- Advertisement -

In the quest to cut losses from non performing loans, financial institutions, particularly banks need to opt for Appropriate Dispute Resolution (ADR) mechanism for their recovery operations.

This is because the use of legal means through using the courts for loan recovery, has been found to be counter-productive.

Emmanuel Kwashie Acolatse, a lawyer and Senior Partner at Candid Management & Financial Consultancy explains that the use of ADR in the financial sector produces better outcomes than the traditional adversarial legal system.

- advertisement -

Generally, ADR refers to any means of settling disputes outside of the courtroom, and it typically includes negotiation, mediation, and arbitration.

In an interaction with ADR Daily in Accra, he was confident, based on experience and evidence that banks can save millions of Ghana Cedis in legal fees and time in instituting recovery suits against loan defaulters, by using ADR process to renegotiate loans to enable the defaulters to pay.

“It is time for the banks to rethink and redefine their loan recovery systems,” he said, adding that some banks adhere to rigid policies and run to the court at the least opportunity, without carefully analyzing the implications on their income and relationship with customers.

In a typical case, if a small scale business client is offered a loan facility of 70,000, including 50,000 principal and 20,000 compounded interest over a two year period, and the client is able to repay about 58,000 on schedule, but defaulted in subsequent payments due to the client’s failing business, the bank will start charging interest on the default payment in addition to the outstanding loan amount. In about five months, the outstanding 12,000 plus the compounded interest plus penalty interest on the default payments can push the total outstanding to about 40,000. In case a recovery suit is instituted by the bank, after an adversarial legal tussle, which is likely to end in favour of the bank, the calculations of the bank taking into consideration depreciation factors, and the cost awarded by the court could push the new amount payable to about 80,000, which the creditor will be most likely unable to pay, thereby resulting in auctioning of assets of his already collapsed business. In such a situation the full complement of the outstanding loan cannot be recovered because the client simply does not have the money.

According to Mr. Acolatse, the bank may have won the case, but will lose in the long run, because a recovery suit takes a minimum of three years, and in such a case, the bank would have spent more than the 12,000 on legal fees and court processes. It will also lose the client and the prospective clients through referrals.

But with ADR in such a situation, he says the bank and the defaulter would be able to amicably renegotiate the terms on the outstanding loan of 40,000 that accrued as a result of the default payment, and say waive the penalty interest, since the principal had already been repaid, to enable the client to manage the remaining payments.

This way, the bank will recover its money without having to write off the non performing loan as bad debt. It will also maintain and consolidate its relationship with the customers.

“It is a win-win situation for both the institution and the customer,” he stresses, indicating that banks, and financial institutions in general should be interested in dynamic ways of promoting businesses, and not using the rigid protocols that end up collapsing them

Apart from loan recovery, ADR can be deployed in all conflict situations to solve issues between the financial institutions and their clients.

Especially at a time in the financial evolution of Ghana where the banks and financial institutions are increasingly spreading out their money into the market in the form of loans, leases and other ancillary financial services, Mr. Acolatse believe their success in recouping their investments and maintaining a fruitful customer relations, largely depends on the use of ADR in all aspects of their operations.

Around the globe, and especially in Asia where the banks heavily support small scale enterprises with credit, ADR has become key in the banks’ dealing with their clientele in resolving inter-party difficulties.


In Ghana last year, a total of 1,373 cases in general were mediated through the Alternative Dispute Resolution (ADR) process, out of which 605 cases were settled, representing 44 percent.


In line with the ADR Act, 2010 (Act 798), the Court- Connected  ADR Programme has been extended to 67 district and circuit courts across the country, with at least three mediators assigned to each of these court.


By Adotey Mingle

Previous articleThe most common job posting mistake
Next articleNew Chief Justice to offer impetus for ADR
ADR Daily is a specialized news portal with a focus on providing authentic news, information and research analysis on Appropriate Dispute Resolution (ADR), Human Resource Management (HRM) and Industrial Relations Management (IRM) in Ghana and beyond. This platform serves as an information resource base for the progress of the ADR, HRM and IRM industries, and seeks to promote professionalism in ADR practice by supporting a network of ADR professionals within and across nations and continents. ADR Daily keenly encourages the mass adoption of ADR mechanisms, particularly negotiation, mediation and arbitration for the resolution of disputes in all spheres, through the publication of industry news and information, as well as by deploying innovative awareness creation engagements.