Micro Credit and Promotion of Small and Medium Enterprises in Informal Sector of Ghana: Lessons from Experience

Kwaku D Kessey

Asian Economic and Financial Review, 2014, vol. 4, issue 6, 768-780

Abstract: SMEs in developing countries play significant role in the economic activities of those nations. SMEs provide income for many low income households especially in the informal sector. Notwithstanding their contributions, SME entrepreneurs face serious financial challenges which have led to poverty among them. For SMEs to overcome their financial challenges, Micro Finance Institutions have emerged with the view to providing micro credit and other financial products for SMEs. .Also, Public micro credit was given to SMEs as subsidized loans. Unfortunately, that programme has collapsed. To revive public support for SMEs and low income households the government of Ghana introduced in 1993, Act 328, which established Non Bank Financial Institutions (NBFIs) to support SMEs and low income households. Donors, also, supported that programme, in 2003, under the Ghana Poverty Reduction Strategy (GPRS). Generally, SME activities in Ghana are dominated by women who constitute 75 per cent of total entrepreneurs. Notwithstanding their low earnings, SMEs have to repay borrowed funds with high interest of 3 per cent per month or 34 per cent per annum. The low income and high interest rate have led to high default rate among SMEs borrowers. The study showed that among SME entrepreneurs who repay credit on monthly basis there is a default rate of 2. 8 per cent where as those who repay annually have default rate of 6.5 per cent. It would be necessary for Micro Finance Institutions to extend other products such business advisory products and social products to SMEs to raise their productivity and improve upon their performance. An observation is that only Micro Credit would not take SMEs out of poverty in developing countries.

Keywords: Micro; Credit; Enterprise; Default; Policy; Donor; Entrepreneur financial; Interest. (search for similar items in EconPapers)
Date: 2014
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