DANIEL AGBENYO

CHALLENGES FACING SMALL AND MEDIUM SCALE ENTERPRISES (SMES)
IN ACCESSING CREDIT
(A CASE STUDY OF KUMASI METROPOLIS)
BY
DANIEL AGBENYO (BEd SOCIAL SCIENCES)
A THESIS SUBMITTED TO THE DEPARTMENT OF ACCOUNTING AND

FINANCE, KWAME NKRUMAH UNIVERSITY OF SCIENCE AND
TECHNOLOGY, KUMASI,
IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF
MASTER OF BUSINESS ADMINISTRATION
COLLEGE OF HUMANITIES AND SOCIAL SCIENCES
SCHOOL OF BUSINESS
AUGUST, 2015
DECLARATION
I hereby declare that this thesis is the result of my original piece of research work conducted
between January 2015 and June 2015 under the supervision of Mr. P.K. Oppong Boakye,
lecturer at the School of Business, Kwame Nkrumah University of Science and technology.
Kumasi.
In instances where references of other people‟s works have been cited, full acknowledgement
has been given. This work has never been submitted in whole or in part in any institution(s)
for any award(s).
Agbenyo Daniel ………………………. ……………………
Student Signature Date
Mr. P.K. Oppong Boakye ………………………. ……………………
Supervisor Signature Date
Prof. J. M. Frimpong ………………………. ……………………
Dean Signature Date
ii
DEDICATION
This work is dedicated to the Almighty God who has brought me this far to realize my dream.
It is also dedicated to my loving wife Matilda Boahemaa Apraku. I also dedicate it to Apostle
and Mrs. Gyimah of the Church of Pentecost, as well as Maame Serwaa of Ahodwo, Kumasi.
I pray you all live long to see more of me in your lives.
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ACKNOWLEDGEMENT
God is the source of every blessing in my life. The inspiration for this work came entirely
from Him. Glory and honour be unto His Holy name for His guidance and encouragement.
I also owe a debt of gratitude to Mr. P. K. Oppong Boakye, my thesis supervisor for his
incredible support, and prompt assistance in fulfilling my dream work and for his unusual
encouragement which initiated an uncommon awakening in me that helped me to redefine my
focus and priorities in my academic life.
My sincere gratitude also goes to all the other lecturers in the KNUST School of Business as
well as other visiting lecturers for their unrelenting commitment to duty and the passionate
manner in which they supported our learning. Among them are Prof. J. M. Frimpong, Dr. D.
Domeher, Dr. Owusu Ansah, Dr. Ahmed, Dr. Oteng Abayie, Mrs Rosemary Coffie, and
Mr. Adusei, just to mention a few.
I am particularly very grateful to the entire management and staff of the SMEs used in the
study in the Kumasi Metropolis, especially for their help and immense support in providing
me with needed information for my research work.
I would like to thank all persons whose influence on my life contributed to the writing of this
thesis. I am also deeply grateful to the various authors whose works have been cited in this
study.
Special appreciation goes to my wife Matilda Boahemaa Apraku for her continual support
and encouragement throughout the entire MBA program, and also to my friends and study
group members; John, Christian, Jane, Vero, Ken, Lawrence, Dela, Joan, Joyce, Helena, Rita,
Florence and especially Mercy for their cooperative spirit and encouragement.
You are all an integral part of this work. God richly bless you all.
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TABLE OF CONTENTS
DECLARATION......................................................................................................................ii
DEDICATION.........................................................................................................................iii
ACKNOWLEDGEMENT ...................................................................................................... iv
TABLE OF CONTENTS ........................................................................................................ v
LIST OF TABLES .................................................................................................................vii
CHAPTER ONE ...................................................................................................................... 1
GENERAL INTRODUCTION ............................................................................................... 1
1.0 INTRODUCTION ........................................................................................................... 1
1.1 BACKGROUND OF THE STUDY ................................................................................ 1
1.2 STATEMENT OF PROBLEM ........................................................................................ 4
1.3 OBJECTIVES OF THE STUDY ..................................................................................... 6
1.4 RESEARCH QUESTIONS ............................................................................................. 6
1.5 JUSTIFICATION OF THE STUDY ............................................................................... 7
1.6 LIMITATIONS OF THE STUDY................................................................................... 7
1.7 SCOPE OF THE STUDY ................................................................................................ 7
1.8 ORGANIZATION OF THE STUDY .............................................................................. 8
CHAPTER TWO ..................................................................................................................... 9
LITERATURE REVIEW ....................................................................................................... 9
2.0. INTRODUCTION .......................................................................................................... 9
2.1 HISTORY OF THE SMALL AND MEDIUM SCALE ENTERPRISES ....................... 9
2.2 OVERVIEW OF SMEs IN GHANA............................................................................. 10
2.3 SMEs DEFINED ............................................................................................................ 11
2.4 CONTRIBUTIONS OF SMEs OPERATIONS TO ECONOMIC DEVELOPMENT . 13
2.5.1 Functions of finance in small business enterprises ................................................. 17
2.6 MICROFINANCE AND SMALL BUSINESS ENTERPRISES .................................. 19
2.8 VARIOUS GOVERNMENT INTERVENTIONS TOWARDS SMEs OPERATIONS
.............................................................................................................................................. 22
2.9 EMPIRICAL REVIEW OF LITERATURE ON THE CHALLENGES OF SMEs. ..... 24
2.10 WHY SMALL BUSINESSES ENTERPRISE FAIL .................................................. 27
CHAPTER THREE ............................................................................................................... 28
RESEARCH METHODOLOGY ......................................................................................... 28
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3.0 INTRODUCTION ......................................................................................................... 28
3.1 RESEARCH DESIGN ................................................................................................... 28
3.2 SOURCES OF DATA AND DATA COLLECTION METHODS ............................... 29
3.3 RESEARCH POPULATION......................................................................................... 29
3.5 SAMPLING TECHNIQUE ........................................................................................... 29
3.6 DATA ANALYSIS ........................................................................................................ 29
3.7 PROFILE OF THE STUDY AREA ........................................................................... 30
The research was carried out mainly within the central business district of Adum and
Kejetia in the Kumasi Metropolis of the Ashanti Region. These sites were selected
because most businesses within the Metropolis operate from here. The study focused on
SMEs because they form the largest form of businesses in the country and therefore the
need to look at their financing in promoting growth. The choice of Kumasi is for the fact
that the researcher resides and schools there, hence the choice of close proximity.
CHAPTER FOUR .................................................................................................................. 30
ANALYSIS AND INTERPRETATION OF DATA ........................................................... 31
4.0. INTRODUCTION ........................................................................................................ 31
4.1 Source (s) of funds available to SMEs in the Kumasi Metropolis. ................................ 31
4.2 Requirements for micro financing SMEs in the Kumasi Metropolis. ........................... 36
4.3 challenges SMEs face when accessing micro-credit in the Metropolis. ........................ 41
CHAPTER FIVE ................................................................................................................... 48
SUMMARY OF FINDINGS, SUGGESTIONS AND CONCLUSION ............................. 48
5.0 INTRODUCTION ......................................................................................................... 48
5.1 SUMMARY OF FINDINGS ......................................................................................... 48
5.3 SUGGESTIONS ............................................................................................................ 51
REFERENCES ....................................................................................................................... 53
APPENDIX ............................................................................................................................. 56
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LIST OF TABLES
Table 1. Major source of funds for your organizations ........................................................... 31

Table 2. Reliability of sources ................................................................................................. 32
Table 3. Least reliable to most reliable sources of funds ......................................................... 32
Table 4. Government interventions......................................................................................... 33
Table 5. Awareness of various government interventions. ...................................................... 34
Table 6. Difference with other loans........................................................................................ 35
Table 7. Perception of government intervention...................................................................... 36
Table 8. Provision of some form of security in accessing loan ............................................... 36
Table 9 Ability to provide security. ......................................................................................... 37
Table 10. Duration to receive funds after application.............................................................. 38
Table 11. Whether the exact amount requested for is provided .............................................. 39
Table 13. Access to group loans .............................................................................................. 40
Table 14. Challenges SMEs face when accessing micro-credit in the Metropolis? ................ 41
Table 15. Challenges ................................................................................................................ 42
Table 16. Repayment mode for clients .................................................................................... 43
Table 17. Challenges of business in seeking credit ................................................................. 44
Table 18. Effect of the challenges............................................................................................ 45
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ABSTRACT
The primary purpose of this research work was to assess the challenges Small and Medium
Scale Enterprises (SMEs) face in accessing credit. The research design for this study was a
survey, quantitative and descriptive in nature. The study employed the use of questionnaires
which were administered personally on selected days. The sample size for the study was
hundred (100) comprising of Small and Medium Scale Enterprises within mainly the Adum
and Kejetia areas of the Kumasi metropolis. In this study, accidental sampling technique of
the non-probability sampling and random sampling technique of the probability sampling
techniques were used to select the sample. The study employed descriptive and quantitative
techniques in analyzing the data. Tables, frequencies etc. were used in describing and
analyzing the data collected. The researcher used Statistical Package for the Social Sciences
(SPSS). Based on the data collected and analyzed it was found that the sources of funds for
the Small and Medium Scale Enterprises (SMEs) are many. The study revealed that the
sources include Microfinance institutions being the most reliable, followed by Banks,
Lenders and Susu operators in that order. The study revealed that all 100 respondents
representing 100% said they are required by the MFIs to provide some sort of security before
loans are granted. The challenges affect their operations in the area of reduction in profits,
increase in operational costs, delays in operation etc. The researcher suggested that there
should be collaboration between the SMEs and the microfinance firms where the MFIs will
provide a soft loan to these firms to help them increase their operations. Again, the researcher
suggests that the MFIs should focus on the nature of the business and the ease of recording
cash inflows than the security requirement. This will help those who cannot provide security
to also have access to loans to expand their businesses.
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CHAPTER ONE
GENERAL INTRODUCTION
1.0 INTRODUCTION
This section shows all various components that will be looked at under the study of
“Challenges facing Small and Medium Scale Enterprises (SMEs) in accessing credit. A case
study of Kumasi Metropolis” of the Ashanti region. The general idea of SME trade is
highlighted as well as the variety of kinds in Ghana.
The chapter then proceeds to state the problem, outline the research objectives and research
questions, as well as the significance of the study, the scope, limitations and organization of
the study.
1.1 BACKGROUND OF THE STUDY
SMEs do boast of huge power on the lives of citizens of our economy. Information shows
that SMEs comprise of about sixty percent of all businesses in rising economies. In recent
years, various programs and workshops have been organized to enhance development and
expansion of small business enterprises by government and non-government organizations
(NGOs).
So many business enterprises grow rapidly to a point and when there is a small change in the
economy, it depresses them from their point.
Ahmed (2006) explains that (SMEs) are now seen as a sub-sector of the industrial sector
which is playing crucial roles in industrial development. This suggests that Small and
Medium Scale Enterprises are very crucial in shaping the growth agenda of countries. Small
and Medium Scale Enterprises (SMEs) as academically known over the years have had a
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great influence on the lives of individuals of the world‟s economy particularly, developing
economies like Ghana. The Small and Medium Scale Enterprises market consist of many
businesses in the country and in the course of the years, grown to the level of becoming
business merchant and service supplier to very big businesses that involves international and
intercontinental conglomerates Mainly, SMEs have lead to the growth and expansion of
businesses output, lead to increasing of activities of various businesses more especially in the
field of manufacturing. Aside that, SMEs have led to the creation of job openings especially
in the retail sector, and also causative to lengthening Ghana‟s export base (Ghana Investment
Promotion Centre, 2010).
Historically, the SMEs sector in Ghana has been in existence for a long time and there are
lots of opportunities for this sector in the area of agriculture, tourism, information technology,
services, energy, manufacturing etc. In his study, Ojo (2009) said one of the answers to the
difficulties of growth in rising countries particularly, Nigeria, is the support of entrepreneurial
development systems.
Principally, there are many but not one consistently acceptable, meaning of small firms
(Beger2002). Firms are different in the levels of capital mobilization, selling and
employment. That is looking at a single area this could lead to all firms being classified as
small business. Early effort to conquer this explanation problem is through Bolton Committee
(1971) when the committee formulated an “economic” and a “statistical” definition.
In Ghana, small businesses are major sources of employment income and personal
development for the rural and urban folks (Bani, 2003). It is estimated that about three-
quarters of the Ghanaian population derive their livelihood from this sector (Ghana News
Agency, 2006). From the IRS of America ninety six percent of American businesses are
small businesses. Liedholm and Mead (1987) estimated that, small business enterprise
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provided about twenty six (26%) to sixty four (64%) of manufacturing value added and the
bulk of employment in Africa.
Allotey (2008) observed that inadequate credit supervision and monitoring have often led to
the decline of funds as account for low loan recovery rates. Due to lack of security most small
business entrepreneurs are not prepared to acquire bank loans because they cannot meet their
requirements. Many small scale businessmen lack collateral security such as land, house, etc.
which makes it difficult for them to have access to bank loans. Michael Lipton (1976)
observed that borrowers would use projects they could pursue with family to seek credit,
however if the credit is granted they them use it for consumption purposes. Also beneficiaries
of funds from NGOs treat them as gifts since it emanates from outside the company.
Perhaps the mainly significant input of SMEs to the growth of nationwide economy is the
making of employment. In Ghana for instance the SME area contributes about eighty percent
of the employment. Correspondingly ninety percent of operations registered with the
Registrar General are SMEs. (Allotey, 2008)
of funds from NGOs treat them as gifts since it emirates firm outside the company.
3
In Ghana, start-up capital seems a barricade to gain access into mainly commercial activities.
For example, Goze, (1990) in his study of small firms, stated that, few small firms start their
projects with their own capital (personal savings) and with assistance from relatives and
friends. Also access to capital is still a prevailing limitation to SMEs in Ghana.
1.2 STATEMENT OF PROBLEM
SME is a general term to describe SMEs. They are active participant in the growth of the
private sector of the economy. Simanowitz and Brody (2004) said promoting SMEs is a sure
approach to achieving the Millennium Development Goals (MDGs) and in the construction
world monetary schemes that meet the needs of the productive poor.”
However, the MDGs of alleviating poverty through SMEs have not been met despite the
strides made and being made by the governments around the world and Ghana especially.
The Ghana government in 2006 under the leadership of His Excellency John Agyekum
Kuffour (Ex-President) made a great stride in establishing Microfinance and Small Loans
Center to help these SMEs unreached by the banks. However, reports on SMEs operations by
the media and other recognised bodies show that they have not been fruitful despite
government financial interventions.
Since the broadcast of PNDC Law 328 in 1991 to allow dissimilar groupings of monetary
organizations including savings and loans companies, a lot of SMEs have sprung up.
However, the objective of reaching and providing financial resources for these SMEs and the
poor is far from being reached according to the World Bank‟s report and International
Development Law Organisation (IDLO), (2008). This and many more suggest a possible
challenge facing the SMEs in their operations.
4
The study therefore set out to investigate the challenges facing Medium Scale Enterprises in
accessing credit using Kumasi Metropolis as a case study.
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1.3 OBJECTIVES OF THE STUDY
The general objective of this research work is to access the challenges facing SMEs in
accessing credit in the Kumasi Metropolis of the Ashanti Region of Ghana.
The specific objectives of the study include the following:
1. To find out the source (s) of funds/finance available to SMEs in Kumasi Metropolis
2. To investigate the requirements for Micro financing SMEs and its effects on SMEs
operations in the Kumasi Metropolis.
3. To examine challenges SMEs face when accessing micro-credit in the Metropolis.
1.4 RESEARCH QUESTIONS
1. What are the sources of funds for SME operations in the Kumasi Metropolis?
2. What are the requirements for giving credits to SME clients in the Kumasi
Metropolis?
3. What are the challenges SMEs face when accessing micro-credit in the Kumasi
Metropolis?
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1.5 JUSTIFICATION OF THE STUDY
The research will offer a data base informing Medium Scale Enterprises of the importance of
having a strong background of funds, training programs etc. The study will also help to
highlight the need to have performance measurement policy within SMEs to gauge against
actual performances so as to embark on necessary corrective actions if need be.
The research is also an essential provision for the completion of conditions needed for the
award of an MBA certificate. It will also prepare the researcher for future research work.
In the area of academia, students in the tertiary institutions offering business administration
will find the information in this long essay very useful and beneficial.
1.6 LIMITATIONS OF THE STUDY
This research work is limited to the study area and might not be generalized to every SME
within the region, let alone the nation as a whole.
Secondly, the use of a self-report survey and historic data might be less reliable, especially
when the information sought on financial situation of the business could be embarrassing
(Richardson, 2008).
1.7 SCOPE OF THE STUDY
The scope of the research is to find out the financial challenges facing SMEs operations in the
Kumasi Metropolis. The study will cover areas such as raising of funds, investment of
surplus monies, training of staff, assessment of clients, registration of the institutions etc.
With this, the researcher employed the usage of questionnaire. In some cases unstructured
interviews were employed.
7
The study is limited to the Medium Scale Enterprise operations in the Kumasi Metropolis of
the Ashanti region of Ghana.
1.8 ORGANIZATION OF THE STUDY
This study is classified into chapters, with the chapters being organized as below:
Chapter one– focused on the introductory aspects of the research topic, it gave a general
introduction to the research. This chapter is made up of the following,
 General introduction
 The background of the study
 The problem statement
 The objective(s) of the study
 The significance of the study
 Scope of the study
 The limitations of the study
Chapter Two – Literature Review, this chapter reviews the related literature on the topic-
Challenges facing SMEs in the Kumasi Metropolis. The researcher considered literatures
from articles, journals, books, news papers etc.
Chapter Three – Methodology, this chapter deals with methodology of the research. The
chapter comprises the data sources, primary and or secondary, techniques of sampling used
etc. including the basis for using such methods.
Chapter Four – looks at the analysis of data and the explanation of the data collected. This
includes data processing, data presentation, and description etc. to bring about understanding
of the data processed. The interpretation was mad in line with the objectives of the study.
Chapter Five – this chapter constitutes the final chapter of the study. It is about the summary
of the findings, giving conclusion and finally the recommendations made with regards to the
findings.
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CHAPTER TWO
LITERATURE REVIEW
2.0. INTRODUCTION
The chapter looks at literature on the research topic “Challenges facing Small and Medium
Scale Enterprises (SMEs) in accessing credit. A case study of Kumasi Metropolis” of the
Ashanti region. The chapter also gives a review of numerous literatures on Small and
Medium Scale Enterprises, giving comments where necessary.
The study was conducted in the Kumasi Metropolis of the Ashanti region of Ghana. This
chapter considers the theoretical literature related to the subject matter.
2.1 HISTORY OF THE SMALL AND MEDIUM SCALE ENTERPRISES
Small business businesses are all over the country and even one cannot recall the time their
establishment came into being. They have diversified the country‟s monetary base and
provided it with occasion of responding to a diversity of market conditions. The contribution
of SMEs has created jobs and hence reduced the rate of unemployment in the country. These
businesses are typically accepted in Eastern Europe and the Soviet Union. This observation
was supported by Burns (1996) by saying; “people apparently fall in line with small business
enterprises”. Burns continued „the small number of entrepreneurs who started up small firms,
made them grow and perhaps became millionaires in the processes.
The earliest form of business entity in the world is the small business enterprise. According to
Barrow (1993), the first known writings about small business enterprises suggest that more
economies are fed with products and provision of services through small business enterprises.
9
2.2 OVERVIEW OF SMEs IN GHANA
Ahmed (2006), explains that (SMEs) to now seem the sub-sectors of the industrial sector
which plays crucial roles in industrial development. This suggests that Small and Medium
Scale Enterprises are very crucial in shaping the growth agenda of countries. Small and
Medium Scale Enterprises (SMEs) as academically known over the years have had a great
influence on the lives of individuals of the world‟s economy particularly, developing
economies like Ghana. Primarily, they have added to increasing production, giving out
value-added activities in the industrialized sector, providing jobs avenues particularly in the
services sector, and helping to broaden Ghana‟s export base (Ghana Investment Promotion
Centre, 2010).
Historically, the SMEs sector in Ghana has been in existence for a long time and there are
lots of opportunities for this sector in the area of agriculture, tourism, information technology,
services, energy, manufacturing etc.
This is a view held by the majority of developing countries and Ghana is not exempted. The
Ghana governments over the years have pledged to develop the private sector and also
support the private sector to help drive the nation to a level of ease for all. In Ghana, the
private sector is hugely constituted by the SMEs. However, the SMEs within this sector are
saddled with series of challenges and difficulties. Most of the productive poor and
unemployed Ghanaians are engaged in self-employment in order to better their living and that
of their families. This action subsequently has made Entrepreneurship a fast and better option
in Ghana thereby reducing the rate of unemployment. Currently, employment seeking in
corporate entities by the Ghanaian youth is declining. Again unemployment in the country is
on the decline due to the fact that the youth are driven into establishing their own businesses.
10
In the last decade, the Ghanaian economy has seen tremendous boom in the area of Small and
Medium Scale businesses.
According to Acolatse, (2012) SMEs represent greater than ninety percent of most operations
in Ghana. SMEs engage a vital fraction of the Ghanaian financial system. SMEs put food on
the table of many Ghanaians. However, growth of these businesses seems a mirage as most of
them collapse soon after coming into existence. Most of these businesses also suffer from the
actions and inactions of the bigger companies who do not typically employ the local people
and generally too are foreign companies. Over the years the government of Ghana has
instituted a number of policies to appraise the operations of SM|Es and also to develop SMEs
to a better status. Since the enactment of PNDC Law 328 in 1991 to permit dissimilar
groupings of monetary organization which includes savings and loans companies, SMEs a lot
has been done to promote the SMEs to greater heights. Yet most of these SMEs have hardly
seen the day light.
2.3 SMEs DEFINED
In countries such as the USA, UK and Canada, SMEs are explained in terms of what they
earn as returns or turnover. (Gray & Cooley, 1995). For example, in Britain, SMEs industry
is explained as one with yearly turnover of two million pounds or less and with some less two
hundred workers.
In Ghana, the body governing the operations of SMEs explains that there are series of terms
used such as criteria of fixed assets and employment size to distinguish small-scale industries
from medium and large-scale industries.
SMEs is an enterprise having (29) or less employees and also plants and equipment of
GH100,000 -Ernest (Aryeetey 1995). Joel and Lussien (1996) also define SMEs as a business
11
that is separately owned and managed. In the Ghanaian economy, as more outputs and
services are not dependable, SMEs can be defined by characteristics rather than by values of
assets, volume of sales, number of employees though such information is needed.
Therefore, small and medium business enterprises can be defined as small and medium,
where the entrepreneur is involved in the production process as well as the administrative and
commercial aspects of business. One of its features is that most at times, family members are
involved. In the case of large business organizations the entrepreneur may head the
administration but not involved in production.
Another body called Ghana Enterprise Development Commission (GEDC) used 1000 as
upper limit description. The second issues is the incessant reduction in the swap rate often
made such explanation out dated. (Ghana News Agency, 2006).
However, for the reason of the research and due to data unavailability, the researcher
classifies small business enterprises as used by Ghana Statistical Service. The Ghana
Statistical Service defines small business enterprises as a firm with less than ten employees
(1-10) without regards to the capital base.
According to Stokes and Wilson (2010), the EU law in 2005 adopted that SMEs should be
defined using the figure of workers, turnover and financial statement (total assets-balance
sheet). This is expressed in table below:
Company category Employees (headcount) Turnover or Balance sheet total
Medium-sized Less 250 Less/equal € 50 million Less/equal € 43 m
Small Less 50 Less/equal € 10 million Less/equal € 10 m
Micro Less 10 Less/equal € 2 million Less/equal € 2 m
Source: Stokes and Wilson. Small business management and entrepreneurship, 6th Ed: 2010
12
This quantitative scale-measuring of what SMEs are is very important for policy purposes in
the European Union (EU). The idea here is that it is obviously clear to apply and also
facilitate the use of arithmetical examination but have some constraints. The figure of
workers employed is based on the sector in question and this makes generalized evaluation
across areas very complicated (Stokes and Wilson, 2010). Curran and Blackburn (2001), also
view the use of numbers employed as becoming even more problematic as full-time
employment has become less common with increasing number of part-time, casual and
temporary workers.
One may therefore infer that SMEs are businesses with the capability to hire up to five
hundred or at most five hundred (500) employees. In Ghana, these SMEs do not have up to
500 employees. Most have the capacity to employ between the numbers of 200 and 300.
Again such SMEs tend to have branch (es) offices across the ten regions of the country. It is
also known that most of these SMEs are owned by individual entrepreneurs. Only few are in
the form of partnership or joint venture.
2.4 CONTRIBUTIONS OF SMEs OPERATIONS TO ECONOMIC DEVELOPMENT
There are no measurable contributing effort of SMEs to the economy but it can always be
said that their contributions are enormous and visible though not in it peak as required or
desired by the indigenes and the government at large. .
SMEs have been seen as the engines through which the growth pillars of developing
countries can be attained (Stokes, 2010). These roles, which serve as a major contribution
factor in the economy can be seen in the area of job creation and employment, proceeds
generation in many developing countries, reducing the problem of rural-urban drift, provision
of utilities and more. In the united of states, research has shown that most jobs are created by
small enterprises.
13
Barns (1996) SMEs contributes importantly to the economic activities in the UK. One cannot
precisely indicate the number of small business enterprises in Kumasi, from observation; the
community has many small business enterprises. Small business provides a high contribution
to economic activities in Kumasi area and even the nation as a whole. They provide a source
of employment and daily bread to many people in the Ashanti Region.
In Ghana, small businesses are major sources of employment income and personal
development for the rural and urban folks (Bani, 2003). It is estimated that about three-
quarters of the Ghanaian population derive their livelihood from this sector (Ghana News
Agency, 2006).
From the internal revenue service of USA ninety six percent of American companies are
SMEs. Liedholm and Mead (1987) estimated that, small business enterprise provided about
twenty six (26%) to sixty four (64%) of manufacturing value added and the bulk of
employment in Africa.
One cannot precisely indicate the number of small business enterprises in Kumasi. From
observation, the community has many small business enterprises. Small business provides a
high contribution to economic activities in Kumasi area and even the nation as a whole. They
provide a source of employment and daily bread to many people in the Ashanti Region.
Small business enterprises, especially cottage industries, which can be found in the rural
areas, have helped create employment capabilities to reduce the problem of rural-urban drift
whereby many young school leavers from the rural areas flock to urban centre in search of
non-existing jobs resulting in increase in population and other social vices in the urban areas
(Ninson, 2007). Thus, small business enterprises have helped to add to more allotment of
monetary activities in rural areas and helped to sluggish the flow of relocation to big cities.
14
The expansion of small business enterprises has attracted the provision of utilities such as
electricity, water, improved communication and transport as well as the provision of other
social amenities that has made the life in the rural areas more attractive. This has in turn
motivated the young school leavers to stay in the rural areas, to contribute their quota to the
resuscitation of the economy.
Moreover, SMEs operations can be started on a quite a low capital and at the same time on a
part time base. SMEs also have the advantage of being quickly able to adapt to new customer
demands. Proprietors of SMEs are closer to their clients, which makes them more
accountable and leads to greater customer loyalty. This is particularly challenging for large
firms due to their internal bureaucracies. With the evolution of the internet since the 1990s,
SMEs have gained extra impetus in the area of internet marketing. (Stokes, 2010)
2.5 SOURCE OF FINANCE FOR SMALL AND MEDUIM SCALE ENTERPRISES
Finance in small business enterprises refers to some kind of wealth used to create more
wealth for the business. Finance exists in a form of cash. There has always been the tradition
of people saving and/or taking small loans from individuals and groups within the context of
self-help to start businesses. With regards to finance there are numerous forms sources of
finance available to SMEs. These include the following:
1. Existing shareholders and directors funds (“owner financing”)
2. Overdraft financing
3. Trade credit
4. Equity finance
5. Business angel financing
6. Venture capital
15
7. Factoring and invoice discounting
8. Hire purchase and leasing
9. Merchant banks (medium to longer term loans) (Stokes, 2010)
10. Micro Finance Institutions(MFIs)
The finance segment has seen some form of evolution to its present state. This is due to the
various financial sector policies and programmes undertaken by different governments since
independence.
According to Adjei, (2010) a critical thought in selecting the source of financing business is
to clout an equilibrium between equity and debt to ensure the funding structure suits the
business. He further explained that the main difference between borrowed money (debt) and
equity are that bankers request interest payments and capital repayments, and the borrowed
money is usually secured on business assets or the personal assets of shareholders and/or
directors. This therefore suggests that bank do have the right and can decide on the interest to
charge. However, the balance is to ensure that SMEs are not burdened with excess finance to
pay.
It can also be explained that equity investors get the risk of failure like other shareholders,
whilst they will benefit through contribution in growing levels of profits and on the eventual
sale of their stake. On the other hand, in most circumstances venture capitalists will also
require more complex investments (such as preference shares or loan stock) in additional to
their equity stake. (Adjei, 2010)
The idea of financing SMEs is for them to grow and offer great and excellent services to the
customers. Another include the idea of helping them get away from borrowing from friends
and other sources that end up burdening them. Sourcing for funds is to get rid of high
financial risk and maintaining an optimal level. (Fearns, 2008)

16
Finding the start-up capital partly depends on the type of planned operations plus the sum of
capital needed. SMEs are more peculiar to finance start-ups, fixed and growth capital through
sources like personal savings from the owners themselves, relatives and friends, susu
collectors and credit from commercial banks. The commercial banks have sort to advise
themselves from granting bad loans to small business enterprises which have recorded
substantial losses in their portfolio even though in recent times, the government has
contracted loans from international agencies for these small business enterprises through the
commercial banks.
2.5.1 Functions of finance in small business enterprises
Finance in small business enterprises is important in terms of providing the necessary capital
requirements during its financial planning. Three basic types of capital required by a business
have been identified as 1.) Fixed capital 2.) Working capital and 3.) Growth Capital.
a. Fixed Capital
Fixed capital refers to any kind of real or physical capital (fixed asset) that is not used up in
the production of a product and is contrasted with circulating capital such as raw materials,
operating expenses and the like. Fixed capital is that portion of the total capital that is
invested in fixed assets (such as land, buildings, vehicles and equipment) that stay in the
business almost permanently, or at the very least, for more than one accounting period. Fixed
assets can be purchased by a business, in which case the business owns them, but also leased,
hired or rented, if that is cheaper or more convenient, or if owning the fixed assets is
practically impossible.
b. Working Capital
In general working capital is cash available for day to day operations of a firm. Strictly
speaking, one borrows cash (and not working capital) to be able to buy assets or to pay for
17
obligations. In accounting terms working capital is the net liquid assets computed by
deducting current liabilities from current assets. Sources of working capital are net income,
long-term loans (non-current liabilities), sale of capital (non-current) assets, and injection of
funds by the owners (stockholders). Amount of available working capital is a measure of a
firm's ability to meet its short-term obligations. Ample working capital allows management to
avail of unexpected opportunities, and to qualify for bank loans and favorable trade credit
terms. In the normal trade cycle of a business firm, working capital equals working assets.
(Greg, 2012)
c. Growth Capital
Growth capital (also called expansion capital and growth equity) is a type of private equity
investment, most often a minority investment, in relatively mature companies that are looking
for capital to expand or restructure operations, enter new markets or finance a significant
acquisition without a change of control of the business.
Growth capital is often structured as either common equity or preferred equity, although
certain investors will use various hybrid securities that include a contractual return (i.e.,
interest payments) in addition to an ownership interest in the company.
Often, companies that seek growth capital investments are not good candidates to borrow
additional debt, either because of the stability of the company's earnings or because of its
existing debt levels. (Greg, 2012)
18
2.6 MICROFINANCE AND SMALL BUSINESS ENTERPRISES
The basis of a nation‟s manufacturing growth is industrial activities. Regrettably, there is
anxious access to the conservative loan from the profitable banks to start up a small or
medium scale enterprise. The ensuing effect is that the less developed circumstances of the
state is going worse while administration appears powerless of calming the ugly occurrence.
The indication of these circumstances is high scarcity rate, high unemployment rate, and
economic reliance on foreign nations.
On the other hand commercial banks often insist for security security before giving out loans
for business purposes. This is a essential feature in getting loan as collateral security serves as
guarantee for recovering of loans given out by commercial banks in case of repayment
default.
An average citizen in Ghana cannot provide such collateral security. This fallout to
incapability of a standard Ghanaian to access loans from commercial banks. Thus the
complexities of access to loan from financial firms such as profitable banks consist of a great
setback to industrial growth which small and medium enterprise forms part. (Parker, 2006).
Through to two decades, management of developing nations have formed enormous
programs for economic growth. A possible clarification for the relative absence of SMEs in
the poor economies is the difficulty of obtaining access to finance. Large firms in these
countries can secure financial assistance because they have assets that can serve as collaterals
for loans
Bank of Ghana working paper (2007), the Government‟s Rural Development Strategy, the
Poverty Reduction Strategy Paper (PRSP), including the most recent Livelihood
Empowerment Against Poverty (LEAP), “Plan for Accelerated and Sustainable Development
19
Programme (PASDEP) and other documents emphasize, among other things, microfinance as
a good entry point in achieving development objectives in the region as well as curbing the
dangerous trend in poverty and meeting the United Nation‟s Millennium Development Goals
(MDGs).
Indeed, empirical studies have shown that micro-finance helps very poor households to meet
basic needs and protects against risks, and is thus associated with improvements in household
economic welfare. Gender activists also argue that microfinance helps in empowering women
by supporting women‟s economic participation and so promotes gender equity. (Esther,
2009).
Other kinds of the literature suggest that microfinance creates access to productive capital for
the poor, which together with human capital, addressed through education and training, and
social capital, achieved through local organization building, enables people to move out of
poverty. By providing material capital to a poor person, their sense of dignity is strengthened
and this can help to empower the person to participate in the economy and society (Otero,
1999).
The aim of microfinance according to Otero (1999) is not just about providing capital to the
poor to combat poverty on an individual level.
Littlefield and Rosenberg (2004) are of the view that the poor are commonly excluded from
the financial services sector of the economy so MFIs have emerged to address this market
failure. By addressing this gap in the market in a financially sustainable manner, an MFI can
become part of the formal financial system of a country and so can access capital markets to
fund their lending portfolios, allowing them to significantly increase the number of poor
citizens they can reach (Otero, 1999).
20
Some schools of thought however, remain cynical about the role of microfinance in
development. For example, while acknowledging the role microfinance can play in helping to
reduce poverty, Hulme and Mosley (1996) concluded from their research on microfinance
that “most contemporary schemes are less effective than they might be” (1996, p.134). The
authors argued that microfinance is not a panacea for poverty-alleviation and that in some
cases the poorest people have been made worse-off.
It could be recalled that the Central Bank of Nigeria (CBN) in its financial document circular
No. 35 for 2001, stated the new initiative that evolved under the aegis of the bankers
committee to give impetus to current efforts aimed at ensuring adequate resource allocation
to SMEs. This initiative requires banks to set aside 10% of their profit before tax for the
financing and promotion of SMEs in Nigeria.
A survey of funding sources for businesses in 40 developing nations conducted by the World
Bank (USAID, 1995) confirms this general picture very well. Large firms generally have
more access to bank credit both local and foreign than small firms, whereas the latter rely
heavily on internal funds and retained earnings. Nonetheless, the survey suggested that there
is considerable heterogeneity across countries in sources of finance for SMEs.
Small Scale Enterprises (SSEs) produce largely for the domestic market although there are
few of their products for export markets. Those producing for export are unable to identify
the specific buyers in the export trade. This creates the problem of unfair competition from
outside producers as well as dumping of goods from the developed countries (Aboagye et al.
1998).
With regard to the use of modern technology, estimates from the NBSSI indicate that the
operators of SMEs use basic locally-developed technology and machinery which restrict
21
incentives to innovation. These are limited in capacity and efficiency. The SMEs thus,
experience much wastage of materials as well as frequent machine breakdown (Anderson,
1998). Technical expertise in the SMEs is also limited. Some of the small firms are not aware
of the availability of modern technologies or do not have the capability to develop and apply
them. Moreover, where there is such awareness, lack of funds restricts their acquisition. (Olu,
2009)
In Ghana, start-up capital is a barrier to entry in most entrepreneurial activities. For example,
Goze, (1990) in his study of small firms, stated that, few small firms start their projects with
their own capital (personal savings) and with assistance from relatives and friends.
2.8 VARIOUS GOVERNMENT INTERVENTIONS TOWARDS SMEs OPERATIONS
The Ghana government in 2006 under the leadership of His Excellency John Agyekum
Kuffour (Ex President) made a great stride in establishing Microfinance and Small Center to
help those unreached by the banks operating SMEs. Since the proliferation of PNDC Law
328 in 1991 to allow dissimilar groupings of monetary firms that includes savings and loans
companies, monetary non-governmental organizations (FNGO) and Credit Union
Associations (CUA) to give a varied variety of monetary services to Micro and Small
Enterprises (MSEs), a lot of MFIs have sprung up.
The government of Ghana set up the Ghana Business Promotion program in 1970 and this
was changed to the Ghanaian Enterprise Development Commission in 1975, in order to
control the small business credit scheme, provision of financial and technical assistance to
existing small business enterprises. (Adjei, 2010).
Under the “Ghana Government Small Business Loan Scheme” the government provided an
amount of GH¢1,150,000 to the place of work of firms sponsorship to separate a turning
22
system. On this program, money was given to SMEs in the country in 1970. All loans granted
under this scheme helped the businesses to acquire capital, working capital needs and also
goods. A rate of returns of twenty percent p.a was required on the plan. The main aim of the
scheme is to allow Ghana owned business entrepreneurs have lead way to industrial credits.
(Opare-Djan and Hamidu Apania, 2008)
Through the efforts of the Ghana government, the Business Advisory Centers were
established in Accra and Kumasi in 1991. Business advisory center ensure proper relationship
between entrepreneurs and place of work of the National board for small –scale industries
(NBSSI). These centers are established in all the regional capitals except Sekondi-Takoradi.
Business advisory centers are established for providing financial, commercial, managerial
and technical consultancy services. They assist entrepreneurs in solving problems that the
following four key areas, Business Advisory Centers assist entrepreneurs. (Adjei, 2010).
Under the scheme, (NBSSI) entrepreneurs of the same category of business were encouraged
to unit and request for assistance in the form of raw materials. The maximum amount issued
was GH¢150 for a group member of enterprises. This revolving loan scheme, which became
operational in August 1992, was made up of a total number of GH¢8000, which was provided
by the government to the board. (Opare-Djan and Hamidu-Apania, 2008).This clearly shows
that the government of Ghana has done a lot to help the SMEs sector of the economy.
Nevertheless, it must be emphasized that more needs to be done for greater achievements.
23
2.9 EMPIRICAL REVIEW OF LITERATURE ON THE CHALLENGES OF SMEs.
SMEs in the economy have been constrained by a number of factors. Prominent among these
are limited management and entrepreneurial skill of the owners/ managers, marketing
problems due to quality of the products and poor market research, lack of adequate
infrastructure and modern technology and lack of adequate access to credit.
the specific buyers in the export trade. In the early years 1930‟s, Senator Macmillan said that
SMEs‟ growth showed that they were distressed with finance gap. Much pragmatic study
revealed that SME were faced with not only equity gap but also debt gap. In China, SMEs are
also suffering from finance gap, because SMEs‟ financing mainly rely on bank source, this
paper will focus on the issues about SMEs‟ borrowing ability from bank.
Aryeetey et. al (1996) indicated that most of the small business enterprises‟ operators have
little formal education in managing their business. The background of the owners/mangers,
therefore, places a limitation on their managerial capabilities. This problem has affected the
scope of their operation and therefore they are not able to take full advantage of emerging
opportunities (Steel, 1996). In certain situations, managerial incompetence has led to
operational inefficiencies resulting in poor performance (Pappoe, 1992).
the specific buyers in the export trade. This creates the problem of unfair competition from
outside producers as well as dumping of goods from the developed countries (Aboagye et al.
1998).
24
With regard to the use of modern technology, estimates from the NBSSI indicate that the
operators of SMEs use basic locally-developed technology and machinery which restrict
incentives to innovation. These are limited in capacity and efficiency. The SMEs thus,
experience much wastage of materials as well as frequent machine breakdown (Anderson,
1998). Technical expertise in the SMEs is also limited. Some of the small firms are not aware
of the availability of modern technologies or do not have the capability to develop and apply
them. Moreover, where there is such awareness, lack of funds restricts their acquisition. (Olu,
2009)
In Ghana, initial capital is a blockade to entering most industrial activities. For example,
their own capital (personal savings) and with assistance from families and close associates.
Parker et al, (1995) said that credit constraints pertaining to working capital and raw
materials were cited by small business enterprises in Ghana. Aryeetey et al (1996) in their
study of informal finance to SMEs in Ghana said that thirty eight percent of the SSEs
interviewed said that loan as a limitation. It was deduced that SMEs have inadequate way to
funds markets. This is so due to the fact the notion of high risk, information barricade plus
high costs of intermediation for micro firms.
Micro enterprises and small business may be affected negatively by government policies
through excessive regulations, prohibitive levels of taxation, inadequate government
protection against cheap imported products, laxity about black markets (which results in
unfair competition for the micro business sector), harassment by government officials for
operating businesses on the streets, and inadequate services and high user fee in public
market structure. Many of these regulations work effectively to encourage micro enterprises
to remain outside the legal or formal mainstream. (Olu, 2009) With regard to the use of
25
modern technology, estimates from the NBSSI indicate that the operators of SMEs use basic
locally-developed technology and machinery which restrict incentives to innovation. These
are limited in capacity and efficiency. The SMEs thus, experience much wastage of materials
as well as frequent machine breakdown (Anderson, 1998). Technical expertise in the SMEs is
also limited. Some of the small firms are not aware of the availability of modern technologies
or do not have the capability to develop and apply them. Moreover, where there is such
awareness, lack of funds restricts their acquisition. (Olu, 2009)
In Ghana, initial capital is a blockade to entering most industrial activities. For example,
their own capital (personal savings) and with assistance from families and close associates.
Parker et al, (1995) said that credit constraints pertaining to working capital and raw
materials were cited by small business enterprises in Ghana. Aryeetey et al (1996) in their
study of informal finance to SMEs in Ghana said that thirty eight percent of the SSEs
interviewed said that loan as a limitation. It was deduced that SMEs have inadequate way to
funds markets. This is so due to the fact the notion of high risk, information barricade plus
high costs of intermediation for micro firms.
Micro enterprises and small business may be affected negatively by government policies
through excessive regulations, prohibitive levels of taxation, inadequate government
protection against cheap imported products, laxity about black markets (which results in
unfair competition for the micro business sector), harassment by government officials for
26
operating businesses on the streets, and inadequate services and high user fee in public
market structure. Many of these regulations work effectively to encourage micro enterprises
to remain outside the legal or formal mainstream. (Olu, 2009)
2.10 WHY SMALL BUSINESSES ENTERPRISE FAIL
of funds from NGOs treat them as gifts since it emanates from outside the company.
27
CHAPTER THREE
RESEARCH METHODOLOGY
3.0 INTRODUCTION
This indicates the strategy employed or adopted by the researcher in carrying out the research
work. It discusses the different techniques employed in collecting of data for the study. The
study considers issues such as, data sources such as primary and secondary. Sampling
techniques employed, and a description of the study site etc.
3.1 RESEARCH DESIGN
Research design for this study was survey and also quantitative and descriptive in nature. The
researcher used a case study, Kumasi Metropolis. The researcher employed the use
questionnaires which were administered personally on selected days. It is a survey due to the
huge figure of sample size and for the fact that questions is the main tool used to gather data.
The design is quantitative because of variables and units of analysis employed. Also it is
descriptive because explanations were made to get the meaning. Responses were analysed
using the Statistical Package for the Social Sciences (SPSS).
28
3.2 SOURCES OF DATA AND DATA COLLECTION METHODS
The study made use two data collection methods. They include questionnaires and interviews.
The main data collection tool was questionnaire. Both closed and ended questions were
employed. Unstructured interviewed was also used on minor cases. This was used when
further explanation was needed per the answer given by the respondents. However, the study
made use of questionnaire as the main tool for data collection.
3.3 RESEARCH POPULATION
With regards to the study, the population for the study is over two hundred (200) SMEs in the
Kumasi Metropolis. They included both registered and non registered SMEs.
3.4 SAMPLE SIZE
On the basis of the study, a sample size of 100 (hundred) SMEs were employed for the study.
This comprised of small and medium scale enterprises in the Kumasi Metropolis. The
researcher believes 100 SMEs will help achieve the objectives of the study.
3.5 SAMPLING TECHNIQUE
In this study, accidental sampling technique of the non-probability sampling and random
sampling technique of the probability sampling techniques were used to select the
respondents. It was accidental sampling because the researcher interviewed these businesses
as he came into contact with. It was random because all these SMEs within the study area
stood the equal chance of being chosen.
3.6 DATA ANALYSIS
Data was analyzed using tables. The study made use of descriptive and inference analysis.
Data gathered where fed into the Statistical Package for the Social Sciences (SPSS) using
percentages and frequencies. Inferences were drawn from the table through the use of
29
frequencies. The data was also describe in order to get a fair pictorial understanding of the
responses from the respondents of the study.
3.7 PROFILE OF THE STUDY AREA
The research was carried out mainly within the central business district of Adum and Kejetia
in the Kumasi Metropolis of the Ashanti Region. These sites were selected because most
businesses within the Metropolis operate from here. The study focused on SMEs because
they form the largest form of businesses in the country and therefore the need to look at their
financing in promoting growth. The choice of Kumasi is for the fact that the researcher
resides and schools there, hence the choice of close proximity.
30
CHAPTER FOUR
ANALYSIS AND INTERPRETATION OF DATA
4.0. INTRODUCTION
The responses provided by the respondents were statistically. The study use quantitative
analysis was and it was based on the responses from the respondents in the form of
frequencies and percentages. In line with the research objectives this chapter is in one (1)
major part, thus, description and analysis of data.
4.1 Source (s) of funds available to SMEs in the Kumasi Metropolis.
Table 1. Major source of funds for your organizations
Valid Cumulative
Frequency Percent Valid Percent Percent
MFI‟s 57 57.0 57.0 57.0
Banks 20 20.0 20.0 77.0
Money Lenders 17 17.0 17.0 94.0
Susu operators 6 6.0 6.0 100.0
Total 40 100.0 100.0
Source: field data, May, 2015
From the table 57 respondents representing 57.0% said their major source of funds for their
operation is the Microfinance institutions (MFI‟s), 20 (20%) respondent said it is banks, 17
respondents representing 17.0% said their major source of funds is from the money lenders,
and 6 respondents representing 6.0% said their source of funds is from susu operators.
31
This shows that the major source of funds to SME operators within the municipality is the
MFIs followed by the banks. The analysis also shows that the SMEs find doing business with
MFIs more appropriate than the banks and this also explains the quick boom of MFIs
operations within the municipality.
Table 2. Reliability of sources
Frequency Percent Valid Percent Cumulative Percent
Valid Yes 100 100.0 100.0 100.0
Looking at the table, all 100 respondents making 100% said that their sources of funds are
reliable. The analysis shows that irrespective of the source, respondents admit that they can
rely on these sources to keep their operations on going. The inference drawn here is that
SMEs within the metropolis do not have any problem sourcing funds for their operations
irrespective financial institution. This is evident from the table as all respondents said the
sources are reliable.
Table 3. Least reliable to most reliable sources of funds
Cumulative
Valid Banks 44 44.0 44.0 44.0
MFIs 19 19.0 19.0 63.5
Susu operators 37 37.0 37.0 100.0
Total 100 100.0 100.0
32
With respect to the reliability of the sources of funds, 44(44%) respondents said the banks are
least reliable, 19 respondents said MFIs are least reliable and 37 (37%) said Susu operators
are the least reliable. The analysis shows that within the metropolis, the least reliable source
of funds for the SMEs is the banks followed by the susu operators.
Some of the respondents said the banks require so much information which many times they
do not have and therefore are not able to get funds from them. Sometimes, they get less than
what they requested for. For the Susu operators, they are not able give the money when
required by the SMEs. They also said very often, the waiting period is too long and
discouraging.
Table 4. Government interventions
Valid Yes 68 68.0 68.0 68.0
No 32 32.0 32.0 100.0
Total 100 100.0 100.0
The researcher asked whether respondents know of any government interventions to help
SMEs in the Kumasi Metropolis. The data gathered shows that majority of the respondents
representing 68% do know of governmental intervention. They mentioned of Microfinance
and Small Loan Center (MASLOC), policies to curb foreigner‟s intrusion into the local
market etc. 32 respondents (32.0%) said they have not heard of any governmental
intervention t help SMEs.
33
The inference drawn here is that SMEs within the municipality have heard of governmental
intervention. The analysis also shows that the government of Ghana is doing well to help
SMEs in the country. More needs to be done in terms of communication of the intervention.
Table 5. Awareness of various government interventions.
Cumulative
Valid 0 32 32.0 32.0 32.0
B. Advisory 17 17.0 17.0 47.5
MASLOC 39 39.0 39.0 85.0
GGSBLS 12 12.0 12.0 100.0
Total 100 100.0 100.0
Based on the previous question, respondents were made to name one of the governmental
interventions to help SMEs. Majority representing 39 (39.0%) respondents mentioned
Microfinance and Small Loan Center (MASLOC). 17 respondents representing 17% of the
sample size said Business Advisory and 6 respondents representing 12% said Ghana
Government Small Business Loan Scheme (GGSBLS). However, 32 respondents (32.0%) did
not attempt this question.
The analysis indicates that government has done and is doing well to increase the survival of
SMEs within the country. Particularly with the provision of credit facilities which includes
MASLOC, GGSBLS etc.
34
Table 6. Difference with other loans.
Cumulative
Valid Party members. 19 19.0 19.0 19.0
Flexible 16 16.0 16.0 35.0
Reduced rate 65 65.0 65.0 100.0
Total 100 100.0 100.0
The researcher wanted to know from respondents how different MASLOC loans are from
others. The data gathered showed that there are indeed differences. 65 respondents (65%)
being the majority said MASLOC loan is different from others in that their rate is reduced.
Thus, rate of interest is lower. 16 respondents representing 16% said MASLOC loan is
flexible in accessing. Thus, the procedures are not cumbersome but quite simples. However,
19 respondents who represent 19% said MASLOC was crowded with party colours. Thus,
party members easily had access to funds.
The analysis here is that though MASLOC differ from other MFIs, the party issues drawn
into it may eventually collapse it or make it not attractive to other SMEs with no political
affiliations with the government in power.
35
Table 7. Perception of government intervention
Cumulative
Valid Very Good 49 49.0 49.0 49.0
Good 23 23.0 23.0 72.0
Average 28 28.0 5.0 100.0
Total 100 100.0 100.0
Respondents were asked of their perception about government intervention of helping SMEs
within the metropolis. The table above shows that the interventions have been positive and
effective. 49 respondents representing 49% said the intervention is very good. 23 respondents
representing 23% said the intervention is good and 28 respondents representing 28% said the
intervention is average.
The analysis here is that on a whole, the intervention is positive and SMEs are of the opinion
that governmental intervention within the municipality is working and effective. This also
signifies the reason for more SMEs within the metropolis. The business advice given to these
businesses are working effectively to the success of the SMEs.
4.2 Requirements for micro financing SMEs in the Kumasi Metropolis.
Table 8. Provision of some form of security in accessing loan
Valid Yes 100 100.0 100.0 100.0
36
With regards to this question, all 100 respondents showing 100% agreed tthey are required by
the MFIs to provide some sort of security before loans are granted. The respondents
explained that these securities are not necessarily fixed assets. They could be savings made
with them, businesses they own etc.
The respondents also said that most often, the MFIs come around to check on the kind and
nature of business they operate, access their inflows and outflows before the loans are
granted. However, the analysis shows that these MFIs operate within the lending principles
and the challenge here is that most of the respondents do not have these collaterals the MFIs
request.
Table 9 Ability to provide security.
Valid Yes 76 76.0 76.0 76.0
No 24 24.0 24.0 100.0
Total 100 100.0 100.0
With regards to this question, 76 respondents representing 76% said “Yes” they are always
able to provide for the security before securing a loan. 24 respondents representing 24% said
“No” they are not always able to provide for the security required to secure a loan. The
analysis here shows that majority of the SMEs within the Kumasi Metropolis are able to
provide some sort of security for accessing loan.
However, a substantial numbers of the SMEs are also not able to provide security. This
means that, such businesses are not able to expand or otherwise grow because of inadequate
or lack of funds. 35% of the sample size is quite a huge number who cannot raise funds to
37
support their business of their inability to provide security. This seems to show that indeed,
the SMEs do face a challenge in raising collateral (security) to secure a loan for a business.
Table 10. Duration to receive funds after application
Cumulative
Valid Day 16.0 16.0 16 16.0
Week 34.0 34.0 34 50.0
Month 39.0 39.0 39 89.0
Beyond a month 11.0 11.0 11 100.0
Total 100 100.0 100.0
In soliciting for the average duration to receive funds after application, the data provided
shows that within a week, respondents get their loans granted. This represents 34 (34%)
respondents of the sample size. 39 (39%) respondents said they get their loans granted in a
month‟s period and this being the majority. 16 (16%) respondents said within a day and 11
(11%) said beyond a month.
The inference drawn here is that clients (SMEs) gets their loans granted within a period of 1
month. This shows a positive sign of helping SMEs grow in their operations, products and
services. It is clear from the analysis that SMEs within the municipality enjoy services of
MFIs.
38
Table 11. Whether the exact amount requested for is provided
Valid Yes 64 64.0 64.0 64.0
No 36 36.0 36.0 100.0
Total 100 100.0 100.0
Respondents were asked if they receive the exact amount they request. The data collected
showed that majority do get the exact amount they request. 64 (64%) respondent being the
majority said “Yes” they get the exact amount they request. On the other hand, 36 (36%)
respondents said “No” they do not get the exact amount requested.
The inference drawn here is that the SMEs to a large extent do get the required amount they
request from the MFIs in a loan application. There is a challenge here because the SMEs may
not be able to meet the desired goals as the needed amounts are not available. However, the
indication is that microfinance operations inure to the benefit of the SMEs within the
metropolis.
Table 12 Receive some training on your cash management from these MFIs
Valid Yes 57 57.0 57.0 57.0
No 43 43.0 43.0 100.0
Total 100 100.0 100.0
39
On the question on whether respondents receive training on their cash management, the study
showed these MFIs do conduct training for the SMEs. From the table, 57 respondents
representing 57% said “Yes” they do receive training on their cash management. However,
43 respondents said “No” they do not receive any sort of training from the MFIs.
The analysis indicates that the SMEs are trained on how to manage their cash proceeds from
their business in order to be able to pay back monies borrowed. Again, the inference drawn
here is that the MFIs in line with the regulation governing their operation are doing very well
to help SMEs within the metropolis flourish through proper cash management techniques. On
hind sight much needs to be done as sizable number does not receive any form of training.
Table 13. Access to group loans
Valid Yes 24 24.0 24.0 24.0
No 76 76.0 76.0 100.0
Total 100 100.0 100.0
The researcher wanted to know if respondents have ever accessed a group loan. It is clear
from the response above that greater part of the SMEs said “No” they have never accessed a
group loan before and this represent 76 (76%) of the total sample size. 24 respondents
representing 24% said “Yes” they have accessed a group loan before. The analysis shows
that within the municipality, MFIs give loans to individuals and not groups which according
to scholars prevents default risk.
The inference drawn here is that respondents access loans for their businesses on individual
basis. This seems to explain the reason for large number of defaults on the part of
40
respondents (clients) within the municipality. Some of the respondents explained that they
will like group loan to help themselves but most of the MFIs do not agree. They said this
seem a big challenge to them.
4.3 challenges SMEs face when accessing micro-credit in the Metropolis.
Table 14. Challenges SMEs face when accessing micro-credit in the Metropolis?
Valid Yes 100 100.0 100.0 100.0
With regards to the question on challenge, the data gathered showed that the SMEs do face a
number of challenges. From the data collected, all the respondents representing 100% said
“yes” they face challenges.
The inference drawn here is that irrespective of the size and nature of the business, they all
face some sort of challenge in soliciting for funds to run their business. Though the
challenges may differ, the impulse is that all SMEs do face difficulties when accessing credit
from MFIs.
41
Table 15. Challenges
Cumulative
Valid Other 12 12.0 12.0 12.0
Harsh responses by
16 16.0 16.0 28.0
officers
High Interest rate 49 49.0 49.0 77.0
Collateral requirement 23 23.0 23.0 100.0
Total 100 100.0 100.0
On the basis of the kind of challenges they face, the researcher found out that high interest
rate is the major challenge faced by the SMEs. This represented 49% of the total sample size.
23 (23%) respondents said their challenge has to do with collateral requirement from the
MFIs. 16 respondents said that harsh responses by officers during collection period is a
challenge for them. 12 (12%) respondents chose others. That is challenges such as delay in
granting loan
The inference drawn here is that the SMEs in the metropolis like other towns and regions do
have a major challenge to be interest charged by MFIs. This therefore helps explain the
reason for most of the SMEs being indebted to MFIs. Such retards growth and government
must look at that scenario.
42
Table 16. Repayment mode for clients
Cumulative
Valid Daily 56 56.0 56.0 56.0
Weekly 27 27.0 27.0 83.0
Monthly 17 17.0 17.0 100.0
Total 100 100.0 100.0
The data gathered above shows that 56 (56%) said the repayment mode is on daily basis, 27
(27%) said it is on weekly basis and 17 respondents representing 17% said it is on monthly
basis. It could be inferred from the analysis that the repayment mode of the loan by the SMEs
is on daily basis. This also helps to prevent defaults and ensure that the SMEs keep faith in
paying full amount of loan granted plus interest.
The study suggests that the SMEs like the daily payment than the weekly and monthly
payment. Most attributed this to the fact that because they operate and make daily sales, they
prefer paying their dept on daily basis to know the actual profit for the day. In an interview
with some of the respondents, they said that the challenge they face with respect to the
payment mode is the time the MFIs officers come.
43
Table 17. Challenges of business in seeking credit
Challenge Extremely Very High High Moderate Normal Not at all

High
Cost of loan 17 19 42 6 16 0
applications
Interest rate 44 39 17 0 0 0
Collateral requirement 53 17 22 0 8 0
Responses by officers 34 23 18 16 8 0
(Harsh)
Repayment mode 9 11 9 57 11 3
favours my business
Training programs 0 0 0 8 18 74
from the MFIs
From the table above, it can be deduced the challenges that the SMEs face in accessing loan
is quite intensive. With regards to cost of loan application, majority said that it is high
representing 42%. 17% and 19% said that it is extremely high and very high respectively.
The inference drawn here shows that cost of loan application seem a serious challenge to the
SMEs in the Metropolis.
With regards to collateral requirement, 53% said that it poses a great challenge to them
because most often they do not have such collateral. 17% and 22% said that collateral
requirement poses a very high and high challenge to them respectively. The response gives
an indication that SMEs struggle to access loan smoothly with the requirement of collateral.
With respect to the repayment mode, the data shows that it is much of a challenge to the
SMEs. From the table above, 9% and 11% of the respondents said extremely high and very
high to the repayment mode. Majority said that their attitude is moderate. In that it does not
44
really pose a challenge to them. In a whole the analyses here is that responses by repayment
mode of the loan do not pose a major challenge to SMEs in the metropolis.
Again with the challenge, the data collected shows that responses (attitude) of the loan
officers do pose a major challenge to SMEs in the Metropolis. Majority of the respondents
representing 34% and 23% said it is extremely high and very high respectively. This shows
that harsh responses by the loan officers do pose a challenge to SMEs. Thus, it puts them off
as most said, the officers sometimes do not respect them and that worries them.
On a whole the table above shows that these challenges are enormous and extremely affect
the SMEs in their operation. Though some of the challenges do not pose much threat, to a
large extent it disturbs their operation in many ways if not totally put them off from business
Table 18. Effect of the challenges
Effects Strongly Disagree Neutral Agree Strongly

disagree Agree
Reduces profit 0 0 0 14 86
Makes operational cost 0 0 0 16 84

very high
Delays operations 0 0 21 15 64
Reduces interest in 0 8 4 57 31
credit
Puts pressure on the 0 13 0 24 63

business
Reduce growth. 13 79 8 0 0
Increase mistakes
On the basis of how the challenges do affect the operations of the SMEs in the Metropolis,
the researcher found out that, the challenges really affect the SMEs in many ways and forms.
45
With regards to the challenge of loan application, majority of the respondents representing
86% said it reduces their profit and 14% of the respondents also agreed to that.
With respect to the interest charged on the loan, 84% of the total respondents said that such
increases their operational cost making their services and product very high. 16% of the
respondents also agreed to this fact saying that high interest rate increases their operational
cost.
On the issue of collateral requirement, the table shows this challenge really affect the SMEs.
On a whole 64% and 15% of the total respondents strongly agreed and agreed respectively
that collateral requirement delays the operations and activities of the SMEs in the metropolis.
In that as they wait to secure a collateral in order to access the loan, business operations in
terms of activities and profit making elude them for the period in question.
On the issue of attitude by loan officers majority indicating 88% said that such harsh
responses reduces their interest in accessing the loan thereby making business stay stagnant.
The rest of the sample size however, do not really border about the attitude of the loan
officers. According to them, in as much as they get the money needed, they careless about
how they talk to them. This represented 12% of the sample size.
With regards to the repayment mode, which is mostly on daily basis, 87% of the total
respondents said that such puts much pressure on them. That is repaying on daily basis is
quite harsh as sometimes business operations do not go well on certain days. Therefore, daily
repayment stresses them. However, 13% respondents sharply disagree with that notion saying
that the repayment mode do not put pressure on them. On the issue of training programs for
the SMEs, the data gathered showed that irrespective of whether it is done or not, it does not
affect at all in any way.
46
The inference drawn here is that apart from the training programs, all the challenges
identified by the SMEs in accessing credit do affect the SMEs greatly. As seen, if such
continues in the advances years, it likely for these SMEs to die out completely or remain on
the surviving line of business. Whichever way, the repercussions are great and damaging to
the economy as the SMEs form majority of the private sector of the economy. In mapping up
a strategy, government should come in to regulate the financial sector such that the SMEs
will not suffer at the hands of these financial firms.
47
CHAPTER FIVE
SUMMARY OF FINDINGS, SUGGESTIONS AND CONCLUSION
5.0 INTRODUCTION
The chapter shows a summary of the findings on the work done. In addition to the findings
from the study presents suggestions based on the findings and then draw a conclusion on the
whole work done.
5.1 SUMMARY OF FINDINGS
The study on the topic: “Challenges facing small and medium scale enterprises in accessing
credit in the Kumasi metropolis.” brought out these following major findings.
The researcher found that the sources of fund for the SMEs are many. The study showed that
the sources include Microfinance institutions, banks, money lenders and susu operators. The
major sources of funds for the SMEs are the microfinance institutions representing 57% of
the total sample size. This is followed by the banks. The analysis also shows that the SMEs
finds doing business with MFIs more appropriate than the banks.
The study also revealed that the sources of funds are reliable but the least reliable among the
sources are the Banks with 44% of the total sample size. The second least reliable source of
fund is the susu operators within the metropolis. The most reliable source of fund for the
SMEs is the MFIs.
It was further revealed that SMEs within the metropolis have heard of governmental
intervention with the most intervention being provision of credit facilities through MASLOC.
The study also showed that the intervention is positive and SMEs are of the opinion that
governmental intervention within the metropolis is working and effective.
48
With respect to the process of micro financing, the study revealed that all 100 respondents
representing 100% said securities are required by the MFIs to provide some sort of security
before loans are granted. Meaning that the SMEs are made to provide some form of security
before they can secure loans for operations. The researcher also found out that apart from the
security, an examination is conducted on the nature of business of the respondents before
loan is granted. Also the study revealed the SMEs on a whole are averagely able to provide
for the security required.
The study showed that the process of Micro financing the SMEs is in consonance with the
rules of lending. Respondents on some case do not get the exact the amount they requested
and this poses a challenge to them in so many ways such as loss of business opportunities.
Again, the average duration to receive funds after application is a week and the repayment
mode is on daily basis. However, the researcher also found out that group loan which reduces
default risk is not practiced within the metropolis for the SMEs. In addition, the research
showed that the SMEs do receive some form of training from the MFIs but not so intensive to
avert challenges of financial losses.
In investigating the challenges SMEs face when accessing micro-credit, the researcher found
out that all 100 respondents do face some form of challenges. In that irrespective of the size
and nature of the business, they all face some sort of challenge in soliciting for funds to run
their business. The major challenge these SMEs have has to do with interest charge by the
MFIs and collateral requirement by these MFIs. Among the challenges identified include
harsh responses by officers, High Interest rate, Collateral requirement etc.
With regards to collateral requirement, 53% said that it poses a great challenges to them
because most often they do not have such collateral. With respect to the repayment mode, the
data shows that it is much of a challenge to the SMEs. From the table, 9% and 11% of the
49
respondents said extremely high and very high to the repayment mode and majority of the
respondents representing 34% and 23% said attitude of loan officers is extremely high and
very high respectively in the negative manner (Harsh responses.)
On the basis of how these challenges affects their operations, the study found out that the
challenges identified leads to reduction in profits, increase in operational cost, delays in
operation of the SMEs, reduction of interest in accessing credit, increased pressure on
business in the repayment of loan etc.
5.2 CONCLUSION
With regards to the research carried out in the Kumasi Metropolis on “Challenges of Small
and Medium Scale Enterprises in accessing credit”, the following general conclusions were
made.
The study revealed that the sources of funds include Microfinance institutions, banks Lenders
and Susu operators. The major sources of funds for the SMEs are the microfinance. However,
the challenge is that the SMEs are not able to get the full amount needed. Again, the analysis
shows that within the metropolis, the least reliable source of funds for the SMEs is the Susu
operators followed by the bank. The study also showed that the SMEs are required by the
MFIs to provide some sort of security before loans are granted. However, most of the SMEs
are not always able to provide for the security required to secure a loan. This seems to show
that indeed, the SMEs do face a challenge in raising collateral (security) to secure a loan for a
business
On the basis of the challenge, the most pressing has to do with the interest charge as well as
the collateral requirement by the MFIs. Though some of the challenges do not pose much
threat, to a large extent it disturbs their operation in many ways if not totally put them off
50
from business. With regards to governmental intervention, the study showed that the SMEs
within the Kumasi metropolis have heard of governmental intervention. The analysis
indicates that government has done and is doing well to increase the survival of SMEs within
the country.
5.3 SUGGESTIONS
Despite all the major flaws that that surround SMEs around the world especially in Africa,
the researcher believes that there is a way out to face these challenges in order to increase the
survival instinct of SMEs. In view of this the following suggestions can contribute to
advance the course of Small and Medium Scale Enterprise when given the needed attention.
Though the MFIs come into view as a major source of funds for SMEs, the interest rate
charged on the loan is too high for them based on the fact that the risks are high. The
researcher recommends that there should be collaboration between the MFIs and the SMEs
where the MFIs will provide a soft loan to these firms to help them increase their operations.
Again, the government can in disguise make funds available to the SMEs in a number of
ways apart from what is already known (MASLOC)
Firstly, in accessing loan by the SMEs, they are required to provide some sort of security
which most of the SMEs are not able to meet. The researcher suggests that the MFIs should
look at the kind of the firm as well as the ease of recording cash inflows than the security
requirement. This will help those who cannot provide security to also have access to loan to
expand their businesses.
Secondly, the researcher also found out that group loan which reduces default risk is not
practiced. The researcher therefore suggests that in order for the SMEs to attract sound credit
facility, the group loan should be encouraged by the both the MFIs and SMEs so that the
51
default risk will reduce. This when done will increase the chances of the SMEs to secure a
loan for their operations.
Moreover, in respect to the governmental interventions, the researcher suggests that there
should be training for the SMEs within the metropolis in the area of cash management and
stock taking. Stock taking has been a challenge to many of the SMEs and therefore the
training will breach the gap and equip the traders to keep good records for future present and
future analysis.
Finally in addition to the training, the researcher suggests that the government provide some
form of incentives to those operating in the rural areas. Most are concentrated in the capital
city because the rural areas are not fully developed. The incentives could be in the form of
short term free loan, free taxes for short periods etc. to increase the efficiency of SMEs
operations in rural areas.
52
REFERENCES
Aboagye, A., & Jones, F.W. (1998). The Informal Sector: A Critical Appraisal of the
Concept. In The Challenge of Employment and Basic Needs in Africa. ILO, Oxford
University Press, Nairobi.
Adjei, J. K. (2010). Microfinance and Poverty Reduction: The Experience of Ghana. Bold
communication Ltd.
Allotey, D. (2008). Commercializing a Microfinance Institution to Maximize Profit. Ghana.
and women-owned small business. Journal of Small Business Management 38 (3)
(pp.37-52).
Anderson, D. (1998). Small Industries in Developing Countries: A Discussion. Issue. World
Development 10 (11th November), (pp. 913-948).
Aryeetey, E. (1995). Small Enterprise Credit in West Africa. London, The British Council.
Bani, R J. (2003). Micro Enterprise Development in Ghana. Accra, Ghana: Assembly Press.
Bank of Ghana working paper “A Note on Microfinance in Ghana” (2007), WP/BOG-07/01
Boapeah, S. N. (1996). Developing Small-Scale Industries in Rural Regions: Business
Behavior and Appropriate Promotion Strategies With Reference To Ahanta West
District Of Ghana. Dortmund: Spring.
Burns, S. (1996). Access to Capital and terms of credit: A Comparism of men-Comparism of
the Ghanaian and Tanzanian Experiences.
Dickson, J. (1996). Impact of Structural Adjustment on the Small Sector: A
53
Dunn, E. (2009), Diversification in the Household Economic Portfolio. AIMS paper,
Washington, D.C.: Agency for International Development.
Ghana News Agency. (2006). SMEs should be given necessary support.
Ghana Statistical Population. (2002). 2000 Population and Housing Census: Summary
Report of Final Results. Accra: Medialite.
Goze, C. (1990), “Microfinance: Broader Achievements and New Challenges” Economics
and Sociology Occasional Paper. No. 2518. The Ohio State University, Columbus
Gray, K., Cooley W., & Lutabingwa J. (1995). Entrepreneurship in Micro- enterprises.
Jackson: Jackson State University Press.
http://www.ghanaweb.com/GhanaHomepage/economy/artikel.php?1D=104 739.
Hulme, d., Mosley, P. (1996). Finance against poverty. Routledge, London.
Keasey, D.J. (2009). Small Firms in Regional Economic Development, Cambridge
University Press.
Ledgerwood (1997). Transforming Microfinance Institutions, Vol.1, the World Bank,
Washington, USA
Little, I.M.D. (1987). Small Manufacturing Enterprises in Developing Countries, The World
Bank Economic Review 1 (pp. 203-36)
Littlefield, E., Morduch, J. and Hashemi, S. (2004). “Is Microfinance an Effective Strategy
to Reach the Millennium Development Goals?
54
N. Opare-Djan and A. Hamidu Apania (2008) “Microfinance: Building Inclusive Financial
Sectors and Supportive Legal and Regulatory Frameworks for the East African
Region”. Tanzania, 2008. International Development Law Organisation (IDLO)
Ninson, K. (2007). The Informal Sector in Ghana’s Political Economy. Ghana: Freedom
Press.
Olu, O. (2009) Impact of Microfinance on Entrepreneurial Development. International
Conference on Economics and Administration from 14-15 November, 2009.
Otero, M. (2000). The New World of Microenterprise Finance: Building Healthy Financial
Institutions for the Poor, West Hartford, CN: Kumarian Press.
Parker, L (2006). Small Enterprises Adjusting to Liberalisation in Five African Countries,
World Bank Discussion Paper No. 271, African Technical Department Series.
Parker, L., Riopelle R., & Steel F. (1996). Small Enterprises Adjusting to Liberalisation in
Five African Countries, World Bank Discussion Paper No. 271, African Technical
Department Series
Steel, W. (1996). Informal Financial Markets under Liberalization in Four African
Countries, Paper presented at the Symposium on Markets in Africa, Stanford
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Stokes, T (2010). Small business and entrepreneurship. 10 ed. U.S.A. McGraw Hill.
Storey D.J. (2006). Small Firms in Regional Economic Development, Cambridge University
Press.
55
APPENDIX
Topic: “Challenges facing Small and Medium Scale Enterprises (SMEs) in assessing credit.
A case study of Kumasi Metropolis” of the Ashanti region.
KWAME NKRUMAH UNIVERSITY OF SCIENCE AND TECHNOLOGY
SCHOOL OF BUSINESS
…… /02 / 2015
Please this questionnaire is part of a study aimed at gathering information for research in
partial fulfillment of MBA (Finance) and every information given will be handled
confidentially.
SECTION A: BUSINESS INFORMATION
Instructions: Tick in the appropriate box and or provide further information where applicable.
1. Type of business Sole Proprietorship Partnership Limited Liability Company
2. How many years has the business been in operation? 1-5 6-10 11-15
Other, Specify …………………………………..
3. What is the level of capital required for the operations of this business?
1. GH¢ 10,000 - 50,000

2. GH¢ 60,000 - 100, 000
3. GH¢ 110,000 - 150,000
4. Others, specify ……………………….
SECTION B: Sources of funds available to SMEs in the Kumasi Metropolis
5. Identify some sources of funds for your business.
a. Banks
b. Microfinance institutions
c. Money lenders.
d. Susu operators. Others, specify ...…………………………..
56
6. Do you know of any government intentions to help SMEs in the Metropolis? Yes No
7. If yes, name any one you know of? MASLOC Ghana Government Small Business
Loan SchemeBusiness advisory center Other , Specify ……………
8. Specify which one you have ever accessed. MASLOC Ghana Government Small
Business Loan Scheme Business advisory center Other ,Specify ……………
9. How different was that from other loans? Same reduced rate flexible
for party members a gift
10. What is your perception of government intervention towards your nature of business?
Very bad Bad Average Good Very good
SECTION C: Guidelines for micro financing of SMEs in the Kumasi Metropolis.
11. In accessing loans, are you always asked to provide security before the loans are granted?
Yes No
12. Are you always able to provide for the security? Yes No
13. How long does it take before the loan is granted? A Day
1 - 4 Weeks a Month Beyond a month. Others, specify …………………..
14. Do you get the exact amount you request for? Yes No Sometimes
15. Were you told the interest cover on the loan granted to you? Yes No
16. Do you receive some training on your cash management from these MFIs? Yes No
17. Have you accessed a group loan before? Yes No Never
18. On the whole how has the process affected your business?
……………………………………..……………………………………………………………
…..………………………………………………………………………………………………
57
SECTION D: Challenges SMEs face when accessing micro-credit in the Metropolis.
19. Do you face challenges in accessing credit from the MFIs in the metropolis? Yes No
20. If yes, what are these challenges? High Interest rate collateral requirement
harsh responses by officers Others ……………………………………….
21. What is the repayment mode for client? Daily Monthly Weekly
At the end of the period
22. Rank these challenges as apply to your business in seeking credit

Challenge Extremely High Very High High Moderate Normal Not at all
Cost of loan
applications
Interest rate
Collateral requirement
Responses by officers
(Harsh)
Repayment mode
favours my business
Training programs
from the MFIs
23. How do these challenges above affect you?

Effects Strongly Disagree Neutral Agree Strongly
disagree Agree
Reduces profit
Makes operational cost very high
Delays operations
Reduces interest in credit
Puts pressure on the business
Reduce growth. Increase mistakes
58

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CHALLENGES FACING SMALL AND MEDIUM SCALE ENTERPRISES (SMES)

(A CASE STUDY OF KUMASI METROPOLIS)

DANIEL AGBENYO (BEd SOCIAL SCIENCES)

A THESIS SUBMITTED TO THE DEPARTMENT OF ACCOUNTING AND

COLLEGE OF HUMANITIES AND SOCIAL SCIENCES

for any award(s).

Agbenyo Daniel ………………………. ……………………

Student Signature Date

Mr. P.K. Oppong Boakye ………………………. ……………………

Supervisor Signature Date

Prof. J. M. Frimpong ………………………. ……………………

Dean Signature Date

I pray you all live long to see more of me in your lives.

encouragement which initiated an uncommon awakening in me that helped me to redefine my

focus and priorities in my academic life.

Mr. Adusei, just to mention a few.

me with needed information for my research work.

Table 1. Major source of funds for your organizations ........................................................... 31

to also have access to loans to expand their businesses.

highlighted as well as the variety of kinds in Ghana.

1.1 BACKGROUND OF THE STUDY

expansion of small business enterprises by government and non-government organizations

economy, it depresses them from their point.

Promotion Centre, 2010).

difficulties of growth in rising countries particularly, Nigeria, is the support of entrepreneurial

(1971) when the committee formulated an “economic” and a “statistical” definition.

bulk of employment in Africa.

of the employment. Correspondingly ninety percent of operations registered with the

Registrar General are SMEs. (Allotey, 2008)

friends. Also access to capital is still a prevailing limitation to SMEs in Ghana.

1.2 STATEMENT OF PROBLEM

government financial interventions.

challenge facing the SMEs in their operations.

accessing credit using Kumasi Metropolis as a case study.

accessing credit in the Kumasi Metropolis of the Ashanti Region of Ghana.

The specific objectives of the study include the following:

operations in the Kumasi Metropolis.

3. To examine challenges SMEs face when accessing micro-credit in the Metropolis.

1.4 RESEARCH QUESTIONS

actual performances so as to embark on necessary corrective actions if need be.

1.6 LIMITATIONS OF THE STUDY

within the region, let alone the nation as a whole.

1.7 SCOPE OF THE STUDY

interviews were employed.

the Ashanti region of Ghana.

1.8 ORGANIZATION OF THE STUDY

introduction to the research. This chapter is made up of the following,

 The background of the study

 The problem statement

 The objective(s) of the study

 The significance of the study

 Scope of the study

 The limitations of the study

from articles, journals, books, news papers etc.

etc. including the basis for using such methods.

Medium Scale Enterprises, giving comments where necessary.

chapter considers the theoretical literature related to the subject matter.

2.1 HISTORY OF THE SMALL AND MEDIUM SCALE ENTERPRISES

provided it with occasion of responding to a diversity of market conditions. The contribution

made them grow and perhaps became millionaires in the processes.