The Challenges Faced by Small & Medium Enterprises (Smes) in Obtaining Credit in Ghana.

The Challenges faced by Small & Medium Enterprises (SMEs) in

Obtaining Credit in Ghana.

Authors: John Ackah and Sylvester Vuvor

Supervisor: Dr. Eva Lovstal

Master’s Thesis in Business Administration, MBA programme

June, 2011

Chapter One: Introduction

1.1 Background

There is growing recognition of the important role small and medium enterprises (SMEs)

play in economic development. The SMEs constitute about 90% of total business units in

Ghana and account of 60% of Ghana’s employed labour force (KDI, 2008). They are often

described as efficient and prolific job creators, the seeds of big businesses and the fuel of

national economic engines. Even in the developed industrial economies, it is the SME sector

rather than the multinationals that is the largest employer of workers (Mullineux, 1997). This

is also supported by a research done on small businesses in the United States by Dr. Charles

Ou in June 2006, which indicated that U.S. small businesses numbered 23 million in 2003,

and it employed about half of the private sector work force, and also produces about half of

the nation’s private sector output.

The Korean Development Institute (KDI) in its study, “Building the Foundations for the

Development of SME in Ghana” (September 2008) noted rather grimly, the obstacles these

SMEs face daily in Ghana. The study enumerated these as smaller sizes of the SMEs; they

are few in number and lack competitiveness internationally. These factors affect the SMEs in

many ways. For instance, over 80% of SMEs in Ghana are reportedly having employees

numbering less ten. The smaller size of these SMEs means less value addition as fewer

processes are possibly involved in the production.

A 1992 study by the Ghana Statistical Service revealed that nearly 93 percent of all registered

businesses in Ghana are of the SME category. The National Board of Small Scale Industries

(NBSSI) defines SMEs as enterprises that employ no more than 29 workers, with investment

in plant and...