The possibility that Greece may be forced to default on its international and commercial debts raises fears that the whole Euro zone may be thrown into turmoil with other countries such as Ireland and Portugal following. Yet countries in Africa have often defaulted on their loans with little media comment. The British government, as well as others, has several times written off debts owed by Ghana and other sub-Saharan countries. African banking seems to offer decided advantages in this respect with loans to businesses often quietly written off when debtors run into financial difficulties and default on repayments.The easiest and most obvious way to help a poor person is to give him or her some money. Gifts don?t need to be repaid, and if the donor does not expect repayment no problems ensue. Problems arise only when the donor?s loan is the recipient?s gratefully accepted gift. Europeans living and working in Ghana soon learn that there is no such thing as a personal loan. Old hands advise new arrivals to lend only what they can afford to lose. This system operates harmoniously amongst individuals but it is the cause of misunderstanding when extended to small and medium enterprise (SME) development.Overseas development agencies mount projects to support new and existing SMEs that almost invariably include provision for making small loans. The intention is usually to recycle available funds by recovering repayments and making new loans to a new generation of enterprises. This seldom happens. The small business proprietors regard the business loans as they would personal loans and don?t really expect to repay them. After all, the money is often used to pay hospital or school fees, and these investments don?t earn a profit. The result is usually the early winding up of the scheme with outstanding debts written off.Most development agencies active in Africa soon became aware of this problem and almost always combined credit finance with accounting training. One main aim was to encourage SME owners to separate their company accounts from their personal/household accounts. This was much easier said than done, especially when the business owner was the head of a large extended family whose many members could descend upon him with substantial demands at any time. For the head of a clan or a village chief the task verged on the impossible. Yet some such community leaders have built up substantial businesses that have traded for many years. This has only been possible because periodically their debts have been written off.To provide finance to larger businesses, international donors have often made grants to local banks to operate a special credit scheme. When a new scheme is announced, local entrepreneurs hasten to register their claims and the funds are soon fully committed. Repayments will usually be made as long as the foreign agency shows interest, but after that the inward flow of funds shrinks to a trickle. After a decent interval the scheme is wound up and outstanding debts are written off. When asked why they do not pay back loans entrepreneurs usually say that they object to repaying at interest rates above thirty percent the large part of the loan collected by the bank manager. Bankers in Africa are as adept as their counterparts in Europe and America in awarding themselves large bonuses to be repaid from other people?s future earnings.Some defaulting debtors are pursued by banks and a few cases reach the courts. Some companies are forced into liquidation. But for every debtor who comes to grief there are many who are left untouched. They are free to borrow again because they know that their bank managers would be as reluctant as themselves to have the circumstances of their loans exposed. The Greek government must be hoping that such feelings might result in some of its debts being written off.
Source: http://hotnews.blogspages.com/2012/09/28/ghana-life-debt-relief-2/
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