Institutional Financial Support and SMEs Growth. A Case Study on Selected SMEs in Ghana

Abstract

Governments in both developed and developing countries rely heavily on their SMEs for economic development and social justice, it is therefore not strange to see these governments and other organizations marshalling support in the form of finance to the course of these SMEs, since financial constraints have been cited as one of the major challenges of SMEs that undermines economic prosperity. Notably some SMEs in the developing countries might not be able to access finance from local banks at all, or face strongly unfavorable lending conditions, even more so following the recent financial crisis. Banks in developing countries are in turn hampered by the lack of lender information and regulatory support to engage in SME lending. This study as part of a thesis research (institutional support and SMEs Growth), seek to assess the effectiveness of government support programs in the area of SMEs finance on the growth of SMEs. The financial support were grouped into provision of Subsidies, Loans, and credit guarantees as against the level of each contribution to the SMEs growth was determined using a Covariance Based Method (CBM) specifically a Structural Equation Model (SEM). It was discernible from the study that, the variance in SME Growth is significantly attributable to Subsidies, Loans, and credit guarantees. Such that, Subsidies has greatest effect in explaining SME Growth than does Loans and guarantee. Also, the Loan explains greater effect on SME Growth compared to guarantee as arranged by the order of effect size.