Effect of loan interest rate on small and medium enterprises development in Ghana.
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Date
2018-09
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KNUST
Abstract
There is an increase in recognition of the important role small and medium enterprises (SMEs) play in every economic development. In the past, developing economies including Ghana have undergone periods of significant changes such as the economic recovery and structural adjustment programmes which have gradually necessitated the development of a market economy. This study is a contribution to the debate on the effect of loan interest rate on small
and medium enterprises growth in Ghana. The main purpose of the study is to examine the effect of loans interest rates on SMEs performance and growth at Tudu in the Accra central business district. Some major issues included the difficulty for SMEs to access bank loans due to high interest rates, low profitability and lack of collateral required by the banks. The general argument was that, high loan interest rates were not compatible with the performance and growth of SMEs, and that most financial institutions such as the Banks charged high interest rates, and hence the SMEs tend not to be profitable. Causing an increased rate of SMEs failure in developing countries. In addition, little work establishes the link between the loan interest rates and the growth of SMEs. Therefore, it is in the best interest of this study to investigate and find out the extent to which the charged interest rates affect the performance and growth of SMEs.
The study design was a cross-sectional survey. The information that led to the achievement of the objectives was gathered through the use of questionnaire involving a sample size of 100 respondents sampled based on purposive sampling. From the results, the study concluded that the effects of loans on growth and development of businesses are physical, social infrastructure and capital. Clearly, there is a close to consensus expression that acquiring a loan from bank or any financial institution brings about improvement of businesses. Hence, the study recommended that more attention be focused on the growth of small and medium enterprise by making loans available at reduced interest rates and accessible to all people in the country in order to create job opportunities for employment, reduce cost of doing business and ensure effective business operations and management. The findings of the study indicated that, majority of the entrepreneurs were females who were engaged in various small and medium enterprises with the Tudu business centre. Larger proportion of the entrepreneurs mainly contract loan facilities from the bank with GH₵ 1000 and GH₵ 2000 to speed up the operations of the business. Business growth and sales of SMEs are the main variables that influence loan accessibility. Employment, reduce cost of doing business and business operation and management are the variables that have a significant influence on growth and development of small and medium entrepreneurs.
The study suggested that government should reduce interest rate to the optimum growth and development of SMEs in Ghana.
Description
This Thesis is Submitted for the Partial Fulfillment of the Requirement for the Award of Msc Economics Degree.