Determinants of Small and Medium Enterprise (SME) Financing by Financial Institutions in Ghana.

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This study investigated the definition of SME’s as viewed by the financial institutions in Ghana. The study also investigated the SME loan eligibility criteria of the Ghanaian financial institutions. Data was collected through interviews of 10 bank and 5 non-bank financial institutions in Tema metropolis. The findings of the study indicate that there were some differences in the list of lending criteria of the bank and non-bank financial institutions. However, the most important lending criteria for both bank and non-bank financial institutions is collateral. In addition although their relative level of importance differed the other common lending criteria were ‘Audited account where applicable’, ‘Registered business and its documents’; ‘Not less than six months accounts operation’. The definition of SMEs based on turnover was also found to be mainly two; annual turnover between GH¢1 and GH¢1,000,000; and annual turnover between GH¢5,000,000 and GH¢6.000, 000. Practical implications and future studies were discussed. Bank financial institutions under this study were not having guarantor tax document and age of business as lending criteria for advancing credit to SME’s. It was observed that low emphasis was placed on criteria such as business registration, credit history, and recommendation by risk managers. The non-bank financial institutions are interested in major criteria such as collateral, guarantor, business registration documents, bank statement, audited account, recommendation by risk managers and credit history. The non-bank financial institutions place little premium on criteria such as tax documents and age of the business. The study therefore recommended that credit bureaus should be established to assess the peculiarities of SME’s
A Thesis submitted to the Institute of Distance Learning, Kwame Nkrumah University of Science and Technology, Kumasi in partial fulfillment of the requirements for the degree of Commonwealth Executive Masters of Business Administration, July-2012