Microfinancing and the Performance of Small and Medium Enterprises in Ghana

Microfinance institutions play a very important role in the creation and development of Small and Medium Enterprises (SMEs) worldwide. In recent years, many microfinance institutions have sprung up in Ghana but little empirical evidence exist on the relevant impact. This study investigates the nature of the services that microfinance institutions provide to SMEs in Ghana. Specifically, the study examines the effect of microfinancing on the income level of the SMEs, the effect on managerial competencies; and development of innovative products and services. Hypotheses were tested using multiple regression analysis to examine the impact of microfinancing on the performance of the SMEs. The study contributes to the discussion on the significant role microfinance institutions play in the development and productivity of SMEs, particularly in developing economies. 435 SMEs were randomly selected from 923 SMEs in the Eastern Region of Ghana. Questionnaires were combined with face-to-face interviews to collect and analyse data for the study. It was found out that some (45%) of the microfinance institutions in Ghana provide business management and development training to their clients in addition to the innovative loan packages. The results indicate that microfinancing of SMEs in Ghana does not only help to increase the income levels of the SMEs, but also helps in the improvement of the managerial competencies of the SMEs owners as well as the development of innovative products and services. However, most (55%) of the microfinance institutions only focus on giving out loans and do not provide any business development training to their clients. It is recommended that in addition to the provision of loan packages to the SMEs, microfinance institutions should effectively educate and equip their clients with the relevant entrepreneurial knowledge and skills.