The Financial Challenges Facing Small and Medium Enterprises (SMES) in the Ashanti Region: A Case Study of Kwabre District

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There is growing recognition of the important role Small and Medium Enterprises (SMEs) play in economic development. More generally, the development of SMEs is seen as accelerating the achievement of wider economic and socio-economic objectives, including poverty alleviation. However, SMEs are entangled with myriad problems mitigating their growth in Ghana; notable among them are, lack of access to credit. This stems from the fact that SMEs have limited access to capital markets, both locally and internationally, due to perception of higher risk, informational barriers, and the higher costs of intermediation for smaller firms. As a result, SMEs often cannot obtain long-term finance in the form of debt and equity mostly from the formal financial institutions, particularly the commercial banks. This study therefore is to assess the financial challenges facing the financing of SMEs within the Kwabre District of the Ashanti. The study used both primary and secondary sources of data gathered through questionnaires and interviews. The study found that the financial services mostly offered to SME managers and owners were business advice and SME Banking. The main banking services rendered to SMEs are overdraft, trade credit, cash management, and business Advice. The major financial challenges identified included unwillingness of the financial institutions to give credit to the SMEs due to high default rate, poor proper book keeping, attitude of management and monitoring that militate against the SME Banking Unit of the banks were identified. The study recommends that banks should identify the constraints of the SMEs on one-on-one basis and put in strategies to surmount not only financial challenges but technical as well. Also SMEs are advised to be shareholders of the banks so as to push their course through. It is also recommended that a special common fund be constituted for the SMEs by government. A national policy for financing should be instituted, implemented and monitored. It is expected that the government should provide resources to create an incentive scheme for financial institutions to make flexible loans to SMEs in Ghana.
A Thesis submitted to the Institute of Distance Learning, Kwame Nkrumah University of Science and Technology in partial fulfillment of the requirements for the degree of Commonwealth Executive Masters in Business Administration, April, 2012