Financial constraint of small and medium enterprises in Ghana

Abstract

This study was set out to examine the factors that influence financial constraint among borrowers in Ghana, using SMEs as test case. The study used the 2013 World Bank Enterprise Survey data set on Ghana to investigate the problem. Specifically, the aim was to analyze sources of financial constraint faced by borrowers. The study employed logistic and ordered logistic regression models to estimate access to finance and extent of credit constraint faced by SMEs in Ghana. The rationale being that access to finance alone is not enough to model SMEs financial constraint. Hence, the need to estimate access to finance in levels resulting in ordered logit analysis. The study revealed that firm‟s location, age, size, ownership, and loan history and corruption perception significantly influence access to finance and financial constraint among SMEs in Ghana. Younger firms are more likely to be credit constraint compared to older firms. There is the need for government to create the enabling environment for SMEs to function effectively and efficiently by improving SME access to financing Individual firms of related business objectives can merge to increase their assets based and size and hence improve their access to finance from formal financial institutions in Ghana.