to the public, corporations, banks, government agencies and individuals. Also, delivery of the services under the PPR is commercialized to enhance accessibility. Further, unlike the Borrowers and Lenders Act, the PPSA system authorizes registration of certain claims and notices which are not security interests, such as writs of enforcement filed by creditors against properties, money judgements, garage liens, government liens and maintenance enforcement orders, etc. Therefore, vendors such as masons, carpenters, auto-mechanics and even farmers can register a caveat or money judgement against the properties of people who refuse to honor their contracts and default on payment. Similarly, car dealers and businesses in general can take on the risk of selling, leasing and renting their products to consumers on a payment plan while protecting their assets through the PPR. In other words, the little guys can be assured of protection for their services under the PPSA system, rather than what currently exists under the Borrowers and Lenders Act, where the banks are the major beneficiaries.
In light of the foregoing analysis of the advantages of the PPSA system over the Borrowers and Lenders Act, this article recommends government action in the following areas:
(a) a comprehensive modernization of all business laws including the Borrowers and Lenders Act to align them with modern business practices; and
(b) the amalgamation of all registry services, including the collateral registry, into a single entity and commercialization of the delivery functions.
The establishment of leaner, private sector operated registries will be more responsive, less politically influenced and better suited to support business development. Further, registries operated by the private sector will ensure fewer bureaucratic regulations, will generate much needed revenue for the government, eliminate corruption, lower compliance costs for business, and enhance accessibility to government services.
In conclusion, this article recognizes that most business laws in the country remain elitist and unresponsive to modern business needs. Thus, it recommends a client-centred approach to public sector service delivery because the quality of public sector services in Ghana remains extremely poor. Therefore, amending the collateral registry system as it currently exists and replacing it with a Personal Property Registry system will enhance accessibility, improve efficiency and strengthen the trust that people have in public institutions.
This author believes that a client-centred approach to service delivery must be evaluated on and executed from the perspective of the people who use the services – not from the perspective of the service providers. A client-centred approach will address the challenges of access and improve citizens’ satisfaction with public services. Further, privatization of the delivery component will eliminate the maze that citizens must navigate to obtain essential government services, such as getting a driver’s license, registering a business or paying fines. With the National Identification Project restarted and firing on all cylinders, the government must leverage this opportunity to amalgamate and privatize some state-owned agencies such as the DVLA, birth and death registry and business registration services, etc, by using the National Identification Database to anchor the proposed amalgamated agency.
By Kwame Abrefah, Canada.
[email protected]
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