Rural banks financing of Small and Medium- Scale Enterprises (SMEs)

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July 2015
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The main objective of the study is to explore how Rural Banks financing Small and Medium- scale Enterprises (SMEs) within Kumasi Metropolis of Ghana, taking cognizance of the roles and contributions of Juaben Rural Bank Limited. In the advanced countries, commercial banks are the main financiers of SMEs. However, in Ghana there are a number of macroeconomic, institutional and regulatory challenges that hinder the commercial banks from lending to SMEs. In addition, SMEs have high failure rates and for that matter commercial banks are unwilling to extend credit to players of the sector. Even where the commercial banks extend credit to SMEs the loans are secured with collateral, leading to stagnation of growth. By administering a questionnaire to ninety (90) SME operators and ten (10) staff of Juaben Rural Bank, the study has shown that lack of collateral security, unprepared accounts, poor financial history, limited years of operation, no business plan, and no reason and not being qualified are some of the major challenges SMEs face in accessing loans from rural banks. Moreover, high default rate of the SMEs, ineffective management of SMEs and ineffective monitoring of SME loan were challenges the bank faced. In view of the findings, it was recommended that rural banks should not use collateral security as a requirement for granting credit to SMEs; Bank of Ghana should ensure the rural banks reduce their interest rate; rural banks should train SME operators on effective management of resources and monitor how credit or loans they grant to SMEs are used in the sector; SMEs should form joint ventures to increase their capital base.
A Thesis submitted to the Department of Accounting and Finance, Kwame Nkrumah University of Science and Technology in partial fulfillment of the requirements for the degree of Masters of Business Administration (Finance Option)