Effects of microfinance institutions on small and medium scale enterprises in Rural Ghana: the case of the Jaman North District

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The advent of Small and Medium scale Enterprises (SMEs) has received international attention. In Ghana, about 70 percent of enterprises are said to be micro to small sized and estimated that nearly 40 percent of Ghana’s Gross National Income (GNI) is attributable to SME activity. Microfinance, which is the provision of an appropriate range of financial services such as credit, savings, insurance, training and fund transfers is very important to the growth of these SMEs over time and more importantly for those in rural Ghana.The Jaman North District, has witnessed growth in the numbers of SMEs recently. Despite the role of microfinance in SME growth, SMEs in the Jaman North Districtt are still fraught with challenges of access to financial services. Most of these SMEs therefore begin small and eventually die small, without ever having to see any expansion in terms of output and profits in this rural community. The study therefore aimed at exploring the effects of microfinance institutions (MFIs) on SMEs in rural Ghana in order to suggest some planning guidelines that meet the needs of both MFIs and SMEs. The Nafana and Suma Rural Banks in the Jaman North District were chosen as multiple cases to examine the effects of these MFIs on SMEs in thedistrict. The multiple cases were used in order to compare results and fully understand the effects of MFIs on rural SMEs. To fully understand the effects of MFIs on SMEs in the district, the researcher purposively chose SME clients of the Suma and Nafana Rural Banks who have dealt with the banks for five (5) or more years. The probability proportional sampling technique was used to determine samples from each stratum to obtain the sample sizes for the SME clients for the Suma and Nafana Rural Banks as a means of giving all SME types equal chances of being represented in the sample. All the 93 SME clients accessed loans and training from the banks. Loans were given by the Suma and Nafana Rural Banks on different conditions including collaterals and saving with the bank for a minimum of six months. The majority of SME clients of the Suma and Nafana Rural Banks indicated that the services they received from the banks over time enabled them to increase productivity and increase in incomes. At the household level, SME clients of the Suma and Nafana Rural Banks indicated that their businesses enabled them to increase household incomes and savings. It was recommended that MFIs disburse loans on time, increase loan sizes to engender major investment in SMEs, provide loans with flexible repayment terms revise interest rates downward and help to upgrade the managerial skills of SME operators
A thesis submitted to the School of Graduate Studies, Kwame Nkrumah University of Science and Technology, Kumasi, in partial fulfilment of the requirements for the degree of Master of Science Development Policy and Planning, 2012