The Importance of Commercial Banks to Small Scale Enterprises in Ghana

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The findings of this research would also benefit academic institutions teaching business management since it could serve as an important piece of reference.

Finally, the study also put forward some suggestions and recommendations that could help improve effective financing of SME’s by Commercial Banks in Ghana.

6. THE SCOPE OF THE STUDY

The area of study will be limited to Amba Gallery, Bafla Construction Ltd and (PLEASE GIVE A a 3rd company) and the Ghana Commercial Bank in Madina. The choice of scope of the study was informed by the large concentration of SMEs and commercial banks in the vicinity. Thus three SMEs, and Commercial bank were selected. The Ghana Commercial Bank was chosen because of the services it provides for a pool of SMEs within its operational coverage area.

7. Limitations of the study

The research team was challenged by the following; lack of enough time, lack of enough funds, and unwillingness on the part of some officials. On the issue of time factor, the time available affected our pace of research. That is, time available for the research work was relatively short since the research work had to run concurrently with academic work as well as office work. The lack funds also did not enable them cover a wider area. Finally, some official were not willing to provide certain pieces of information due to institutional secrecy.

8. ORGANIZATION OF THE STUDY

The project work will be divided into five chapters. In the first chapter, the following areas will be addressed; the background to the study, the statement of the problem, the significance of the study, and the objectives of the study. Other areas include the scope, limitations of the work and organization of the study.

The second chapter takes analyzes the literature of relevant authors on the impact of commercial banks on SMEs. This will include books, journals, newspapers, the Webb among others.

Chapter three will contain the methodology used. This will include; the research design, the scope and target population, the sampling procedures, the data collection instruments, administrative procedures and the data analysis.

The chapter four will be the presentation and discussions of the data. And the fifth chapter will contain the conclusions and recommendations.

CHAPTER TWO

LITERATURE REVIEW

2.1. Introduction

In this chapter the research team explored the conceptual definition and importance of SMEs and Commercial banks as well as the respective roles and importance. Secondly, the team critically examined the services provided by the Commercial banks to SMEs. In addition, an empirical analysis was also provided on the positive impact of the relationship between the commercial banks and SMEs. Finally, an assessment of the constraints faced by SMEs in their bid to improve and remain in operations was also done.

2.1.1. Conceptual Definition of SMEs

Many and diverse definitions have been attributed to these terms by several authors. In fact, there is no watertight definition of SMEs as it varies among scholars. However, the classification can be based on the firm’s assets, number of employees, or annual sales. First, according to the International Finance Corporation, SMEs can be defined as firms with less than three hundred (300) employees and total assets less than US$15 million. In the view of Kasser, (2000), in smaller and developing economies such as Ghana, SMEs are usually defined as firms with less than twenty (20) employees and much lower total value assets in the range of US $ 5 million and US 10 million.

In Ghana, statistics from the Statistical Service defines SMEs as those employing twenty-nine workers or fewer. Again the National Board for Small Scale Enterprises (NBSSI), the apex body of SMEs in Ghana, defines SMEs as enterprises which employ not more than nine workers with investment plant and machinery, excluding land and building not exceeding US$100.000.

Furthermore, a study conducted by the Oxford University in collaboration with the Economics Department of the University of Ghana, in 1992 used different classifications to describe SMEs. These include Micro consisting of 1-4 workers, Small consisting of 5-29 workers, Medium consisting of 30-99 and Large consisting of 100 and above.

According to Sheikh, (2004) Small and Medium Enterprises (SMEs) constitute the backbone of many developing economies around the world. They not only provide employment and therefore income opportunities to a large number of people, but are also at the forefront of technological innovation and export diversification. It is in this view that Christen, et al (2004) contend that in formulating of an integrated strategy to fight poverty, unemployment especially in the developing countries such as Ghana, small scale enterprises constitute a vital area. According to them providing entrepreneurship for the setting up of SMEs will lead to the exploitation of local raw resources and the redistribution of income. Hence the promotion of SMEs in Ghana can constitute one of the main options to alleviating poverty and unemployment. This is because the sector has the capacity not only to absorb labor and create additional jobs, but in addition provide a broad base of productive employment

2.1.2. Conceptual Definition of Commercial Banks.

Extensive work has been done by several authors on the meaning of commercial banks. For instance, Agyei-Mensah, B.K. (2010), commercial bank is a financial intermediary which collects credit from lenders in the form of deposits and lends in the form of loans. According to him a commercial bank holds deposits for individuals and businesses in the form of checking and savings accounts and certificates of deposits of varying maturities.

In the view of Driffill, J. et al (2003), the term commercial bank came about as a way to distinguish it from an investment banks. For them, the primary difference between a commercial bank and its counterpart is that a commercial bank earns revenue by issuing primary loans from its pool of deposits while an investment bank brings debt and equity offerings to market for a fee. Among its assets, including loans, a commercial bank holds a portfolio of other securities to generate proprietary income.

Abor, J. (200), discussed the relationship between SMEs and the Commercial Bank. He argued that funding of SMEs is an imperative