CHAPTER ONE BACKGROUND OF THE STUDY Introduction

This first chapter of this research work will discuss the background to the study, problem statement, research aim and objectives, research questions and significance of the study. The chapter again will detail how the study will be organized.

     Background of the Study

A growing body of investigations and research on entrepreneurship and their sources of financing have emphasized the importance of credit and other financial streams to the growth and sustenance of Small and Medium scale Enterprises (hereafter termed as SMEs), (Ahinful, 2012; Abor & Biekpe 2007; Abor & Biekpe, 2006; Osei-Assibey, 2013). Capital for entrepreneurial activities serves as the catalyst for promoting small scale businesses. This is because, as start-up businesses require credit for implementing their business ideas, already existing firms that needs expansion also require capital for investment and growth. Thus far, credit serves as the beacon and life blood of businesses, the world all over, as capital is needed essentially for all the various facets of business operations like, remuneration, acquiring business licenses, setting up the business entity and other operation cost, amongst others. Improved access to credit facilities enables SMEs to “build their productive capacity and also makes them competitive in both the local and the global market” (UNCTAD, 2002, pg. 18). Studies on SMEs indicates that, they are one of the major contributors to national economic development in most countries of which Ghana is no exception (Agbozo et al, 2012; Kayanula and Quartey, 2000).

This according to Gambold (2008), is particularly so as SMEs continuous to serve as the drive for employment creation in most countries, particularly developing countries. In relation to this, UNIDO (1999) affirmed, globally the contribution of SMEs to employment creation is overwhelming as they make up almost 90% of businesses and account for between 50-60% employment rates.

In the case of Ghana, as in the records of the Registrar -General, 90% of businesses registered  are SMEs, making up a whopping 92% of businesses in Ghana and about 80% of businesses in the private sector of the country (Registrar General as cited in Agbozo, 2012; Abor & Biekpe, 2007; Abor & Beikpe, 2006). Despite the seeming growth rate of SMEs in Ghana, a search in the literature on SME financing has indicated that, the principal setback to SMEs growth in Ghana, Africa and even most parts of other continents have been financing (Banfo & Asiedu-Appiah, 2012; Cham, 2011; Adotei 2012; Ackah & Vuvor, 2011; Fuseini, 2015; Beck and Cull, 2014; Osei-Assibey, 2014). For instance, in Ghana, in a study of 133 SMEs, “60% identified access to credit as the major bane to their businesses. Similarly, the study also indicates that medium firms have 69.1% chance of success in accessing credit, compared to 45% for small enterprises and 33.7% for microenterprises”, Aryeetey et al. (1994, p. 79). Again, a study conducted by the World Bank on 10,000 firms in 1999 and 2000 in over 80 countries as indicated by Beck and Demirgüç-Kunt (2005), suggest that most small firms are 39% likely to mention financing as a severe obstacle to growth relative to medium-sized firms (36%) and large firms (32%).

In examination of the likely causal factors to the difficulty of SMEs in accessing finances, Alhassan and Sakara (2014), Stephanou & Rodriguez (2008), Abor & Biekpe (2007), indicated that, SMEs are met with various unfavourable demands and conditionalities like high interest, maturity, collateral and lending procedures, business plans, personal guarantors demanded by the

bank, cumbersome loan application process and unfavourable repayment period. This situation makes financing a difficult task to achieve which eventually forces most SMEs to depend largely on family, friends and ‘susu’ lenders to finance their operations (Nkuah et al., 2013; Beck and Demirgüç-Kunt, 2005); The continuous lack of access to credit by SMEs have impacted negatively on their effectiveness and efficiency in the Ghanaian entrepreneurial drive. A gender composition analysis of entrepreneurship and entrepreneurs, in the Ghanaian community, and as indicated by the Ghana Statistical Service, estimated that, of the 8 million labor force as at the year 2002, the informal sector employed the largest of the people which is around 60 and 65 percent, with its attendant dominancy of SMEs. According to the Ghana Statistical Service, about 85 percent of the Ghanaian female labour force is employed in the private sector mostly dominated by SMEs; (Ghana Statistical Service, 2002). Again, in 2015, women accounted for 54.9% of the 90% of workers in the informal sector dominated by SMEs indicating a highly dominated female based informal sector with SMEs been its major characteristics (Ghana Statistical Service, 2015) with women in SMEs not been exception to the various issues, favorable or unfavorable surrounding the management affairs of SMEs. This thus brings to question, how Ghanaian women led SMEs are being financed as regards the enabling and challenging factors.

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