Bridging the SME Financing Gap in Ghana: The Role of Microfinance Institutions

Abstract

Financing Small and Medium-Scale Enterprises (SMEs) to achieve the desirable growth and expansion has been topical for governments, policymakers, non-governmental organizations (NGOs), financial and non-financial institutions. The recent upsurge in the interest of finding ways of bridging the financing gap faced by SMEs by these stakeholders have been necessitated by the enormous contributions of SMEs to the economic development and growth of countries in areas of job creation, GDP and entrepreneurial skill development. This research therefore sought to access the role of one of the stakeholders, microfinance institutions (MFIs) in helping to bridge the financing gap faced by SMEs in Ghana. The research established that there was indeed the existence of SME financing gap in the country as most of them were denied access to credit by commercial banks and other financial institutions. The research revealed that the operations of microfinance institutions (MFIs) are having positive impact on SMEs. The study also revealed some risk mitigation tools used by MFIs in granting loans to SMEs which included provision of collateral security in the form of land or any other valuable asset, business records, credit history among others. The research concluded with some recommendations on how the SME financing gap can further be bridged by MFIs and other stakeholders which included provision of support services to SMEs by MFIs such as training services in credit management as well as the need for MFIs to improve service delivery such as faster loan approval times.