Sme Financing in Ghana
Financial Liberalization and Small Enterprise Finance in Ghana
1) INTRODUCTION: The dynamic role of small and medium scale enterprises (SMEs) in developing countries have been highly emphasised. These enterprises have been identified as the means through which the rapid industrialisation and other developmental goals of these countries can be realised. However, Small enterprises in developing countries typically cite lack of access to finance as an important constraint on their operations. This lack of access is often associated with financial policies and bank practices that make it hard for banks to cover the high costs and risks involved in lending to small firms. The purpose of this study is to find out whether lack of access to finance is a constraint on the operations of small and medium scale enterprises in Ghana and the extent to which financial liberalisation has helped in eradicating or mitigating this problem. There paper is structured by considering few previous study on the subject under consideration in the second section. The third section considers the financial system in Ghana, looking at the period before and after the financial liberalisation. We make analysis of the response from the firms sampled and the fifth section concludes the study with some recommendations. 2) LITERATURE REVIEW: Access to finance remained a dominant constraint to small scale enterprises in Ghana. Credit constraints pertaining to working capital and raw materials were cited by respondents in a survey conducted by Parker. ( Parker et al, 1995). Aryeetey et al (1994) reported that 38% of the SMEs surveyed mention credit as a constraint. In the case of Malawi, it accounted for 17.5% of the total sample (Daniels & Ngwira, 1993:30-31). This stems from the fact that SMEs have limited access to
1
capital markets, locally and internationally, in part because of the perception of higher risk, informational barriers, and the higher costs of intermediation for smaller firms.
1) INTRODUCTION: The dynamic role of small and medium scale enterprises (SMEs) in developing countries have been highly emphasised. These enterprises have been identified as the means through which the rapid industrialisation and other developmental goals of these countries can be realised. However, Small enterprises in developing countries typically cite lack of access to finance as an important constraint on their operations. This lack of access is often associated with financial policies and bank practices that make it hard for banks to cover the high costs and risks involved in lending to small firms. The purpose of this study is to find out whether lack of access to finance is a constraint on the operations of small and medium scale enterprises in Ghana and the extent to which financial liberalisation has helped in eradicating or mitigating this problem. There paper is structured by considering few previous study on the subject under consideration in the second section. The third section considers the financial system in Ghana, looking at the period before and after the financial liberalisation. We make analysis of the response from the firms sampled and the fifth section concludes the study with some recommendations. 2) LITERATURE REVIEW: Access to finance remained a dominant constraint to small scale enterprises in Ghana. Credit constraints pertaining to working capital and raw materials were cited by respondents in a survey conducted by Parker. ( Parker et al, 1995). Aryeetey et al (1994) reported that 38% of the SMEs surveyed mention credit as a constraint. In the case of Malawi, it accounted for 17.5% of the total sample (Daniels & Ngwira, 1993:30-31). This stems from the fact that SMEs have limited access to
1
capital markets, locally and internationally, in part because of the perception of higher risk, informational barriers, and the higher costs of intermediation for smaller firms.
References: 1)Aryeetey E, Baah-Nuakoh A, Duggleby T, Hettige H & Steel W.F (1994), `Supply and Demand for Finance of Small Scale Enterprises in Ghana’, World Bank Discussion Paper No. 251. 2) Daniels, L and Ngwira A.(1993), `Results of a Nation-wide Survey on Micro, Small and Medium Enterprises in Malawi’, GEMINI Technical Report No 53. PACT Publications, New York. 3) Gibson, H. and Tsakalotos, E.(1994) “The Scope and Limits of Financial Liberalization in Developing Countries: A Critical Survey.” The Journal of Development Studies. 30, 578–62. 4) The world Bank Group (1994), Findings reports on ongoing operational, economic and sector work carried out by the World Bank and its member governments in the Africa Region. 11 5)World Bank,1992, `Malawi: Financial Sector Study’, Washington D.C1992), `How Small Enterprises in Ghana Have Responded to Adjustment’, The World Bank Economic Review, 6(3): 423-438. 12