Access to Finance Constraint and SMEs Functioning in Ghana

Well-functioning small and medium enterprises (SMEs) are a fundamental part of the economic fabric in developing countries, and play a crucial role in contributing to GDP growth, reducing unemployment as well as furthering innovation and prosperity. Unfortunately, they are strongly restricted in accessing the capital that they require to grow, expand and function, with nearly half of SMEs in developing countries rating access to finance as a major constraint. This paper examines the link between access to finance and SMEs functioning in Ghana. The study resorts to the current World Bank Enterprise Survey data released for Ghana (2013); and using chi-square, logit and ordered logit analysis, it finds out that access to credit is a major constraint of SMEs in Ghana with implications for their functioning and growth. The study recommends, therefore, that governments should create the enabling environment for SMEs to function effectively by providing financing avenues and improving access to financing.