Challenges faced by SMEs when accessing funds from financial institutions in Ghana.

Abstract

Small and Medium Enterprises (SMEs) are regarded by many as the backbone of every country’s economy. Most of the large corporations of today were developed from SMEs. Small and Medium Enterprises do not only serve as the backbone of a county’s economy but also support the larger corporations in a form of sub-contractors, suppliers of manufacturing materials or customers. In Ghana, Small and Medium Enterprises have played a major role the reduction of poverty from 51.7% in 1993 to 39.5% in 1999 and also reducing extreme poverty from 36.4% to 27% over the same period (UNDP Action plan, 2010). In spite of the tremendous contributions to the economy, SMEs in Ghana have a lot of difficulties when accessing funds from financial institutions. The objective of this thesis is to find out the various challenges faced by SMEs in getting funds from financial institutions. The research will also make recommendations based on the findings in both theory and empirical parts of the research in order to help increase the chances of SMEs having access to finance from the formal financial institutions in Ghana. The theoretical framework of the study explained the various definitions of SMEs and how Ghana as a country classifies SMEs. It also explains the various challenges that hinders the development of SMEs in Ghana, the contributions made to the economy of Ghana by the small and medium enterprises (SMEs) and the available sources of finance to the SME sector. The results of the research shows that small and medium enterprises do face a lot of challenges when accessing funds from the formal financial institutions in Ghana. The study also find out that financial institutions consider the SME sector as a risky industry thereby offering them credit facilities at a high interest rate as compared to the larger corporations.