Assessment of Demand-Side Factors of SMEs and External Financing by Rural Banks in Ghana

Abstract

SMEs' socio-economic roles played in the private sector have become very significant in literature and global debates. They hold a very significant position in global statistics and national histories. Yet, their full potentials, growth and development are limited by financial constraints. Hence, this study examines the demand-side factors in financing SMEs by Rural Banks in Ho, Ghana. Qualitative (descriptive) approach coupled with survey strategy was used. A sample size of eighty (80) was used. The study explored global perspective of literature in application to Ghanaian cases. The findings highlight the financing-gaps between the demand-sides (SMEs) and Rural Banks, that both sides have reciprocal constraints. Demand side factors such as cost of finance, legal issues, management skills, market, collateral, business plan, technology, financial/business tract records and information asymmetry are common constraints identified. The study recognises the significance of finance in growth and development of SMEs in Ghana. There is critical need for the policy makers to focus attention on SME sector through private sector development schemes to efficiently create enabling business environment for growth and development of SMEs. Therefore, findings of this study will provide relevant insights on financing SMEs to the key players of the sector.