Publication: Small Enterprise Finance under Liberalization in Ghana
Date
1994-11
ISSN
Published
1994-11
Author(s)
Aryeetey, Ernest
Baah-Nuakoh, Amoah
Duggleby, Tamara
Hettige, Hemamala
Steel, William F.
Abstract
This study investigates the apparent
contradiction between the high propensity of small- and
medium-sized enterprises (SMEs) to identify finance as their
primary constraint and the view of banks that SME lending
remains low in part for lack of bankable demand. Surveys
were conducted of relatively successful microenterprises and
SMEs to assess demand and sources of finance, and formal and
informal financial institutions were interviewed to analyze
constraints on the supply side. The survey results show that
credit for start-up is rare and that the smaller the
enterprise, the greater the equity finance share of the
initial investment. Many SMEs achieve substantial growth
through reinvestment of profits, making it difficult to
conclude that entry and growth of SMEs depends crucially on
loans. Other forms of finance, such as customers'
advances and supplier's credit are at least as
important as bank credit. Nevertheless, the evidence
suggests that exploitation of highly profitable
opportunities by SMEs could be accelerated if they had
greater access to external financing. Tight money,
banks' efforts to improve portfolio performance,
centralization of decision-making, and lack of competition
explain why banks have shown little interest in developing
SMEs as a market niche. The study suggests techniques that
banks could adopt to overcome the problems of high
transaction costs and risks in SME lending, drawing on the
methods of informal financial agents.
Citation
“Aryeetey, Ernest; Baah-Nuakoh, Amoah; Duggleby, Tamara; Hettige, Hemamala; Steel, William F.. 1994. Small Enterprise Finance under Liberalization in Ghana. Africa Region Findings & Good Practice Infobriefs; No. 26. © World Bank, Washington, DC. http://hdl.handle.net/10986/10007 License: CC BY 3.0 IGO.”