Authors : Pierre Bilivogui, Abdoulaye Bangoura, Mohamed Kakoro, Kissi Kaba Keita
Site of publication: Canadian Center of Science and Education
Type of Publication : Article
Date of publication : Novembre 2022
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A coastal country in West Africa, Guinea shares its borders with six countries (Guinea-Bissau, Senegal, Mali, Sierra Leone, Liberia and Côte d’Ivoire) with 12.7 million inhabitants in 2017 and 13,497,244 inhabitants in 2021. As the country’s largest employer, the agriculture sector plays a crucial role in poverty reduction and rural development, providing income for 57 per cent of rural households and employment for 52 per cent of the labor force. The real GDP of Guinea increased by 5.2%, which is higher than the 1.4% rate anticipated before the pandemic’s start and just below the 5.6% pace in 2019. With significant growth in mining activity, the economy of Guinea has demonstrated resilience in the face of the global epidemic.
Business Climate in Guinea since 2014
Therefore, while the business climate has improved in recent years, much remains to be done. The country ranks 156th out of 190 in the Doing Business 2020 ranking. In a bank-business relationship, the Bank can increase the firm’s value by providing ongoing financing and effective oversight. In the Guinea context, progress in terms of the time and cost of setting up businesses is effective in the country. However, the business climate remains undermined by the weakness of the legal framework, the inadequacy of energy and transport infrastructure (only 25% of the asphalted road network, just over 1000 km of railways), administrative burdens and corruption.
Problem Statement and Study Significance
In the strategic management of enterprises nowadays, corporate innovation is an economic development engine. The occurrence of having a bank as a stakeholder is known as bank shareholding. Many factors can affect good corporate governance, such as the organizational structure, the political State of the country and the relationship with the investment bank. Law L/2013/060/CNT of August 12 2013, on banking regulations in the Guinea Republic, sets out the rules relating to the exercise of activities and the supervision of credit institutions to support services intended to facilitate the development of businesses.
Difficulties for Companies in Terms of Financing
In the Guinea Republic, the study reveals that most companies struggle to adapt to banks’ requirements for obtaining loans. In addition, this study shows that 22% of companies financed by family competition have closed their doors, compared to 12% financed by the bank. It is due, on the one hand, to family businesses’ lack of adequate training in business management and, on the other hand, to the fact that they do not have a consulting structure that can help them find solutions to various problems.
In the Guinea Republic, the study reveals that most companies struggle to adapt to banks’ requirements for obtaining loans. In addition, this study shows that 22% of companies financed by family competition have closed their doors, compared to 12% financed by the bank
Access to finance is a significant obstacle that leads Guinean entrepreneurs to stop their activity; there are also some constraints related to the need for more explicit information on the products of financial institutions. Entrepreneurs need to learn what the banks offer them, so some companies close their doors. Another factor is the high rate of financing, which entrepreneurs consider an obstacle to obtaining credit from banks. However, it should also be noted that the complexity of the procedures for obtaining financing remains another significant difficulty in the banking ecosystem in the Guinea Republic in recent decades.
The Bank-Company Relationship According to the Companies/Entrepreneurs
Seeking to find out the reason for not supporting the company in its difficult situation, we find that the deterioration of the company’s financial situation is a primary factor, but also the inadequacy of the guarantees provided by the company. In the vast majority of cases, our study shows that banks prefer liquidating troubled companies with no other rescue plan, such as the injection of new credit.
the need for more clear visibility in the organizational structure of companies on the contribution or profitability of their businesses. Additionally, they need help getting bank backing or loans to implement their business plan or boost their profitability potential. Because of the information asymmetry, this idea is crucial to both the literature on firm-bank relationships and the philosophy of modern banking.
The above idea is crucial to the theory of modern banking and the research on firm-bank connections because of the implications of information asymmetry. In the bank-firm relationship, the Bank is always looking for customers it can trust and who have visibility into its business model.
Furthermore, a quality corporate-bank relationship allows the Bank to save on collecting reliable information and determining the necessary amount granted to companies. Consider that a firm-bank partnership closes the knowledge gap between lenders and borrowers. When that occurs, the degree of information opacity between the lending firms and their borrowers determines how much of an impact the firm-bank connection has on bank loan costs.
In other words, the Bank can better understand the customer’s operating environment and prospects if relationships are frequent and satisfying. In this confidence perspective, the company offers advantages such as more accessible access to capital and meagre interest rates.
Based on the findings, this paper strongly recommends that the Guinean authorities, at the highest level, put regulatory legislation capable of facilitating the acquisition of credits at a reasonable rate and providing the necessary support for local entrepreneurs. Then, national banking institutions communicate the products available at their bank level and the mechanisms for obtaining these credits.
However, they also reduce the duration of the procedures for processing applications for access to credits and project financing. Companies agree to share with banks all the necessary information related to their organizational structure, mode of operation, financial status, and prospects. However, that will allow banks to have clear visibility of their activities and facilitate granting bank loans.