Access to Versus Usage of External Finance by Micro Small and Medium Enterprises in the Kumasi Metropolis

Siaw Frimpong


The main aim of this study was to analyze access to and usage of external finance by micro, small and medium manufacturing enterprises (MSMMEs) in the Kumasi Metropolis. According to Beck, Demirgüç-Kunt and Honohan, (2009), access to finance refers to the possibility that individuals or enterprises would make use of financial services, including credit, deposit, payment, insurance and other risk management services. Access to finance should be distinguished from the actual use of financial services, because non-use of finance can be voluntary or involuntary. Voluntary non-users of financial services have access to but do not use financial services either because they have no need for those services or because they decided not to make use of such services due to cultural, religious or other reasons. Using a sample size of 361 micro, small and medium manufacturing enterprises in the Kumasi Metropolis, it was found that whereas 34.35 percent of respondents used external finance, 42.38 percent of respondents had access to external finance. Thus, access was broader than usage. Though access was reasonably high, a number of respondents who could not access external finance could not do so because of various reasons that prevented them from assessing external finance. Notable among them were high cost of finance, cumbersome application process, long time in securing external finance and collateral requirements. It is recommended that providers of external finance should create conditions that will encourage owners/managers of MSMEs to access external finance. These include reducing the cost of finance, simplifying the application process and relaxing the collateral requirements.

Keywords: access to finance, usage of finance, voluntary exclusion, involuntary exclusion, external finance, micro, small and medium manufacturing enterprises.


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