The Demand, Supply and Ultilisation of Credit for Small Enterprises Development: a Case Study of the Akuapem South Municipalty

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The dynamism of small enterprises in developing countries, particularly Ghana, as engines of growth in developing countries has long been recognised. They have been one of the major areas of concern to many policy makers in an attempt to accelerate the rate of growth in low income countries. The ability of them to exploit highly profitable opportunities would be enhanced if external financing were more accessible. It is essential that they obtain the necessary funding to remain active. However, enterprises are more often than not, denied credit from financial institutions. Banks often deem small enterprises as too risky to finance. Credit terms are becoming increasingly harder and qualifying for financing is subject to much stricter guidelines. The general objective of the study was to assess the demand, supply and utilisation of credit for the development of small enterprises in the Akuapem South Municipality of the Eastern region of Ghana. The study was carried out in three towns in the municipality: Nsawam, Adoagyiri and Aburi. Two (2) traditional banks i.e. Ghana Commercial Bank, Nsawam and Aburi, three (3) rural banks i.e. Akuapem rural bank (Nsawam), Citizens rural bank (Nsawam) and South Akim rural bank (Adoagyiri) and one Microfmance company, namely Gains microfinance (Adoagyiri), were studied to determine the supply dynamics of credit in the municipality. One hundred and eight (108) small enterprises were studied to assess the type and quantity of credit demanded by enterprises. Furthermore, four departments of the Municipal Assembly, namely: the Department of Cooperatives, the National Board for Small Scale Industries, the Ministry of Food and Agriculture and the office of the Municipal Planning and Coordinating Unit, were also interviewed to determine their role in the demand, supply and the effective utilisation of credit by small enterprises. The study established that, small enterprises are weak in their demand for credit, due to high interest rates, high number and type of guarantors required, lien requirements equivalent to a quarter of credit sum applied for, managerial incompetence, lack of registration of enterprises, low level of education of entrepreneurs and lack of an acceptable collateral. The research revealed that, supply of credit was short of demand in most instances and financial institutions would often not grant a credit request when it was in doubt of the enterprise's track record. The study concludes with some policy perspectives and suggestions that will improve upon the demand and supply of credit in the municipality. Recommended strategies and interventions such as educate entrepreneurs to increase the volume of savings and register their enterprises, cuts in interest rates and bank charges and the extension of repayment schedules will enhance the demand for credit among enterprises. On the supply side, the transformation of activities by banks to meet "the needs and aspirations of small enterprises and ensuring post disbursement field visits and monitoring of credit will be an added advantage to the supply and utilisation of credit by enterprises.  
A Thesis submitted to the School of Graduate Studies, Kwame Nkrumah University of Science and Technology, in Partial Fulfilment of the requirements for the Degree of Master of Science in Development Planning and Management.