The Assessment of Small and Medium Scale Enterprise Loan Delivery in Ghana

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CHAPTER ONE
1.0 INTRODUCTION
Small and medium scale-enterprises (SMEs) are also vital to economic development. No society can be more developed without small and medium scale enterprises or businesses. Though these enterprises face some challenges in assessing loan, yet they also contribute significantly to nation’s development. It is therefore prudent for these enterprises to assess loan easily so as to enable them expand their network or operations.

1.1 BACKGROTUND OF THE STUDY
In today's Global Economy, small and medium-scale enterprises (SMEs) are the engine of growth and play vital role in economic development process. The significance of SMEs is acknowledged worldwide. SMEs occupy a place of pride in virtually every country or state. Because of their (SMEs) significant roles in the development and growth of various economies, they (SMEs) have aptly been referred to as “the engine of growth” and “catalysts for socio-economic transformation of any country.” SMEs represent a veritable vehicle for the achievement of national economic objectives of employment generation and poverty reduction at low investment cost as well as the development of entrepreneurial capabilities including indigenous technology.

And as such SMEs form the vanguard of the modern enterprise sector and present the propelling force of economic modernization and growth in developing economies. The dynamic roles of SMEs in developing countries have been highly emphasized. These enterprises have been identified as the means through which the rapid industrialisation and other developmental goals of these countries can be realized.

In recognition of the enormous potential roles of SMEs, SMEs are regarded as the lifeblood of Ghana’s economy by the government as they constitute a significant percentage of the economy. The SMEs sector constitutes in excess of 92% of the economy of the country and its output as a percentage of GDP accounted for 70% of GDP in 2011. Apart from increasing per capita income and output, SMEs create employment opportunities, enhance regional economic balance through industrial dispersal and generally promote effective resource utilization considered critical to engineering economic development and growth.

SMEs, if properly structured and capitalized have the potential to grow and spearhead accelerated growth of this economy into a middle income status. A vibrant SME sector can help reduce poverty through employment generation. Other intrinsic benefits of vibrant SMEs include stemming of rural urban migration, enhancement of standard of living of the employees of the SMEs and their dependents as well as those who are directly or indirectly associated with them.

However, the need to provide secured source of financing for this sector cannot be over emphasized. Government has identified the need for the development of Small and Medium Scale Enterprises (SME). One of such sectoral strategies is the introduction and pursuit of policies such as Venture Capital to encourage and strengthen the growth of SMEs in Ghana.

The important roles SMEs played, notwithstanding the benefits enjoyed from ARB Apex Bank, the enterprises face serious difficulties when trying to obtain loans, especially from the formal financial institutions. Thus, the obvious question; how do financial institutions assess SMEs loan portfolio?

1.2 PROBLEM STATEMENT / RESEARCH PROBLEM
Whilst SMEs are an important part of the business landscape in any country, they are faced with significant challenges that compromise their ability to function and to contribute optimally to the economy, especially lack of short, medium and long-term capital — inadequate access to financial resources and credit facilities. Financing has remained one of the key managerial problems decision that keep confronting business enterprises in Ghana today. For the SMEs, the accessibility to funds and the cost of raising them have remained issues limiting the capitalization...
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