The Role of Rural and Community Banks in Provision of Credit Facilities to the Small and Medium Enterprises in Ghana; A Case of Ekumfiman Rural Bank

Abstract

The study “sought to assess the role of rural banks in the provision of credit facilities to the small business sector in the Ekumfi District. The purpose of the study was achieved by considering Ekumfiman Rural Bank as a case. The study employed descriptive statistics as the research design and quantitative research approach. A sample of 218 respondents was considered under the study. A questionnaire was used as the data collection instrument. The study found out that collateral, creditworthiness, guarantors, profitability, borrowers repayment history, the capacity of the bank to grant the loan, cash flow statement, earnings, character were factors that determine lending decisions at Ekumfiman Rural Bank. In relation to benefit of the provision of credit, the study found out that loans ensure business expansion, help people better manage financial distress, payment of fees, enhance or diminish consumer and social welfare and lastly, help manage large debts. The study also analysed the factors leading to credit default among clients of Ekumfiman Rural Bank. These included customers' business failure, diversion of loans, loans for social purposes, inadequate monitoring, inadequate security, inadequate documentation, inadequate appraisal, staff influence, inadequate credit staff, staff attitude. Lastly, the study also assessed the areas and criteria for an appraisal done by rural banks before credit is given to customers. Also, areas such as the character of the client, credit utilization experience, the extent of involvement in the business, entrepreneurial quality, cash flow statement, repayment history, distribution channel, size and strength of the existing market were considered before credits are being advanced to customers. The study recommended that proper and adequate monitoring teams must be established to monitor what the customers use the loaned funds” for.