FINANCING SME’s IN THE BRONG AHAFO REGION: THE ROLE OF STANBIC BANK GHANA LIMITED

ABSTRACT
The development of SMEs is seen as accelerating the achievement of wider economic and socio-economic objectives, including poverty alleviation. Considering the importance of SMEs in promoting growth and dynamism in transition economies, it is critical to analyze the willingness of the banking sector to lend money to SMEs and the degree to which financial intermediaries have facilitated their development.The main objective of the study is to evaluate the extent of financing of SMEs within the Brong-Ahafo Region of Ghana, taking cognizance of the role and contributions of Stanbic Bank Ghana Limited. This study was a non-experimental, one which determined the perceived level of involvement of Stanbic Bank in the financing of SMEs in Brong Ahafo Region. The researcher gathered extensive data from the owners and managers of SMEs who does business with Stanbic Bank, and also staffs of the Stanbic Bank (Business Banking/SME Banking Unit) Sunyani. The sources of materials for the study were both primary and secondary, with a sample size 50. Primary data were collected by the use of structured questionnaires.The study identified five main financial services rendered to SMEs, as in Overdraft, Trade Credit, SME Banking, Cash Management, and Business Advice. It was discovered that the financial services mostly offered to SME managers and owners by Stanbic Bank, Sunyani Branch, were Business Advice and SME Banking are offered.The research indicated that the relationship between the bankers and their respective SMEs is generally very good. Such relationships should be carried on to promote an excellent free flow of transactions between commercial banks and SME’s. It was recommended that banks should create a separate department for the SMEs; the establishment of a common fund by the government for SMEs; there should be a national policy on SMEs by the government in respect of funding.


CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
Cook and Nixson (2000) stressed that the development of SMEs is seen as accelerating the achievement of wider economic and socio-economic objectives, including poverty alleviation. In accordance with an OECD (1997) report, SMEs produce about 25% of OECD exports and 35% of Asia’s exports. SMEs represent over 90% of private business and contribute to more than 50% of employment and of GDP in most African countries (UNIDO, 1999). Small enterprises in Ghana are said to be a characteristic feature of the production landscape and have been noted to provide about 85% of manufacturing employment of Ghana (Steel and Webster, 1991; Aryeetey, 2001). SMEs are also believed to contribute about 70% to Ghana’s GDP and account for about 92% of businesses in Ghana. SMEs therefore have a crucial role to play in stimulating growth, generating employment and contributing to poverty alleviation, given their economic weight in developing countries.
Small – Scale Enterprise in Ghana have always found it difficult to mobilize adequate financial resources both in terms of initial capital investment and funds needed for the running of the enterprises.  Since Ghana’s economy is not very buoyant, capacity for capital formation is quite limited.  Capital investment mainly comes from personal savings from salaries and wages earned by working for government or private companies; gifts from wealthy relatives and savings made with thrift societies and the ever–popular “susu” collectors, it is very rare to find these entrepreneurs getting their capital from Development Banks, Commercial Bank and other private financial institutions. Previously, the practice of funding economic activity in transition economies had been mostly directed by the central authorities.  It is only after the liberalization process that the banking sector has been able to choose its borrowers and channel a larger share of its funding to companies of different types. In order to make market based loans, commercial banks were required to measure default risk, which includes firm-level measures of profitability, growth opportunities, and available collateral, as well as country-level risk, such as the efficacy of bankruptcy laws and enforcement (Thomi&Yankson, 1985).
Considering the importance of SMEs in promoting growth and dynamism in transition economies, it is critical to analyze the willingness of the banking sector to lend money to SMEs and the degree to which financial intermediaries have facilitated their development. Nonetheless, small-scale industries do play an important role in the economy of Ghana.  Small-scale enterprises are a good source of private employment.  They provide a useful income supplement as a second job (Dawkwa, 2012).
It is generally accepted that the broad goal of SME policy is to accelerate economic growth and in so doing alleviate poverty. While there are many developmental constraints on the SME sector, bridging the financing gap between SMEs and larger enterprises is considered critical to economic growth. To assess the effectiveness of schemes for promoting SME finance, an effective SME financing scheme should provide opportunities for SMEs to meet their financing needs and must maintain the profitability of the enterprise, or on the eventual sale of investments or collection of loans that would provide cash for later investments (NBSSI, 1994).
When SME sector does not have access to external funds for investment, the capacity to raise investment per worker, and thereby improve productivity and wages, is seriously impaired. The difficulties that SMEs experience can stem from several sources. The domestic financial market may contain an incomplete range of financial products and services. The lack of appropriate financing mechanisms could stem from a variety of reasons, such as regulatory rigidities or gaps in the legal framework. Moreover, development economists increasingly accept the proposition that, due to monitoring difficulties such as Principal/agent problems (e.g. related to the shareholder-manager relationship) and asymmetric information, suppliers of finance may rationally choose to offer an array of financial services that leaves significant numbers of potential borrowers without access to credit. Such credit rationing is said to occur if: i) among loan applicants who appear to be identical, some receive credit while others do not; or ii) there are identifiable groups in the population that are unable to obtain credit at any price (OECD, 2006). 
To evaluate the efficiency of schemes for promoting SME finance, an effectual SME financing scheme should provide opportunities for SMEs to meet their financing needs and must maintain the profitability of the enterprise, or on the eventual sale of investments or collection of loans that would provide cash for later investments. It is worth noting that among the resources needed for the production of goods and services, there are many things that set capital (finance) apart from the other inputs. Fixed Assets such as machinery and equipment’s, land and buildings, just to mention a few, provide benefits that derive from their physical characteristics. Unfortunately, the same thing cannot be said about the financial resources used to run a business. The acquisition of financial resources leads to contractual obligations. Small enterprises in developing countries typically, lack access to finance as an important constraint on their operations. This lack of access is often associated with financial policies and bank practices that make it hard for banks to cover the high costs and risks involved in lending to small firms. The study therefore looks at the challenges of financing SMEs in Brong Ahafo Region (Abaka, 1992).

1.2 Statement of the Problem
In most jurisdictions, commercial banks as a group are the main source of external finance for SMEs. Therefore, it is essential that the banking system be prepared to extend credit to the SMEs sector. However, there are number of rigidities of a macroeconomic, institutional and regulatory nature that may bias the entire banking system against lending to SMEs (OECD, 2006).  According to Boapeah (1993) “Developing Small-Scale Industries in Rural Regions: business behavior and appropriate promotion strategies with reference to Ahanta West District of Ghana”, SMEs are entangled with myriad problems mitigating their growth in Ghana; notable among them are, lack of access to credit, competition from large-scale industries, the over liberalization of the economy and difficulty in accessing advisory services and research findings. 
Parker et al. (1995) indicated that credit constraints pertaining to working capital and raw materials as a major concern in the industry. Aryeetey et al. (1994) reported that 38% of the SMEs surveyed mention credit as a constraint.  This stems from the fact that SMEs have limited access to capital markets, locally and internationally, in part because of the perception of higher risk, informational barriers, and the higher costs of intermediation for smaller firms.  As a result, SMEs often cannot obtain long-term finance in the form of debt and equity mostly from the formal financial institutions, particularly the commercial banks. Banks are unwillingly to support operations of SMEs due to varied problems.  A common problem is the unwillingness of banks to increase loan funding without an increase in the security given; which the SME owners who most of the time are entrepreneurs and sole proprietors may be unable to provide. A particular problem of uncertainty relates to businesses with a low asset base. These are companies without substantial tangible assets which cannot be used as security for lenders. About 90% of small firms are refused loans when applied for from the formal financial intermediaries, due to inability to fulfill conditions such as collateral requirement (Bigsten et al., 1999).
The statement of the problem is that due to banks unwillingness to increase loan funding without an increase in the security given; which the SME owners who most of the time are entrepreneurs and sole proprietors may be unable to provide; thereby leading to stagnation of growth and certain instances unable to expand to enjoy economies of scale necessary to serve their potential of being an engine of national growth and are thus collapsing. Hence, Osei et al (1993) wrote in their journal that most SMEs are resorting to sources of finance such as retained earnings, personal savings, borrowing from friends and relatives, supplier credit, borrowing from moneylenders at very high rates. It is therefore opportune to assess the financing challenges being faced by SMEs in the Brong Ahafo Region.

1.3 Objectives of the Study
The main purpose of the study is to evaluate the challenges and the extent of financing of SMEs within the Brong Ahafo Region (Sunyani), taking cognizance of the role and contributions of Stanbic BankGhana Limited.  
The reasons for the study are:
To determine the contributions of Stanbic Bank in the financing of SME’s in the Brong Ahafo Region.
To identify the factors that influences the financing of SMEs by Stanbic Bank Ghana Limited.
To identify the barriers that Stanbic Bank Ghana Limited face in the financing of SMEs.
To provide policy recommended to minimizes this constraints faced by SMEs.

1.4 Research questions
In a means to attain the above stated objectives the study seek to answer the following questions:
What contribution does Stanbic Bank play in financing SME’s in Brong – Ahafo Region?
What factors influence the financing of SMEs by Stanbic Bank?
What barriers do banks (Stanbic Bank) face in the financing of SMEs?
What are the various ways by which the existing financial structures can extend credit facilities to small-scale enterprises Brong Ahafo Region?

1.5 Significance of the Study
The study is expected to impact on formal financial intermediaries to SMEs, especially the commercial banks, management of the SME industry, academia and the general public.The outcome of this study is to augment the existing store of knowledge on the subject and serve as a catalyst for further research on innovative ways of financing SME to gain the requisite competitive advantage for the overall academic well-being of the nation. It is useful as a source of reference to researchers, academics, students, policy makers, marketing professionals and other stakeholders interested in the financing challenges been faced by SME’s.
The study would help management and workers of Stanbic and other similar organizations in the banking industry to identify the current financing challenges of SMEs so as to meet their needs and expectations. The findings and results also provides  a  more  reliable  scientific  measure  and  perspective  for describing  and  evaluating  the  level  of  efficiency of the new system and its effects on corporate performance as well as customer satisfaction. It also serves as a source of information that brings to the fore the switching intentions of Stanbic’s current and potential SME customers. Therefore providing the empirical  support for  management  strategic decisions in several critical areas of their operations, and above all, provide a justifiably valid and reliable guide to designing  workable  service delivery improvement strategies for  creating and  delivering  customer  value,  achieving  customer  satisfaction  and  loyalty,  building  long-term  mutually  beneficial  relationship  with  profitable  SME customers  to  achieve  sustainable business growth in Ghana (Dawkwa, 2012).
To policy makers  like government agencies such as  the  Ministry  of Trade and Industry, Venture Capital Fund and the Bank of Ghana,  the  findings  and  results  of  the  study provides  insights  and  a  more  reliable  guide  for  monitoring  the  financing challenges of SMEs.  It serves as  a  benchmark  for  measuring  partly  their  respective  policy  goals and  objectives.  It serves as a tool for the Bank of Ghana and the Venture Capital Fund among other things to facilitate  the availability of  the needed finances for banks to provide quality service to SME consumers and to ensure that  their  systems  achieve  the  highest  level  of  efficiency  in  the provision  of  financing;  ensuring  that  the bank  are  responsive  to SMEs, and ensure that their interest are protected ( Teal, 2002).
This research is to bring to bear modern trends of SME financing for cost effectiveness in the chain and supply management industry; ensuring that the SME customer satisfaction is attained. It would also help SME managers/owners to implement the necessary structures to curtail the high incidence of bad costs through obsolesce and deterioration of stocks. To  stakeholders  like investors,  shareholders,  employees,  pressure  groups,  etc.,  the  study  provides  information  for  suggesting improvement in service  delivery of  the respective banks in Ghana.

1.6 Scope of the Study
The study shall cover the SMEs of the Ghanaian economy, included food processing, bakery, wood products, furniture works, metal works, and auto and machinery works. The study was conducted within the framework of evaluating challenges of SME financing banks within the Brong Ahafo Region, specifically looking at Stanbic Bank, Sunyani Branch. It is a case study approach of one particular bank (Stanbic Bank) and did not cover other formal financial intermediaries (commercial banks) to reflect the entire industry approach to financing SMEs. Hence, the result was not generalized but its findings would be placed in the relevant context of the individual company studied.

1.7 Organization of the Study
This study is in five chapters. Chapter one is the general introduction. It looks at the background to the study, the objectives of the study and the statement of the problem. It also briefly looks at the research questions, scope and limitations and organization of the study. Chapter two is the literature review. Literature will reviewed according to the research questions used in the study. The conceptual framework for the study is also outlined.  Chapter three is the methodology. It explains the research design. It also gives details about the population, sample and sampling procedures used in the study. It explains the research instruments, methods of data collection, data analysis plan. Chapter four is the data presentation, analysis and discussion. Chapter five presents the summary, conclusions and recommendations for the study.

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Item Type: Ghanaian Project Material  |  Attribute: 62 pages  |  Chapters: 1-5
Format: MS Word  |  Price: GH110 ($20)  |  Delivery: Within 30Mins.
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