Based on my upbringing, I have personally avoided borrowing money. This stance was influenced mainly by two factors. Firstly the very house where I was raised up, was the subject of a mortgage. I watched how water was squeezed out of stone to make the monthly repayments. Secondly the Holy Bible puts it aptly when it says: “The rich rule over the poor, and the borrower is slave to the lender”.[1] And “Do not be one who shakes hands in pledge or puts up security for debts; if you lack the means to pay, your very bed will be snatched from under you.” [2]
My perspective changed when I started working in a Bank. One day on a customer visit with the Bank’s Head of Corporate Banking, he asked me which of the Bank’s loan products I had taken and was servicing? I told him none. I proudly added that I did not want to find myself in a situation whereby I will be sacked from my current employment and cannot repay the loan.
He immediately hit the breaks of his car which screeched till the car came to a halt. He parked on the shoulder of the road and gave me reasons why I needed to patronize the Bank’s products. This was in the year 2011. He said, “I understand you are risk averse, however, the Bank is offering a personal loan of GH¢12,000.00 to its staff at an interest rate of 6% per annum. Why not apply for the full amount and buy treasury bills with it? The returns on treasury bills was about 30% per annum. When the Bank sacks you, disinvest the money, pay off the loan and walk away with the difference…” He taught me how to make my money work for me.The next day I walked up to the banking hall, requested for a loan form and applied for a loan of GH¢12,000.00 and invested it in treasury bills…”
During my stay in the Bank, I remember a customer who had an overdraft of GH¢100,000.00. As a result of honouring his obligation the exposure was increased to GH¢500,000.00. Before I left the Bank, the customer had a revolving credit line of almost GH¢20,000,000.00
To answer the question whether it is good to borrow? I dare say that in some instances it is prudent for one to borrow. Commercially for tax purposes, for some businesses, it is good for the business to have a loan in its books. This may defer a tax liability. There are some multimillion cedi commercial transactions, that cannot be done without borrowing. How many companies or individuals have over a million cedis sitting in their bank accounts doing nothing? Few.
“The obligation of the bank was to advance the money, which it did; and that of the defendant was to repay the loan together with interest, if any.”[3]
Where ones circumstances requires that one must borrow, one must certainly borrow. However before one appends his or her signature to a credit agreement, one should note the following:
- The credit regime in Ghana is now well regulated to protect both the borrower and the lender. A borrower must take advantage of the provisions of the Borrowers and Lenders Act, 2020 (Act 1052) and insist on its compliance before the borrower appends his or her signature to a credit agreement.
- A borrower must ensure that the loan is applied towards the very purpose for which the loan was obtained. As the saying goes: “Money doesn’t change men, it merely unmasks them. If a man is naturally selfish, or arrogant, or greedy, the money brings it out; that’s all.” [3] .
- Aborrower must not forget his or her repayment obligations. The repayment must be done on the day agreed upon by the parties. The exact amount must also be paid. Not a pesewa less and not a day late. Anything to the contrary and the borrower will be in default of the credit agreement.
- All charges that a borrower will incur in a credit agreement, must be disclosed to the borrower in advance. This means, all charges such as the loan amortization schedule, the insurance premium for: fire, allied perils, life insurance, stamp duty, facility fees, processing fees, contractual interest, title registration fees, mortgage registration fees and all other cost associated with the credit, must be disclosed to the borrower in advance.[4]
- Some borrowers take advantage of these provision by getting offer letters from several financial institutions and negotiating the terms of the offer, based on the various offers they have received. At the end of the day, they settle on the best offer available. For those who do not know, in most instances, financial institutions are willing to negotiate interest rates downwards.
- Where a credit agreement provides for the application of a penal interest rate on a delayed repayment the agreed penal rate shall be applied on the amount of the delayed payment only and not on the total amount outstanding.[5] The provision can be contrasted with Notice No. Bog/Gov/Sec/2021/12 [6]. And a decided case in which it was held as follows: “On the authorities, penal clauses in contracts were generally unenforceable. Penalty interest was penal in nature and by its terminology meant to serve as punishment against the borrower. Acourt of law should not lend support to punishment of borrowers by their lenders in an otherwise civil commercial transaction. Interest might be exigible as return on investment for the use of one’s money but to exact penal interest was definitely akin to imposing punishment on borrowers in an otherwise commercial activity. Accordingly, in the instant case, the imposition and debt of penalty interest on the plaintiff’s account would be declared unlawful and illegal.” Reading all this I am of the respectful view that charging penal interest, amounts to unjust enrichment of the lender and it must be frowned upon.
- A borrower should seek independent legal advise on the clauses contained in a credit agreement, before executing same.
- A borrower should seek independent financial advise on the financial aspects of a credit agreement, before executing same.
- Where the security arrangement includes immovable property, the borrower can get a valuer to value the property prior to the grant of the loan. There are instances where after the property value has been ascertained, a borrower will be in a position to request the lender to enhance the facility amount or opt for a movable as security.Where several immovable properties are used as security for a facility and the properties appreciate in value the borrower should request for some of the properties to be released, rather than wait for an event of default to occur, which will lead to a foreclosure and sale of all properties.
- Banks are now required under the Credit Reporting Act, 2007 (Act 726) to report all lending they engage in. It is imperative that one pays off a facility to ensure that a successful repayment of the facility is also indicated in the records of the Credit Reporting Bureau.
- A borrower should take advantage of a Bank’s electronic banking products and ensure that he or she gets regular updates via text or e-mail on the activities on a loan account. A borrower should prompt and bring any unusual transaction to the attention of the Bank.
I will conclude by saying that where one does not need to borrow, one should not borrow. However, where one must borrow, one must read the credit agreement, ask all relevant questions and seek professional help before appending his or her signature to a credit agreement. After a loan is disbursed, a borrower should ensure that the repayment is do in accordance with the terms of the credit agreement.
REFERENCES
[1] Proverbs 22:7 (The Holy Bible New International Version)
[2] Proverbs 22:26-27.
[1] The obligation of the bank was to advance the money, which it did; and that of the
defendant was to repay the loan together with interest, if any Barclays Bank Ghana Ltd vs. Sakari [1996-97] SCGLR at page 646 per Acquah JSC.
[2] Money is not evil in itself. Money will unmask you.
John Maxwell.
[3] Barclays Bank Ghana Ltd vs. Sakari [1996-97] SCGLR at page 646 per Acquah JSC.
[4] Section 57[1] – (3)(a)-(h) of the Borrowers and Lenders Act, 2020 (Act 1052). A lender shall provide a borrower with a clear, comprehensive and accurate information regarding a credit agreement and shall inform the borrower of the rights and responsibilities of that borrower.
A lender regulated by the Bank shall not conclude a credit agreement with a prospective borrower unless the lender provides the prospective borrower with a pre-agreement disclosure statement in the form specified in the First Schedule.
Apre-agreement disclosure statement shall include:
- The principal amount;
- The proposed disbursement schedule of the principal amount;
- The interest rate;
- The total amount involved in the proposed agreement;
- The proposed repayment schedule;
- The basis of any cost that may be assessed if the borrower breaches the contract;
- Any fees that applies to the repayment of any obligation that is due under the credit facility; and
- Insurance for the loan.
[5] Section 55 (3) of the Borrowers and Lenders Act, 2020 (Act 1052).
Where a credit agreement provides for the application of a penal interest rate on a delayed repayment of
- The principal amount of the loan.
- The interest on the principal amount of the loan or
- Both the principal amount and the interest on the principal amount of the loan
the agreed penal rate shall be applied on the amount of the delayed payment only and not on the total amount of the outstanding sum.
[6] https:/www.bog/gov.gh
[7] Boateng vs. Melbond Microfinance Company Limited [2018-2019] 1GLR 791 at page 795 per Asiedu J holding 3.