Assessing Determinants of Financial Constraints on Small and Medium Enterprises in Kumasi Metropolis, Ghana

Francois Mahama; Etornam Kwame Kunu; Patience Ama Nyantakyiwaa Boahen; Albert Kweku Bediako

doi:doi:10.11648/j.jbed.20170204.11

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Assessing Determinants of Financial Constraints on Small and Medium Enterprises in Kumasi Metropolis, Ghana

Francois Mahama, Etornam Kwame Kunu, Patience Ama Nyantakyiwaa Boahen, Albert Kweku Bediako

Published in Journal of Business and Economic Development (Volume 2, Issue 4)

Received: 11 December 2016 Accepted: 27 May 2017 Published: 28 June 2017

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Abstract

This study seeks to determine the hitches of accessing financial institutional loans; determine the sources of financial assistance to SMEs apart from financial institutions and determine the determinants of financial constraint on SMEs in the Kumasi Metropolis, Ghana. A descriptive, cross-sectional survey was conducted among 300 purposively selected SME operators. Both descriptive and inferential statistics were computed during the analysis of the data using both SPSS and Microsoft Excel. Results show that the hitches they encountered are “high interest rates”, “lack of business registration”, “lack of collateral” and “poor or no business plan”. Also about 34.3% depend on personal savings, 32.7% of them depend on the firm profit and 21.3% of them also depend on assistance from family and friends whilst 11.7% of them also depend on trade credit as other sources of finance. Finally, the “Age of the firm”, “Professional and entrepreneurial experience”, “Firm ownership type”, “Performance of the firm”, and “High interest rate payments” were the determinants of financial constraints on SMEs. Therefore, SMEs should endeavor to formalize their business operations registration and pay appropriate taxes. Government should also create favourable environment and policies that will reduce the financial constraints on SMEs leading to success of entrepreneurship in the country.

Published in	Journal of Business and Economic Development (Volume 2, Issue 4)
DOI	10.11648/j.jbed.20170204.11
Page(s)	198-203
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2017. Published by Science Publishing Group

Keywords

SME, Determinant, Financial, Constraint

References

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[4]	Aryeetey, E. (2008). From Informal Finance to formal Finance in Sub-Saharan Africa: Lessons from Linkage Efforts, IMF Institute and the Joint Africa Institute. Paper presented at High-Level Seminar on African Finance for the 21st Century.
[5]	Beck, T., Demirgüç-Kunt, A., Laeven, L., & Maksimovic, V. (2006). The determinants of Financing obstacles. Journal of International Money and Finance, 25(6), 932-952.
[6]	Ayyagari, M., Beck, T., & Demirgüç-Kunt, A. (2007). Small and Medium Enterprises Across the Globe. Small Business Economics, vol. 29, p. 415.
[7]	Beck, T., Demirgüç-Kunt, A., & Maksimovic, V. (2005). Financial and legal constraints to growth: does size matter? Journal of Finance, vol. 60, pp. 137-177.
[8]	Lu, J., & Beamish, P. (2006). SME internationalization and performance: Growth vs. profitability. Journal of International Entrepreneurship, 4(1), 27-48.
[9]	Moreno, A. M., & Casillas, J. C. (2007). High-growth SMEs versus non-high-growth SMEs: A discriminant analysis. Entrepreneurship and Regional Development, 69-88.
[10]	Yongqiang, L., Armstrong, A., & Clarke, A. (2012). An instrument variable model of the impact of financing decisions on performance of small businesses in Australia’s Pre-global Financial Crisis. Journal of Modern Accounting and Auditing, 8(7), 1052-1065.
[11]	Storey, D. (1994). “Understanding the Small Business Sector”. London: Routledge.
[12]	Weston, J., & Copeland, T. (1998). “Managerial Finance”. New York: CBS College Publishing.
[13]	Van der Wijst, D. (1989). “Financial Structure in Small Business. Theory, Tests and Applications”, Lecture Notes in Economics and Mathematical Systems, Vol. 320. New York: Springer-Verlag.
[14]	Jordan, J., Lowe, J., & Taylor, P. (1998). “Strategy and Financial Policy in U.K. Small Firms”. Journal of Business Finance and Accounting, 25(1/2), pp. 1–27.
[15]	Michaelas, N., Chittenden, F., & Poutziouris, P. (1999). “ Financial Policy and Capital Structure Choice in U.K. SMEs: Empirical Evidence from Company Panel Data”. Small Business Economics, 12, 113-130.
[16]	López, G., & Aybar, A. (2000). “An Empirical Approach to the Financial Behaviour of Small and Medium Sized Companies”. Small Business Economics, 14, pp. 55-63.
[17]	Department of Trade and Industry. (2001). Small and Medium Enterprise (SME) – Definitions. Retrieved from http://www.dti.gov.uk/SME4/define.htm.
[18]	Kayanula, D., & Quartey, P. (2000). “The Policy Environment for Promoting Small and Medium-Sized Enterprises in Ghana and Malawi”. Finance and Development Research.

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APA Style

Francois Mahama, Etornam Kwame Kunu, Patience Ama Nyantakyiwaa Boahen, Albert Kweku Bediako. (2017). Assessing Determinants of Financial Constraints on Small and Medium Enterprises in Kumasi Metropolis, Ghana. Journal of Business and Economic Development, 2(4), 198-203. https://doi.org/10.11648/j.jbed.20170204.11

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ACS Style

Francois Mahama; Etornam Kwame Kunu; Patience Ama Nyantakyiwaa Boahen; Albert Kweku Bediako. Assessing Determinants of Financial Constraints on Small and Medium Enterprises in Kumasi Metropolis, Ghana. J. Bus. Econ. Dev. 2017, 2(4), 198-203. doi: 10.11648/j.jbed.20170204.11

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AMA Style

Francois Mahama, Etornam Kwame Kunu, Patience Ama Nyantakyiwaa Boahen, Albert Kweku Bediako. Assessing Determinants of Financial Constraints on Small and Medium Enterprises in Kumasi Metropolis, Ghana. J Bus Econ Dev. 2017;2(4):198-203. doi: 10.11648/j.jbed.20170204.11

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@article{10.11648/j.jbed.20170204.11,
  author = {Francois Mahama and Etornam Kwame Kunu and Patience Ama Nyantakyiwaa Boahen and Albert Kweku Bediako},
  title = {Assessing Determinants of Financial Constraints on Small and Medium Enterprises in Kumasi Metropolis, Ghana},
  journal = {Journal of Business and Economic Development},
  volume = {2},
  number = {4},
  pages = {198-203},
  doi = {10.11648/j.jbed.20170204.11},
  url = {https://doi.org/10.11648/j.jbed.20170204.11},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jbed.20170204.11},
  abstract = {This study seeks to determine the hitches of accessing financial institutional loans; determine the sources of financial assistance to SMEs apart from financial institutions and determine the determinants of financial constraint on SMEs in the Kumasi Metropolis, Ghana. A descriptive, cross-sectional survey was conducted among 300 purposively selected SME operators. Both descriptive and inferential statistics were computed during the analysis of the data using both SPSS and Microsoft Excel. Results show that the hitches they encountered are “high interest rates”, “lack of business registration”, “lack of collateral” and “poor or no business plan”. Also about 34.3% depend on personal savings, 32.7% of them depend on the firm profit and 21.3% of them also depend on assistance from family and friends whilst 11.7% of them also depend on trade credit as other sources of finance. Finally, the “Age of the firm”, “Professional and entrepreneurial experience”, “Firm ownership type”, “Performance of the firm”, and “High interest rate payments” were the determinants of financial constraints on SMEs. Therefore, SMEs should endeavor to formalize their business operations registration and pay appropriate taxes. Government should also create favourable environment and policies that will reduce the financial constraints on SMEs leading to success of entrepreneurship in the country.},
 year = {2017}
}

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TY  - JOUR
T1  - Assessing Determinants of Financial Constraints on Small and Medium Enterprises in Kumasi Metropolis, Ghana
AU  - Francois Mahama
AU  - Etornam Kwame Kunu
AU  - Patience Ama Nyantakyiwaa Boahen
AU  - Albert Kweku Bediako
Y1  - 2017/06/28
PY  - 2017
N1  - https://doi.org/10.11648/j.jbed.20170204.11
DO  - 10.11648/j.jbed.20170204.11
T2  - Journal of Business and Economic Development
JF  - Journal of Business and Economic Development
JO  - Journal of Business and Economic Development
SP  - 198
EP  - 203
PB  - Science Publishing Group
SN  - 2637-3874
UR  - https://doi.org/10.11648/j.jbed.20170204.11
AB  - This study seeks to determine the hitches of accessing financial institutional loans; determine the sources of financial assistance to SMEs apart from financial institutions and determine the determinants of financial constraint on SMEs in the Kumasi Metropolis, Ghana. A descriptive, cross-sectional survey was conducted among 300 purposively selected SME operators. Both descriptive and inferential statistics were computed during the analysis of the data using both SPSS and Microsoft Excel. Results show that the hitches they encountered are “high interest rates”, “lack of business registration”, “lack of collateral” and “poor or no business plan”. Also about 34.3% depend on personal savings, 32.7% of them depend on the firm profit and 21.3% of them also depend on assistance from family and friends whilst 11.7% of them also depend on trade credit as other sources of finance. Finally, the “Age of the firm”, “Professional and entrepreneurial experience”, “Firm ownership type”, “Performance of the firm”, and “High interest rate payments” were the determinants of financial constraints on SMEs. Therefore, SMEs should endeavor to formalize their business operations registration and pay appropriate taxes. Government should also create favourable environment and policies that will reduce the financial constraints on SMEs leading to success of entrepreneurship in the country.
VL  - 2
IS  - 4
ER  -

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Author Information

Francois Mahama

Department of Mathematics and Statistics, Ho Technical University, Ho, Ghana
Etornam Kwame Kunu

Department of Mathematics and Statistics, Ho Technical University, Ho, Ghana
Patience Ama Nyantakyiwaa Boahen

Registry Department, Takoradi Technical University, Takoradi, Ghana
Albert Kweku Bediako

Department of Logistics and Supply Chain Management, Ho Technical University, Ho, Ghana

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APA Style

Francois Mahama, Etornam Kwame Kunu, Patience Ama Nyantakyiwaa Boahen, Albert Kweku Bediako. (2017). Assessing Determinants of Financial Constraints on Small and Medium Enterprises in Kumasi Metropolis, Ghana. Journal of Business and Economic Development, 2(4), 198-203. https://doi.org/10.11648/j.jbed.20170204.11

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ACS Style

Francois Mahama; Etornam Kwame Kunu; Patience Ama Nyantakyiwaa Boahen; Albert Kweku Bediako. Assessing Determinants of Financial Constraints on Small and Medium Enterprises in Kumasi Metropolis, Ghana. J. Bus. Econ. Dev. 2017, 2(4), 198-203. doi: 10.11648/j.jbed.20170204.11

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AMA Style

Francois Mahama, Etornam Kwame Kunu, Patience Ama Nyantakyiwaa Boahen, Albert Kweku Bediako. Assessing Determinants of Financial Constraints on Small and Medium Enterprises in Kumasi Metropolis, Ghana. J Bus Econ Dev. 2017;2(4):198-203. doi: 10.11648/j.jbed.20170204.11

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@article{10.11648/j.jbed.20170204.11,
  author = {Francois Mahama and Etornam Kwame Kunu and Patience Ama Nyantakyiwaa Boahen and Albert Kweku Bediako},
  title = {Assessing Determinants of Financial Constraints on Small and Medium Enterprises in Kumasi Metropolis, Ghana},
  journal = {Journal of Business and Economic Development},
  volume = {2},
  number = {4},
  pages = {198-203},
  doi = {10.11648/j.jbed.20170204.11},
  url = {https://doi.org/10.11648/j.jbed.20170204.11},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jbed.20170204.11},
  abstract = {This study seeks to determine the hitches of accessing financial institutional loans; determine the sources of financial assistance to SMEs apart from financial institutions and determine the determinants of financial constraint on SMEs in the Kumasi Metropolis, Ghana. A descriptive, cross-sectional survey was conducted among 300 purposively selected SME operators. Both descriptive and inferential statistics were computed during the analysis of the data using both SPSS and Microsoft Excel. Results show that the hitches they encountered are “high interest rates”, “lack of business registration”, “lack of collateral” and “poor or no business plan”. Also about 34.3% depend on personal savings, 32.7% of them depend on the firm profit and 21.3% of them also depend on assistance from family and friends whilst 11.7% of them also depend on trade credit as other sources of finance. Finally, the “Age of the firm”, “Professional and entrepreneurial experience”, “Firm ownership type”, “Performance of the firm”, and “High interest rate payments” were the determinants of financial constraints on SMEs. Therefore, SMEs should endeavor to formalize their business operations registration and pay appropriate taxes. Government should also create favourable environment and policies that will reduce the financial constraints on SMEs leading to success of entrepreneurship in the country.},
 year = {2017}
}

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TY  - JOUR
T1  - Assessing Determinants of Financial Constraints on Small and Medium Enterprises in Kumasi Metropolis, Ghana
AU  - Francois Mahama
AU  - Etornam Kwame Kunu
AU  - Patience Ama Nyantakyiwaa Boahen
AU  - Albert Kweku Bediako
Y1  - 2017/06/28
PY  - 2017
N1  - https://doi.org/10.11648/j.jbed.20170204.11
DO  - 10.11648/j.jbed.20170204.11
T2  - Journal of Business and Economic Development
JF  - Journal of Business and Economic Development
JO  - Journal of Business and Economic Development
SP  - 198
EP  - 203
PB  - Science Publishing Group
SN  - 2637-3874
UR  - https://doi.org/10.11648/j.jbed.20170204.11
AB  - This study seeks to determine the hitches of accessing financial institutional loans; determine the sources of financial assistance to SMEs apart from financial institutions and determine the determinants of financial constraint on SMEs in the Kumasi Metropolis, Ghana. A descriptive, cross-sectional survey was conducted among 300 purposively selected SME operators. Both descriptive and inferential statistics were computed during the analysis of the data using both SPSS and Microsoft Excel. Results show that the hitches they encountered are “high interest rates”, “lack of business registration”, “lack of collateral” and “poor or no business plan”. Also about 34.3% depend on personal savings, 32.7% of them depend on the firm profit and 21.3% of them also depend on assistance from family and friends whilst 11.7% of them also depend on trade credit as other sources of finance. Finally, the “Age of the firm”, “Professional and entrepreneurial experience”, “Firm ownership type”, “Performance of the firm”, and “High interest rate payments” were the determinants of financial constraints on SMEs. Therefore, SMEs should endeavor to formalize their business operations registration and pay appropriate taxes. Government should also create favourable environment and policies that will reduce the financial constraints on SMEs leading to success of entrepreneurship in the country.
VL  - 2
IS  - 4
ER  -

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