The Role of Microfinance Banks in Financing Small-Scale Businesses in Ghana
Chapter One
OBJECTIVE OF THE STUDY
The objectives of the study are;
- To ascertain the significant relationship between microfinance institution and the development of SME in Ghana
- To find out the effect of different variables on the growth of SMEs in Ghana
- To ascertain the role play by microfinance institution in development of SME in Ghana
CHAPTER TWO
REVIEW OF RELATED LITERATURE
INTRODUCTION
SME remains one of the most reviewed topics in literature, especially as its impact on all kind economies cannot be overlooked. World wide, the SMEs have been accepted as the engine of economic growth and for promoting equitable development. The major advantage of the sector is its employment potentials at low capital cost. The labor intensity of the SME constitutes over 90% of total enterprises in most of the economies and is credited with generating the highest rate of employment growth and account for major share of industrial production and exports (Government of India, 2007), and the rapid expansion of small enterprises in economies of developed countries in the 1980s and 1990s has created a widespread conviction that small, new ventures are the most important source of entrepreneurship and as a dynamic and innovative factor, they contribute directly to economic growth. (Piotr and Rekowski, 2008) However, the SMEs sector is faced with many constraints. Among them is the most pressing one known to be financing
Small and medium enterprises and access to finance
A major barrier to rapid development of the SME sector is a shortage of both debt and equity financing. Accessing finance has been identified as a key element for SMEs to succeed in their drive to build productive capacity, to compete, to create jobs and to contribute to poverty alleviation in developing countries. Small business especially in Africa can rarely meet the conditions set by financial institutions, which see SMEs as a risk because of poor guarantees and lack of information about their ability to repay loans. Without finance, SMEs cannot acquire or absorb new technologies nor can they expand to compete in global markets or even strike business linkages with larger firms (UNCTAD, 2002). Many factors are believed to be responsible for the refusal of loans and equity fund to SMEs by formal banks. According to Cork and Nisxon (2000), poor management and accounting practices are hampering the ability of smaller enterprises to raise finance. This is coupled with the fact that small businesses are mostly owned by individuals whose personal lifestyle may have far reaching effects on the operations and sustainability of such businesses. As a consequence of the ownership structure, some of these businesses are unstable and may not guarantee returns in the long run. According to Kauffmann (2005), access to formal finance is poor because of the high risk of default among SMEs and due to inadequate financial facilities. However, Cressy and Olofsson (1997) sum up constraints facing SMEs into two; these include demand-based (SMEs) and supply-based (formal banks) financial constraints. The duo define a supply-side finance constraint as a capital market imperfection that leads to a socially incorrect supply of funds to projects, or the incorrect interest rate charged on funds. They further define a demand-side financial constraint as a capital market imperfection in which performance of a firm is adversely affected by a factor internal to the firm. Thus for example, if the firm’s owners would like to grow the firm faster, but the only way they can do this is to relinquish equity, and they refuse to do so, it may be said that the firm’s demand for funds is demand-constrained. These deficiencies shall lead us to exploring other alternative financial sources for SMEs.
Concepts of Business growth and development
Business growth refers to sustained increases in the level of business activity in terms of volume and value overtime. Business and economic growth are similar to economic growth. The latter is a sustained increase in real income per capita due to an expansion in a country’s productive capacity. Factors accounting for business and economic growth are expansion in a country’s capital formation and investment; and resources (Bosompem, 2005).
Business development, on the other hand, refers to structural changes in the product and or services portfolio of a firm in terms of the types and numbers of products or service bundles on offer to customers (Norwood, 2005).
CHAPTER THREE
RESEARCH METHODOLOGY
Research design
The researcher used descriptive research survey design in building up this project work the choice of this research design was considered appropriate because of its advantages of identifying attributes of a large population from a group of individuals. The design was suitable for the study as the study sought to the role of micro finance banks in financing small scale business in Ghana
Sources of data collection
Data were collected from two main sources namely:
(i)Primary source and
(ii)Secondary source
Primary source:
These are materials of statistical investigation which were collected by the research for a particular purpose. They can be obtained through a survey, observation questionnaire or as experiment; the researcher has adopted the questionnaire method for this study.
Secondary source:
These are data from textbook Journal handset etc. they arise as byproducts of the same other purposes. Example administration, various other unpublished works and write ups were also used.
Population of the study
Population of a study is a group of persons or aggregate items, things the researcher is interested in getting information on the role of micro finance banks in financing small scale business in Ghana. 200 staff of selected SMEs in Ghana was selected randomly by the researcher as the population of the study.
CHAPTER FOUR
PRESENTATION ANALYSIS INTERPRETATION OF DATA
Introduction
Efforts will be made at this stage to present, analyze and interpret the data collected during the field survey. This presentation will be based on the responses from the completed questionnaires. The result of this exercise will be summarized in tabular forms for easy references and analysis. It will also show answers to questions relating to the research questions for this research study. The researcher employed simple percentage in the analysis.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the objective of this study was to ascertain The role of microfinance banks in financing small scale businesses in Ghana
In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of microfinance banks in financing small scale businesses in Ghana
Summary
This study was on The role of microfinance banks in financing small scale businesses in Ghana. Three objectives were raised which included: To ascertain the significant relationship between microfinance institution and the development of SME in Ghana, to find out the effect of different variables on the growth of SMEs in Ghana, to ascertain the role play by microfinance institution in development of SME in Ghana. In line with these objectives, two research hypotheses were formulated and two null hypotheses were posited. The total population for the study is 200 staff of selected SMEs in Ghana. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made up managers, secretaries, senior staff and junior staff was used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies
Conclusion
Microfinance Institutions have largely established and developed the area of revenue mobilization with their saving schemes which has brought savings to the door steps of the clients, the readiness to receive meagre amounts on a daily basis and above all less costly. This has enhanced the savings habit of the sector as little revenue recipients who were hither to unable to save with the commercial or traditional banks are offered a big opportunity to save. This has aided in reinvestment of the capital saved. It is also worth mentioning that MFIs provide better access to loans than the traditional banks. As the upsurges of MFIs in the Ghana have improved the activities of SMEs tremendously, the research reveals however that MFIs are faced with few challenges that can undermine their purpose of making ready loans easily accessible to SMEs. It is worthy to highlight these challenges.
Recommendation
Microenterprise owners in the BN and BS District Assemblies should be strengthened through group formations to enable them present a unified and cooperative front instead of engendering unhealthy competition among them.
Various microcredit lines should be customized for SMEs in the area.
Insurance could be an important financial service for SMEs, with greater emphasis life insurance, crop insurance and insurance for income earning assets such as livestock and stocks.
Also, there is the need to critically examine the challenges confronting SMEs at the research site and find pragmatic solutions to them. Difficulties associated with assessing venture capital, loan collateralization, insurance services, and high interest rates need to be carefully examined to ensure their business friendly
References
- African Development Bank, (2010). The African Woman in Business: Fighting in an Agrarian Economy. Journal of Development Economics 63(2) 265-305.
- Aga Kahn Development Network (AKDN, 2008): Aga Kahn Agency for microfinance:
- Products for small and medium scale enterprises (SMEs): http://www.akdn.org/default.asp
- Aldrich, (1989) Social Capital down town Entrepreneurs in rural Communities. Rod Runyan University Press.
- Annan, K., (2005): What is Microfinance? http://www.kiva.org/about/microfinace
- Anup, S., (2009): Causes of Poverty: Global issue. http://www.globalissue.org/article/4poverty-around-the world
- Arghiros& Moller, (2000). Poverty, Well-Being and Gender: What Counts, Who’s heard?. http:/muse.jhu.edu
- Aruna, M. &Jyothiromayi , R, (2011). The role of micro finance in women empowerment: A study of SHG bank linkage programme in Hyderabad. Indian Journal of Commerce and Management Studies, 2 (4), 77-95
- Asiama, J and Osei, V., (2007): A Note on Microfinance in Ghana; Bank of Ghana Working Paper. Retrieved from http://www.economicswebinstitute.org/glossary/microfince.htm -2/02/2013
- Asiama, P. J., and Osei V. (2007); Micro-Finance in Ghana: an Overview http://www.economicswebinstitue.org/eassys/microfinance.htm
